etwork?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. francine: taking a hike, the fed does raise rates despite political pressures from president trump. markets revolt, wanting more dovishness from the fed. oil.r market for european equities sink. facebook shares fall again. the social network faces growing pressure over privacy protection. welcome to "surveillance," i'm francine lacqua in london. these are your markets.

the stoxx 600 down. it is all about the fed and what we heard from jay powell yesterday. markets open for little bit more dovishness from jay powell. we did hear him saying there are probably two rate rises in 2019. we are seeing a little bit of a move towards some risk off. this is what i'm looking at euro-dollar. then i'm looking at swedish krona after we heard from riksbank saying they were raising rates by 25 basis points. they are still at -0.25%. coming up, we speak with the governor of the riksbank. this is as the bank raised rates. we were looking at swedish krona. don't miss that interview. let's get straight to the first word news. >> hi, fran. kuroda says that is no problem as the bank of japan turns negative.

maintaining the 10-year yield target at about 0%. oil prices tumbling in the year ahead. economists see japan's inflation falling toward zero. the u.s. senate has voted emphatically in favor of a stopgap funding bill to head off it funding -- a government shutdown. showdown with president trump over his order will funding. the bill now goes to the u.s. house, were leaders of both parties are signaling support. a court in tokyo as requested -- rejected a request to suspend former nissan chairman carlos ghosn's jail time. prosecutors have the right to appeal. n has been held since

november 19 for understating his income. he denies the allegation. a senior member of prime minister theresa may's cabinet says there is a plausible case for a second brexit referendum. she said while it is something she is not seeking, if parliament is unable to agree on a brexit deal, it may be the way to break the deadlock. it is the first time in member of the cabinet has openly countenanced the idea. sweden's krona has climbed after the riksbank raised its rate. says the need for a highly expansionary monetary policy has decreased slightly. the swedish central bank says inflation expectations have become established and that the next hike will probably come in the second half of 2019. bloomberg television will be speaking to the president of riksbank at 11:00 a.m. london time. flights remain suspended at

london gatwick amid reports of two drones flying over the area. the u.k. capital's second busiest airport was shutdown overnight, but briefly reopened before shutting again. no times set for resumption of flights. global news 24 hours per day and on tictoc on twitter. this is bloomberg. fran? francine: yes, thank you so much. breaking news for brent. this is what we are hearing. this is the move we are getting on brent. let's bring it up. it is breaking news as we speak. this is what i'm looking at. if you look at the bearishness of the oil market, this is what we are seeing. brent crude falling to $55 per barrel since the first time since september 2017. we are seeing a little bit of a risk off mood everywhere. bti. we have three things in bear territory.

we also have japanese equities and we had financial stocks in the u.s. stocks slumping after the fed hiked rates yesterday. the worst drop after an fomc announcement since 2011. jay powell signaled policymakers see little threat from the recent turmoil in financial markets and changed the outlook for 2019 to two hikes from previously three. >> we know that the economy may not be as kind to our forecasts next year as it has been this year. history attests that unforeseen events a buffet the economy and call for more than a slight change. the additional tightening of financial conditions we have seen of the last couple months, along with signs of weaker growth abroad, have also led us to markdown growth and inflation projections a bit. inflation has remained a touch below 2%. i do think that gives the committee the ability to be patient in moving forward. as i mentioned, there is

significant uncertainty about the path and the ultimate destination of any further rate increases. political considerations play no role whatsoever in our discussions or decisions about monetary policy. we are always going to be focused on the mission that congress has given us. policy decisions are not on a preset course and will change as the incoming data materially changes the data outlook. francine: joining us now is the head of global aggregate fixed income -- miles, think of are coming on. powell talks. they were expecting more dovishness. what did you take away? >> it was a dovish hike in the sense they lowered the dots. more importantly, he said they will be responsive to the data. they are approaching the lower end of the neutral range and if the data turns out softer, they may raise interest rates. the reason the market was disappointed with there was not a sense of urgency.

he said that financial conditions have tightened. path the lower path of fed funds has been incorporated. there is not the sense of urgency they need to do something extra. they did not discuss slowing the pace of balance sheet reduction for example. we have had a volatile time and risk markets. there is the potential for a late rally going into year end. he did not deliver an early christmas present and i think that is what a lot of price action is about. he did not bring out something that could give people relief and say the fed is going to be easing policy. i don't think the markets reaction should be extrapolated into the first quarter of next year. francine: they are not really worried about it policy mistake. they kind of -- he disappointed them -- let we bring you over to my chart, which is basically implicit in the response. powell's belief in the move to reduce balance sheets was not going to roil the markets. is that they are worried about? myles: the federal the markets?

francine: well, the markets, he is not thinking about them. myles: that is one thing he could have talked about. if they were talking about the reducing the rates of runoff, that would have been a relief to the markets that something could happen in the next quarter of next year. what he basically said to markets is if you get weaker economic data or if you get more financial market volatility in the first quarter of next year, then we may do something else, but for the time being we can be patient. i think that is what your quote said and we can wait and watch and see how the data unfolds. francine: is that fair? the markets are disappointed. myles: the markets are disappointed in you and up with a circle going on where disappointing markets is likely to lead to greater volatility and weaker data which will bring the fed out. it is easy with hindsight, the fed should not have been more dovish. they should have talked about a wider range of options they could deploy. the reason they did not is because you don't see it in u.s.

macro data yet, a need to beer jim. -- a need to be urgent. you see greater signs particularly in europe. it is going to be about financial market volatility. during the christmas period, markets are always very liquid, you always get lots of volatility. this is not the time to be dumping a risk assets. i think it is the opposite. francine: these are the dots. do you believe they can hike twice next year? myles: it is a contingent question. because if the data of their forecasts are right, they can. it is possible with their forecasts. i'm not expecting them in this current market environment to be raising rates. you need to have a higher stock market. francine: there was one question we are asking on our market slides, which is really a question of the year, as we enter 2019. how long until u.s. stocks actually enter a bear market? myles: i think we are entering the buying opportunity actually.

i think investors should be slowly increasing their allocation to risk assets. francine: an outlier call? myles: yeah. i look back over the course of this year and there are a number of factors that have caused risk assets to underperform. they are beginning to reverse. valuations are more attractive. markets are pricing a very weak macroeconomic environment and many of the factors that have driven that are beginning to fade. i think investors should be increasing risk allocation and probably also increasing their interest rate allocation as well. because part of the reason why risk assets recover is central banks move to a more dovish stance. francine: so you don't think there is going to be a correction? myles: i don't think so. francine: thank you so much. myles bradshaw stays with us. in the meantime, the russian president begins his annual press conference. it is the long one. we will keep on top of it and bring you breaking news that we have. later today on bloomberg, the

former new york fed president joins "bloomberg markets" for an exclusive interview following the final fomc meeting of 2018. don't miss that interview at 7:30 p.m. u.k. time. this is bloomberg. ♪

economics, finance, politics, this is "bloomberg surveillance." i'm francine lacqua. let's get straight to the bloomberg business flash. >> brian moynihan, the ceo of bank of america, is loosening the reins on the investment bankers at the firm. he said the bank is sending out dealmakers in search of more transactions in the u.s.

it is seeking to regain market share after cutting back on risk. >> we got a little too careful. the team is building that back out. we added 25 or so investment bankers. we are adding fast. we lost some share in midsize client m&a deals. one company has lost a quarter of its market value after the luxury tv maker cut an earlier forecast of growth. my a changeeen hit to a more direct distribution model. that is the bloomberg business flash. francine: thank you so much. let's get back to the markets. stocks in europe are lower and in japan, the topic hasn't a bear market territory after a 21% decline.

fund hasros' namesake reduced most of its macro wagers , moving away from the strategy that made him a fortune and inspired a generation of traders. they have been cutting the program over the past year due to fewer perceived opportunities. still with us or speaking to us early this week, stan druckenmiller highlighted how hard it was to make money in the current macro environment. all bynot surprised at the hedge funds not doing well, because, to be frank, a kind of predicted it five or six years ago, but certainly this environment is aggravating it. francine: so, where should you put your money in 2019? myles bradshaw is still with us. we will talk a little bit about the u.s. economy. overall, where do you want to be positioned? myles: i'm looking at fixed income. i'm looking to be overweight credit assets.

if you look back at 2018, credit underperformed. most financial assets underperformed in 2018. if you think about why that is, some of it is macro fundamentals. china come europe growth has been weaker. some of it is quantitative tightening, with balance sheet runoff, with higher interest rates. technicals.s market we have had large outflows from a lot of bond funds, specifically from october, with a lot of subordinated bond funds. there is a lot of pressure in switzerland that has large outflows. if we look forward, what do we see? valuations are a lot cheaper. european sub financials are now at levels in what we saw in the lows of 2016. the macro side, you've got the situation with italy, where the commission has de-escalated. you got the situation with u.s. and china, where trade relations are de-escalating. you've got central banks that

are now talking about downside economic risk and are not yet pumping more sort of alcohol into the punch bowl, butter thinking about whether the punch bowl needs filling up again. you have fiscal policy that has become more stimulative in china, italy, france. valuations are more attractive. many of the headwinds the market has been facing are fading and that leads to tailwinds. francine: what is one thing you don't want to own in 2019? that you seething that is overvalued or frosty? myles: i think the german bond market. we have not really owned that for quite some time. the valuations are so unattractive. you look at the two-year note, the five-year note, you are looking at negative yields. the upside is basically the kerry. we're not expecting any significant rate cuts from the ecb. francine: talking about negative yields, over $7 trillion of bonds provide negative yields.

when does that change? myles: i think a lot of that is about the ecb and the bank of japan and their policy and the normalization of the ecb and bank of japan interest rates. the nextts are pricing ecb hike in 2020. my guess is more likely it happens a bit earlier than that. just like we saw in sweden. the need to start normalizing. it cannot happen unless you get some macro stability in terms of the pmi data stabilizing and in terms of financial market stability. i think the first thing is risk assets start to perform and that enables central banks to then go back to normalization. francine: thank you so much. myles bradshaw stays with us. this is what your markets are doing. we did see a little bit of tumbling, i would say, in markets across the board. let's bring it up for you. if you see what european and asian equities have been doing over the last couple hours, they are down. investors expressing concern about a lack of relief from the federal reserve's monetary

tightening. they wanted more dovishness. dollar is weaker. it seems it is risk off. oil slumping below $48 in new york. yen climbing to its strongest since mid-october. this is bloomberg. ♪

francine: this is "bloomberg surveillance," i'm francine lacqua in london. a sea of red. this is what markets in europe

are looking like. the selloff began yesterday afternoon when the fed chair downplayed the applications of market volatility and his commitment to continue with reversing quantitative easing gathering pace in the later hours of asia and europe. opposition of the the stoxx 600 members, more than two thirds are down. i'm looking at japanese shares sliding into a bear market as well. nine months after a scandal erupted over facebook's use of personal data, the issue was under scrutiny again. the new york times reported that the social network cut special deals with companies to share data. for example, facebook gave spotify and netflix the ability to read, write, and delete personal messages while amazon, sony, and microsoft could get users' n.l. addresses through friends. the first lawsuit has been filed in d.c. against the social network after sharing data with camera jenna lytic a -- cambridge analytica.

, first of all, welcome to the program. it seems we have privacy concerns over facebook on most every day. does it go back or is it recent stuff? >> it is history really. the issue yesterday that really hit the shares was the lawsuit from the district of columbia. i think the new york times story was fascinating, but really kind of reflected previous practices and perhaps facebook has not addressed all of them, but they have been doing work to address those issues. it is what the lawsuit means for tighter regulation around facebook and other companies like that. this is a company that has really created value by its use of personal information to improve the product and to be attractive to advertisers. that is constrained, that potentially is a break in their growth going forward. francine: it feels like from the outside that facebook executives just don't have a grip on this,

just on have a handle. is that right? matthew: i think historically you can understand that. it is an enormous company. 2 billion active users. they have pushed a lot of different avenues to drive growth. they are now just starting to do an internal audit on what they have opened themselves up to historically. when you look at some of their responses, they have been very careful and measured about what they say. and i think they do still have a different interpretation of what permission means from the consumer and what the end consumer thinks permission is. francine: what will change? are they going to be regulated? could they be over-regulated? will facebook, with policies on their own? matthew: we are already seeing regulation in the eu which they have to abide by and they are facing a potential billion-dollar fine because of that. there is no regulation in the u.s. like that, but lawmakers are going down that route increasingly. i think it is more likely than

not we will see some type of regulation in the u.s. at some point in the next year or two, which will kind of forced them to bring their behavior into line. francine: thank you, matthew. stays with us. in the meantime, this is what your markets are doing. stocks still tumbling in europe. a u.k. cabinet member sees a possible route to a second brexit referendum. we will discuss that next. we also have the boe, they are kind of in a bind because they are witting for brexit results and all options are on the table at the moment. we are seeing a selloff in your markets. that is what we heard from jay powell. we discuss markets next. this is bloomberg. ♪

francine: welcome to our weekly brexit show. let's get straight to the brexit bulletin during -- bulletin.

has givenheresa may herself another four weeks to save pre-brexit deal. announced the deal of finally be put to a vote in the week of january 14. the u.k. government has agreed to implement plans for a no deal brexit. it includes putting three poi -- 3500 troops on standby. the cabinet also agreed to issue -- the u.k. has published its post-immigration plan. it ends freedom of movement from the eu. the home secretary said the aim was to bring net migration down to sustainable levels. proposedules in the salary threshold was described as a sucker punch by the confederation of british industry lobby groups. 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. bloomberg. francine: thank you so much. we're just getting breaking news out of the u.k. this is for retail sales for the month of november rising 1.4%. november retail sales rising 1.4%. i'm trying to figure out what the hit and miss were in terms of data. we did have weaker data in terms of construction. it is a really good sign these retail sales are rising. with more on all of this, we will get back to our guest. 1.2689.the pound bank of america chairman and chief executive says his company will make brexit work, but nobody should expect -- activities. he says the bank's preparations have been hugely perspective. money andwe spent my

i know we have been a lot of work. businesses we have approved and we have been able to operate with a u.k. business and europe business may have been approved. closer to understanding exactly what the rules of operation are. we have to prepare for the worst. we're preparing on march 29 that the whole world changes and there will be a lot of guidance. we hope it is better than that -- won't be a lot of guidance. we hope it is better than that. working with clients and customers to make sure that date is not a disruption in a life, but it will be because the rules are not clear. it is a very tough political debate. we're trying to do our best around it and we will make it work.

it is just not a lot of -- nobody is going to get a new product, new service, new activity for anything going on with brexit. at worst, they will lose some stuff. it will take a while for to shake through the system. >> we have seen some of the effects of my british economy, but what about europe? compare it with some of the things going on with italy. 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 a have been a some of the others. is it is still a positive number because it took them so long to get back positive. there's just a lot of demographic issues. the good news also is oil prices coming down. the world wasn't depending on , that economy growing

faster than the rest of the world or something. as long as it stays within a range, it's fine, but it is affected by all of those factors and more. i think they are continuing to work on the issues and work on the budget. you saw some progress there. it is hard work when you really have a low growth environment. the pie grow slower, doesn't get big enough for everybody to do what they want to do. everything is just a little bit harder. it is easier if you have faster growth. the reality is that because of the size of the economy, the growth is going to be ok. francine: that was the bank of america chairman speaking exclusively to bloomberg. k -- secretary sees a new cause for a brexit referendum.

while stressing it is not something she is seeking, she told itv that if parliament is unable to agree on a brexit, package it could be a way to break the deadlock. today, the u.k. central bank is expected to leave rates and raised -- unchanged. joining us now is the director of the institute of government and miles is still with us. first of all, what can the bank of england really do? it seems that now it is in the political hands of parliament in the government. so.the outlook is contingent on the brexit outcome . the best thing to do is do as little as possible for now and wait to see what the brexit outcome is. they can monitor the data coming in, but that is not a good guide to what the economy will look like in 2019 if we have a hard brexit or revocation of article 50. i think that if i best strategy

is to outline the key risks and be patient and ready. as brian was talking about, have contingency plans in place. francine: what does it mean for the them of possibilities at this moment? are the three options or six? deal,bably three, no theresa may's deal, which was a looking so good when she first put it together. of thisssible to all talk about no deal and preparations for no deal from the u.k. and eu will actually build up and the support for that. options,re are other which mps are going to try to get on the tape let some point. those range from a second referendum to mps having an outside chance of squeezing in their favorite deal, whether it is norway or canada. i think those are less likely. francine: what are the chances of a second referendum and with the people not feel cheated? a very good question

and woman of the reasons mps and cabinet members have not been pushing for, saying even if remain won, that doesn't go back to life before the first referendum. a lot of mps in parliament are very angry in feeling that they were cheated. people say ahand, second referendum would actually present the deal as we know it at the moment to a population that has also moved on slightly in two years. there are arguments on both sides. i think the answer to your question is small but growing. miles: i think the markets are pricing the soft brexit, the theresa may deal. i think everyone has got there on probability tree or different scenarios. i think the problem is that we are no further along than we were before she presented the vote to parliament. i personally remain with the view that the most likely outcome is indeed the soft brexit.

the political path to that requires us to price in a harder brexit. the markets are not pricing that and i wonder if that is what we need in order to get people behind theresa may's deal, is greater volatility in u.k. asset prices that clearly signals there are real risks. the hard brexit years can argue that it is all just project fear. francine: what is theresa may's strategy right now? by delaying it, you can say she is playing to project fear because you're closer to the deadline, but it is also high risk. bronwen: what she has said is say, i need more time to go back to europe. whether or not they were playing tactic forcibly saying, they thought they help her in a sense by saying you're not going to get much from us. she will put that, at some point to parliament in the near. it is really a question of whether mps are going to change their mind between a couple of

weeks ago when they were not so keen at all and whether they can really stomach this issue of the compromises over the irish border and britain not having an exit from the backstop. francine: if there is a hard brexit or no deal brexit, does the boe hike? so.s: i don't think i think the priority will be about pumping liquidity into the banking system to ensure there is no issues about solvency of any banks. i think the focus will be about supporting growth because you will have a big growth hit. in my mind, what you see is the yield curve steepening because this obviously raises longer-term issues about both supply and inflation in the u.k. francine:. thank you both i will show in the next hour one of my favorite charts. you can see for a september hike hike, theer probability has fallen quite sharply.

you.en and miles, thank later today on bloomberg, the former new york fed president joins bloomberg markets for an exclusive interview following final meeting of 2018. coming up next, the business of retail, u.k. retailers are getting battered up as brexit looms. luxury rand about how they are navigating uncertainty. this is bloomberg. ♪

francine: welcome back. it is our weekly brexit show.

let's have a look your markets because they're actually quite important. tumbling. that tumble is deepening after a lot of investors out there and market participants are worried the fed will make a mistake. chair.d from the he has still raced rates despite the president asking him otherwise. now, there is a little bit of where he is not taking market volatility seriously enough. now, something to maybe a little bit more fun, although it has been a bad year european retailers, it got worse this week. the sector plummeted to lows after a selloff from asos. they're on track for the biggest decline in 10 years after brexit and other political uncertainties hit markets. the company sells a variety of

high-end, brand the most of the revenue is made on one. howard are they about brexit? we're still to be joined by the chief executive of matches's fashion.com. some pretty encouraging sales data out of the u.k. for the month of november. -- aboute aboutmatc matches's. who are you selling to? international business. we selection brands to men and women. 82% of our business is outside of the u.k.. we are quite healthy in terms of geographic mix. our number one market right now is the u.s., interestingly enough. of --quite broad in terms francine: you have buyers that get the stock and choose. how much do you worry about your

supply chain? your warehouses, is there one big one in london? ulric: yes. we have one global warehouse. our customers are around 35-37 years old. the interesting bit is that the under generation is the highest growth dynamic in our business. that is really interesting, specifically coming from asia. we are extremely well-equipped. it has been quite a long time that we are doing quite a significant part of our business outside of the u.k.. when it comes to brexit, i think we're suffering the potential impact of whatever's going to come because we are locking visibility. build ah is that we customs warehouse. end francine: say there is a no deal brexit, what does that mean for your ability to receive the clothes and ship

them out? ulric: we have done our homework. we got ourselves ready for any kind of situation because the government is not giving us some kind of visibility, are very small visibility. what we have done for about two or three years is create the customs warehouse, which basically enables us, depending on where we are going to ship the end product. impact on aing the potential hard brexit. that is already built into the business. again, since 82%-80 5% of our business is done outside of the u.k., we feel we are quite well-equipped. francine: is the same for currency changes? today, if you look at our intake isre biggest basically dollar and euros. naturally edgee

to any potential impact of currencies. francine: markets are falling today and there is concern about china next year, concern about the world economy. does that impact the people that buy from you? ulric: i think we are a very good time for many reasons. if you look at the personal good market, it is a market of 260 billion euros. overall, the entire market has grown by 6% a year. online has grown by 62%. it is still only 10% of penetration, meaning that 90% is done in physical stores. companies for me 5% of electric good markets will be done online by 2025. i think we're in a very good place at the right time and we are seeing the customer behavior shifting, always wanting to see ist ithe new designer

doing. what we have seen lately and i think you can see it from the what thembers, is that customer wants today is a different kind of experience. it is an experience were basically they find new things every day. the storytelling behind everything we do becomes very important. francine: thank you so much. we will get back to ulric. coming up, after a first rate rise in seven years, we also speak to the governor of the riksbank. this is bloomberg. ♪

francine: economics, finance, politics. this is "bloomberg surveillance." we are seeing a lot of right on your markets, slumped to stick a lot of the time to look at the stoxx dropping in europe and asia. this is as investors are more and more concerned about a lack of relief from the fed's monetary tightening.

thefed chair talked about markets are basically downplayed the implications of market volatility. that worried the markets that there could be a policy mistake ahead. will keep an manner markets. in the meantime, with more on what is moving, here is the sebastian salek. sebastian: let's take a look at one of the big casualties of the day. warning that sales won't grow this year, they have specific distribution issues. they say one quarter of their market value getting wiped off in one day. it is difficult not to read this into the wider consumer story. plenty ofhers, casualties. you have sanctions that the u.s. says it is planning to lift. pressure on all aluminum producers.

no relief for risk assets. that is weighing down on all of the miners. also want to talk about euro next, the exchange, they have a downgrade. stocksne of the few rising. francine: thank you so much. fromu are traveling today flightsr airport, all are suspended after multiple sightings of illegal drones yesterday. we are hearing the main runway is still closed. let's go back to luxury and e-commerce. we're talking a little bit about brexit. your concerns. you are talking me about your demographics. how has luxury and online luxury changed in the last 10 years? do people return things more? ulric: it has changed in a very

good way. if you look at it in 2012, only 10% was done online. i think it is one of the -- that waited until the last minute to embrace digital. it is a completely different world than what it is. morenk the customer was than ready to go online and by the luxury items. i think it is more about the industry who actually took a bit of time to open up. now, everybody sees the opportunity of growth. i think we are again in the perfect timing in really capturing that consumer behavior. francine: you must have so many more competitors. just in the last year, there's this company and this company. ulric: we not necessarily seeing it this way. i think it is not a there's massive competition at all. when you look at it, there is very few players. the reality is that our point of

difference is very different. we are known by our customers to have a very strong point of view on fashion. we spend a lot of time looking after emerging designers. also a more established designers, we're going to select specific collections. this is really what the customer wants. francine: what do you wish you could do better? is a delivery time? it is alwaysk coping with the consumer demand, have a to embrace our storytelling. and it is to be at the forefront of a customer that is constantly evolving. it is a positive challenge, but a good one. francine: thank you so much for joining us. we continue in the next hour. york.oining me out of new we will be talking to the swedish central bank governor. this is after the first rate rise in sweden in four years.

we are also looking at europe markets. if you look at, the markets, they are down this has to do with jay powell. we will have a full roundup of the markets. this is bloomberg. ♪

francine: taking a hike. the fed does raise rates despite

political pressure from president trump. markets revolve, wanting more dovishness from the fed. japanese stocks, u.s. banks and oil are now in a bear market. european equities sink and facebook shares fall again.the social network growing pressure from washington overprotection. this is "bloomberg surveillance." welcome to the program. lisa: thank you so much. i tried to blow my bowtie collection, but it does palin comparison to tom's. francine: the bowtie is on holiday. he has a very well-deserved day off.we will go through your markets and all of the politics in talk about some of the concerns the boe will have because of brexit. lisa: of course a big disappointment as well. francine: let's get straight to the bloomberg first word news in new york city. : a potential bombshell

from north korea over nuclear weapons. kim jong-un's regime says it will never unilaterally give up its nuclear arsenal unless the u.s. withdraws its nuclear weapons first. pyongyang accusing the u.s. of distorting an agreement between n the two sides. the bill goes to the house. that is a republican and democratic leaders have signaled support. jerome powell disappointing investors who wanted more dovishness. he suggested he will be more cautious about raising interest rates next year. he spoke after fed policymakers boosted rates for the fourth time in 2018. equity markets taking following remarks. some analysts blamed the selloff on disappointed that the fed didn't signal it was done

raising rates. london's gatwick airport was closed for six hours because the reports of two drones flying over the field. unmanned aerial vehicles are operatingbanned from near airfield because of safety threats to airplanes. the bank of america ceo admitting his invested bankers are too cautious. outaid be away is sending market makers. -- dealmakers. careful. a little too the team is building that back out with its middle-market investment bankers. people covering deeper in the franchise. where we look at ourselves, we lost some share in midsize clients and in a deals. we shouldn't do that -- m&a deals, we shouldn't do that. viviana: 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. this is bloomberg. francine: thank you so much.

this is our markets. there is quite a lot of going on today. if you look at european stocks, there down quite significantly. stocks are dropping as traders are worried the fed might do a policy mistake. yesterday, we heard from the fed chair. that is when the selloff began. against his commitment to keep reversing qe, also meant that a couple of people were disappointed in the markets. it kind of snowball into something bigger. and looking at yen, 11172. also euro. 10.2697.rona at lisa: you can see the stoxx and futures down. now, we're entering the worst potential quarter for the european stock index since 2011. two-year yields rising to the

highest level since 2015 after that hike, which did surprise some. oil continuing its plunging lower. 10 year yields just up a basis point, trying to get a little bit of perhaps a higher yield after yesterday selloff. francine: this is my bloomberg terminal.every morning, i show up a little bit tired. hillary clark says, this is really something you need to show janet henry. it is a great chart, my favorite chart. basically, this is what the automatic pilot looks like. implicit in this response was powell's belief yesterday that the study move to mop up liquidity was not going to roll in markets. this is the rate of change in the balance sheet. i know there are no standard deviations, but tom is not here. lisa: honestly, that is taught of the day because people are focusing on the balance sheet. the other thing is the yield curve in the u.s.

we are seeing it flatten to new posts crisis lows. chartto tell you, this markedly tracks the past of the balance sheet you are just showing. definitely a row concern what this means for banks which depend on widening yield curve in order to get some returns. also, what this says about growth, people thinking this is quite a possibly a policy error. francine: but the back to what the chairman signaled. his signaled policymakers see little threat from the recent financial markets. he also did change the outlook from two hikes to three. >> we know 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 from the policy projections released today.

signs of weaker growth have also let us to mark down growth and inflation projections a bit. inflation has also remained a touch below 2%. i do think that gives the committee the ability to be patient in moving forward. as i mentioned, there is a significant uncertainty about both the path and ultimate destination of any further rate increases. political considerations have played no role in our discussions or decisions about monetary policy. we are always going to be focused on the mission that congress has given us. our policy decisions are not and a preset course and will change. let's talk more about the markets. joining us now is janet henry and mark. overall, what are the markets freaking out about? mark: the biggest driver has

been the collapse in oil markets. it is that impulse which has made them change the rate expectations. it is that was has caused the bond market to change so much. also the fact that we have not seen the ultimate capitulation point in oil. that has been the biggest driver, human though the fed has been the latest catalyst. francine: is it right that the fed has been the catalyst? should we worry about a fed policy mistake in 2019? janet: we always worry about a fed policy mistake. on our favorite chart, bond yields are going down. we are all getting closer to the end of the expansion. after a decade-long expansion and a fed tightening cycle, it would not be unheard of to go into some kind of a recession. it doesn't have to be the great recession, but some kind of contraction.

i think we heard it there, the fed is good to be patient. and they have given themselves of -- if they should need it. this a little be monitoring global and financial market developments. if they move to an extent that it alters our economic outlook, then we will adjust policy accordingly. i think we knew they were going to raise rates last night. they did, perhaps it was a quite as that is because they kept in the word gradual and i didn't signal they were going to hold this wreckage of the balance sheet. they have not said that policy for the year ahead. they still think that unemployment is going to as down. i don't think it made a policy error yet. sa: there was a material shift the markets when fed chair powell said that he didn't think the rolloff of the balance sheet was having an unusual or outside

affect on the markets.do you agree with that ? janet: it is always very difficult to isolate one individual factor. i think this is where we are with the oil price and other factors as well. obviously, we had a common/it from the indian central bank governor. affect, butuantity some of the pressures coming through in emerging markets was because of what the policy was doing to the u.s. dollar and tightening financial conditions in emerging markets. i don't think you can isolate any one individual factor. our own belief is that they are shrinking the balance sheet of a glacial pace. they want it to be happening in the background on autopilot to some degree. point9, if they reach a where by shrinking the balance sheet means there isn't sufficient supply of reserves

for the banking system, given these changes and structural demands, if they think it is impact, than ive think they would be prepared to change course. sa: there are a lot of analysts this morning saying that this was a policy error, in particular with respect to the balance sheet. what are you hearing when you talk about oil.that is kind of a reflection on lower growth expectations going forward? mark: absolutely. inflation expectations are falling rapidly. you can see that in the breakevens. there's been a complete collapse partially because we'll markets are down 35%. and portly for the fed, that does affect the big number over the core number. think one of the big problems this week's even though the fed delivered roughly what the market expected, there were a lot of people on the back foot. there is a whole section of

market that i've been losing money for the last number of weeks. this is their last chance to get a little bit of relief on year-end. because it is christmas period, normally a capitulation. might just be 24 or 48 hours. it might last until the new year. lisa: thank you so much. us. and janet staying with coming up, william dudley, a former new york fed president. from new york and london, this is bloomberg.

viviana: this is "bloomberg surveillance." the maker of budweiser getting into the marijuana business. there is a great three research partnership with a canadian company. spend 100reportedly million dollars to look into cannabis infused beverages. of luxury tv's and stereos cutting its revenue forecast saying sales will basically stop me in the full fiscal year. earlier, the company had forecasted growth of more than 10%. pinterest reportedly getting ready for an ipo that could take place as soon as april. the social media site could be valued at more than 12 billion. revenue is expected to be a 50% this year to more than 700 million. alanine: -- lisa:

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 the u.s. government for almost 20 years. i've never seen, a never saw anything remotely close to what we are observing today. ishink the economic outlook being significantly affected by the politics. lisa: that was alan greenspan speaking. do you agree that the political scenario right now, both in the u.s. and elsewhere is dramatically affecting the economy? i think all of the policies that have come through of the last year, economically and politically have had an impact on the u.s. economy and the global economy. at the moment, clearly, we are still seeing the impact of the fiscal stimulus. it is going to be coming through in that is still going to be

helping to consumers.the big one globally is the trade tensions . that is really going to be the q1 over the course of the next few months. we have seen the negative impact on investment spending globally from the trade concerns. it is really only over the last month or two we us in the direct impact. you can break it down literally byproduct. demand.ct on supply and i think that will become more evident as we begin 2019, even while we are in this trade truce backdrop. francine: and also want to go back to oil and the price of oil. what ishat is making oil markets anxious. janet:, i think over the last few years demand growth have been relatively steady. fromig swings in prices

2014 to 2018 were all about changes in supply. that is why you saw some real highs and lows over that period. this year, some of the concerns have been on the demand side. it has been emerging market demand, chinese demand has weekend, global demand for oil has weekend and of a question for 2019 is, will supply fall more in line with demand? it has played a big role in inflation expectations. also, i wouldn't rule out the possibility that for some degree oil prices in some parts of the world,'s oil is up 50 rather than 85 or 90, that is a bit of a tailwind. the bank of england will have to acknowledge that today that inflation is likely to be coming down more quickly than expected. francine: if there is a recession in 2019, whatever it is, as at the markets or economists that see it first? what indicators are you looking at to give you a sense of what is troubling?

janet: often, asset market declines are a symptom that a recession is on its way, as indeed is the inverted yield curve. we all know that typically with the u.s. yield curve inverts, a recession follows. then, you often get the equity market declines. interestingly enough, you often don't see it in oil first. i think if we look at 2000 or 2008 or even 1990, it was a rise in the oil price that helped tip the economy into a recession, in some developed economies. , this time around to some degree it may help stabilize some growth and some countries outside the u.s.. lisa: i want to go back to the idea of politics because certain ceos, in particular the one of fedex is blaming politics for some of the unexpected declines they are seeing in a business. take a look at what he had to say yesterday on his earnings

when he reported lower expectations for growth. most of the issues we are dealing with our and is by bad political choices. his the shares plunged the most since 2008 in response to those earnings. do you think that is a legitimate gripe or do you think this is just an excuse? think if the policies that are undertaken by governments that will impact the outlook for the corporate sector are often any more extreme raid, often they are the first to feel it. companies pass them on to u.s. consumers, maybe they still hope to, but we will see whether they have any pricing power, they will feel it in a margin squeeze.if margins are coming under pressure ,, they're not going to be investing particularly if they think the economic outlook is going to be deteriorating.

francine: thank you so much. janet stays with us. coming up next door later, the riksbank governor holds a press conference after the central bank's rate decision after the first rise in sweden in seven years.we also speak with the governor of the riksbank and about 40 minutes. . this is bloomberg ♪

francine: this is "bloomberg surveillance." tom keene off today. nine-month over a scandal erupte over facebookd's use of the anancial -- personal data, first lawsuit has been issued. joining us now is matthew of bloomberg intelligence. it seems that there are various lawsuits, there are various things we should worry about. ? have they fixed the problem can maybe sure there is no new questions over data privacy or is it still ongoing? matthew: i don't think we can be sure and i don't think facebook is sure. they have been doing a lot of work over the last few years to troll through previous agreements and practices they had. there could be more to uncover. the new york times yesterday kind of revealed these backdoor

agreements they had with a number of large tech companies. i think only time will tell. lisa: to me, one of the big liabilities is the drip of the news that keeps coming out, even after the hearings in washington, d.c. and other disclosures. can expect some kind of management change in response to the failure on their part to be fully transparent? matthew: i think it is certainly possible. obviously, they are resisting that, but i think pressure is building. i think that could put more pressure from shareholders for more substantial change. some people have suggested of some kindhange of structure. that is certainly possible. you really see damages from this lawsuit or contagion, they wanted to something very

substantial to get investor comfort back on the table. francine: thank you so much. henry. get back to janet coming up next, howard ward . we will ask him about some of the things we're looking at in markets. if you look at the equities, especially in europe, they are really following asia lower. are following up with janet and mark about what exactly is up there -- out there. are conversation on markets next. this is bloomberg. ♪

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efforts to hold a second summit with kim jong un . he said they will not remove their nuclear arsenal unless the u.s. takes its nuclear weapons out of the region. . e two sides agreed president trump said he has beaten the islamic state in syria and is pulling out american troops as promise. critics say he has handed a victory to the u.s. enemies and iran and russia will wrap up their victory in the syrian war. n court, norme nissan chairman won't have his jail sentence extended.

you may remember the only way elite cuban players could sign with american teams was to depebt and then make their way to u.s. soil. powered by more than 2700 journalsts and analysts in 120 countries. this is bloomberg. brian e spoke with moynihan about china's growth slowdown. trade tensions rising. have a listen. >> it depends on the clients. they couldn't wait to find out what happened and would it resolve and if they could they started moving the production of good out of china. they are very commodity-oriented things. they can't just pass for the price. you see that cost some money without any real benefit to it because you're going to sell that piece of clothing for $20,

you can't really raise the price. you have to work to move it to keep it from going up in price. that has been disrupted. this could cause economies to slow down is disruptive in people's minds. some of these things have to fall in n place. mexico and canada fell in place. now we have to get the deal approved so it stays in place. we have to make progress on china but it is hard. that's the thing people forget. trying to work with china, those are much harder issues than just a question of if tariffs and kind of equating certain types of transfer pricing and things like that why it is so hard is because they go to the heart of competitiveness of both countries and what they are up to. in talking about china hutch of this is the trade tension and how much is the chinese economy?

how vulnerable is the chinese economy? >> in china they are vow slowing down and they are doing stimulus to speed it back up. , y continue to bring people urban working production and all of that has been the goal. there is no mystery about this at all. it slowed down a little bit. i think it affects europe more than the united states because the linkage is there. you're seeing the effects on asian economies. traditionally they moved fairly quickly and we'll see this week, they are doing a lot of work. you're seeing them start to make some of those movements. but it has slowed down. >> what is the risk that actual global growth will slow down because of china? it has generated such a disproportion of global growth. if this slows down a percent or

two, takes a lot to have global growth. how can that reflect back in the united states? >> you have to look at china. it could make a difference in a $12 billion or $13 billion economy. i think the track record has keeping the deprothe around 6.5%. europe is more tied to it than the united states and that's why people are talking about being worried about that. remember, their core prediction for most people, the market, the amp blue chip economist is for worldwide growth to slow down a little bit. that has been in the predictions. there is no surprise there. by the way, the u.s. is going to slow down a little bit francine: that was bank of america chief executive brian moynihan. there is a lot of ways looking at the trade concerns. does it hurt the g.d.p. in china or does it hurt the u.s. more

and when does this all end? >> it hurts them both at the moment. it is actually hurting u.s. exports more than chinese exports. chinese exports to the u.s. are still growing. there is an export tax rebates this china. they have had the advantage of the r.m.v. they have a more diversified trade base. they diversified their imports. soybeans from brazil, oil from russia. imports from countries has accelerates meanwhile u.s. exports to china have fallen by about 10%. but it is hurting elements of both economies. global asset prices and investment and tensions and it is hurting growth both in those two partners but ghobally. lisa: how much can we inflate discussions of trade from intellectual property negotiations? that seems to be hairier issue sher. >> absolutely.

it is very >> hard. especially thinking can we actually get a deal in 2019? when the first situation, you know, became a growing concern back in the end of 2016, a lot of it was about the bilateral trade imbalance and the tariffs and perhaps hoping that china and others would refuse the tariffs and buy more u.s. imports. this is a big question for 2019. the intellectual property protections. in the last couple of years china has actually issued more patents than any other country in the world. but it is a very contentious issue as is the technology . not just for europe but for europe and others as well. it is going to occupy a lot of the trade organization's time over the next couple of years. such big contentious issues.

the idea that they are going can be resolved in the 90-day truce would probably be overly optimistic going into 2019. lisa: that seems to be how people are feeling. i want to ask how much is what we're seeing as far as the slowdown in china having to do with trade and how much having to do with the fact that the economy is slowing and faces a lot of headwinds going forward? >> i think the chinese economy was always going to slow. it started the year on a very, very strong footing. you have to remember initially china was trying to slow the economy down. infrastructure spending was strong and they wanted it to slow. they wanted to continue the forms of deleveraging the economy and then it became clear was that is perhaps the economy had slowed too much. that's why you have already seen this reversal of policies, but

not in a way that we tiply expect china to ease policy. you think of 2012, it was mass infrastructure spending, it is not going to be like that this time. feed, more f a drip fine tuning. we saw that with selecting funding for private sector and as 2019 progresses, we should see evidence of that feedinging through. more tax cuts and that should help to stabilize growth but don't expect china to single handedly lift the global economy as arguably it did on both of those occasions. francine: what does a policy mistake from china look like? >> it is easier to talk about a policy error from the fed than it is from china. china is well aware of some of the long-term challenges it faces as it transitions away

towards more domesticically led growth which it has been achieving in recent years and it needs to continue the deleveraging of the shadow banking system. they also only have a tolerance for a certain level of growth slowdown. it is balancing the needs of the domestic economy against needs of becoming a less credit dependent economy. a lot of it is increasingly about self-deficiency as well. lisa: janet henry of hsbc staying with us. coming up, global chief economist at 7:30 a.m. in new york and 12:30 p.m. in london. this is bloomberg. ♪

francine: we have a couple of reporters on stand by listening to the annual press conference to have russian president. you have to have a lot of stamina because it lasts many hours. these are the headlines we have had so far. usualfully this kind of event it is a prechristmas holiday press conference and mr. putin has in the past gone four to five hours. now the president of russia saying the sanctions are a result of russia growing power and influence. he is talking as i imagine about the sanctions the u.s. congress has imposed. he said he plans to detain

foreigners and swap them. simmering tensions between the u.s., canada and chinese authorities. really field questions from a number of issues. geopolitics. he was asked about the jamal khashoggi caze. he said the case was only a pretext to attack russia. you see a belligerent and pretty sure of himself president of russia. we'll continue monitoring that press conference for you. meantime, let's talk about brexit. a plausible case for a new brexit referendum. a second vote is possible while stressing it is not something she is seeing. if parliamentment is unable to bring a brexit package, it may be unable to break the deadlock. the u.k. central bank is expected to leave rates unchange

and the uncertainty looms large. bloomberg's news director for europe joins us and janet henry of hsbc is still with us. first to the politics of things. what are we looking at now. what is the chance of a no deal and a second referendum and a theresa may deal being put through parliament? >> all of these options are on the table. it to a few weeks for play out. the first cabinet minister floating this possibility. at is a useful -- to the brexiteer in may's party, her argument has been it is this eal or no brecksette at all. perhaps maybe this is part of

the strategy over the next few weeks to bring the rest of her m.p.'s on site. 90 or so are holding firm saying they are not going to let it through the commons. francine: we understand the vote will be the week of january 14. that doesn't give much time until march 29. this side like high risk strategy. does it increase the risk of the possibility of a no deal? >> i think it increases. they really want the avoid no deal. keep kicking the can down the road. you get to a point where we have so close and people are frightened and people are releasing reports of the terrible impact of no deal, stepping up the planning for it. parliament has been asserting itself saying there is no majority in particle for no deal. there are tools in their disposal to actually try and stop that. maybe that is a hollow threat.

mrs. may is going to be trying to call everyone's bluff. lisa: it seems like the market is expecting a rising challenge to get a deal done yet theresa may has proven difficult to defeat. take a listen to her yesterday in parliament. >> they said they would vote no confidence and then they said hey would and then it is not effective. i know it is christmas season and -- a confidence vote. oh, yes, he is. oh, no, he isn't. lisa: another wonderful aside from the parliament and trees ea may. are people not counting theresa may in enough because she has just proven to be like a cartoon character. you can smack her over the head and she keeps getting up and keeps walking on. >> we have talked about her being on thin ice, how shaky the administration is and she keeps

ongoing. she made a joke about pantomime. a form of british theater which is a nice way of describing that whole process and it is slightly baffling perhaps to many foreigner looking on. she had a serious point in there as well. really one of her big strengths that she was making yesterday is yes, her own government is in slight disarray over this but so is the opposition. her option is really the most credible option out there. francine: we have a great child support. it basically looks at the market as pricing in terms of a hike. we have a september 2019 hike. we have a november 19 hike. that's also going down. what are the options for the bank of england in the next couple of months? >> in the next couple of months their hands are tied. they are not going to do anything on the policy front.

they have a lot of news to digest about the real economy. we talked about the impact of oil on inflations and actual inflation. the look in the near term is going to be lower. hey know growth is slowed. they have not yet incorporated the impact of the budget. so actually if we are going to be in a world where we do get a deal r a second vote or it is an extension, actually we could still be working with this policy with the promise of more to come. that could alter their outlook. what the bank of england wants to do, they are pricing out any likelihood of rate rises. they want to get back to this world. they hope to be able to raise rates once per year over the next couple of years. francine: thank you so much. we'll see whether he continues saying whether the bank of

england is ready for any brexit outcome. janet henry of hsbc staying with us. the bank of england will announce a rate decision at 12:00 p.m. london time. 7:00 a.m. in new york. we'll bring you that straight. this is bloomberg. ♪

francine: this is bloomberg "surveillance." lisa and francine from london and new york. let's get back to what janet henry was telling us about. trying to figure out the implications of a recession 2019 and we talked about brexit and many things including what the markets could do. janet henry is a chief economist. addition i guess if there is one call you have to get right is the dollar call. if you get that right, that helps with emerging markets and helps with your predictions on europe. what does the dollar do the next 12 months? >> our strategists have been pretty good on the dollar. they have a strong dollar narrative. it is quite volatile the last

couple of days. euro-dollar at 110 the next year. they don't think it is over even if the fed moves at a slower rate and delivers one or two hikes next year. they think it is the backdrop where the dollar strengthens rather than weakens. francine: indonesian central out with aed to come rate decision. have any of them missed the boat? >> in the e.m., last year, the surprise in 2018 was the speed can with which some of those emerging markets have monetary independence proved not to be. the fed was normalizing and the dollar was strengthening. it wasn't just india, philippines indonesia. i think the big question for

2019 is it becomes increasingly parent we're going to get a pause at some point from the fed in 2019, they will regain some of that monetary independence. but i think some of the central banks that may have missed the the markets.in probably in early 2019, we're certainly getting close to the peak and increasingly investors are asking about australia and new zealand. have they missed the boat altogether? lisa: the four most dangerous words in investing, this time is different. a lot of people are saying emerging markets will outperform next year even as the fed raises rates. because this time is different. do you agree? >> are you talking about financial markets? lisa: yes, the fact that their economies are expected to grow more and markets are expected to outperform. >> well, potential growth in the

emerging world is higher. they should be growing more quickly than the developed world even in a sloge backdrop. a lot of slowdown that we're forecasting for the next couple of years we expect a slowdown in the developed world and we have seen it in europe and parts to have mefrpbling world. we have a stabilization in chinese growth in 2019 and actually within the e.m.-week-old it is latin america where we see a pickup in growth. francine: coming up next, we speak to the governor of riksbank. they raised rates for the first time in seven years. this is bloomberg. ♪

♪ >> taking a hike, the fed raises rates despite pressure.

an aggressive rate have signaled for 29 king. more dovishness flaunted from the fed. european equities sink. again,k shares fall, facing growing pressure over privacy protection. hello everyone. this is "bloomberg surveillance." for tomin new york keene. go to the markets, then political news with president trump and brexit. fed making a policy mistake is that the question of the day. francine: and markets are down. let's get straight to the first word news. bombshell a potential , the north korean regime saying it will never unilaterally give

up its nuclear arsenal and less the u.s. withdraws its threat first. accusing the u.s. of distorting the agreement between the sides. u.s. senator's passing a bill that would keep agencies open in the first step to averting a partial government shutdown also puts off a confrontation over the border war with mexico. followingkets tanking the fed remarks, some blaming disappointment the fed did not signal it is done raising rates. gatwick airport was closed because of reports of drones flying over the field, leading

flights diverted to other airports. uavs are generally banned from operating near airfields. hisn moynihan admitting investment bankers got to cautious. outaid they are sending dealmakers in search of middle ,ized transactions and u.s. wanting to regain market share after cutting back on risks. , so the teamareful is building that back out. we are adding fast, people covering deeper in the franchise. we lost share in midsize deals, we should not do that. >> 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. francine: thank you. this is what i am looking at. onharp selloff following

from asia and what the fed does next and whether a possible policy mistake. the selloff began when we heard from jay powell downplaying market volatility. assets,ving the risk -dollar 1.1472. rosewedish currency sharply on the newspaper raised rates for the first time in seven years. yes, that decline in europe is putting the region on pace for the worst decline for the quarter since 2011. -year yields to the highest level on that surprise rate hike. decline, andes to the 10 year yield trying to pick up a little bit.

francine. francine: thank you, lisa appeared here is a wrap up of jay powell's press conference, which disappointed investors. >> we know the economy may not be as kind to our forecast next year as this year. buffetten events may the economy and call for more than a slight change from the projections released today. of financialg conditions and signs of weaker growth abroad have led us to mark down growth and inflation projections a bit. remains a touch below 2%. that gives the committee the ability to be patient moving forward. there is significant uncertainty about the path and the ultimate destination of any further rate increases. considerations played

no role whatsoever in our discussions are decisions about monetary policy. we are focused on the mission congress has given us. our decisions are not on a preset course and will change given the data. fedcine: to talk about the and market reaction, bloomberg's senior editor for markets and our guest. john, i am happy we have you on. i'm looking at the graphics you put together. these thatfantastic says investors and the central bank are at odds and we don't know who will win. what freaked out the markets? >> not that montage we just sold their. -- there. it is about qt rather than raising rates. the stock market was positive at the point jay powell made his

comments about quantitative tightening and shrinking the balance sheets, and you saw the extreme switch after that point. thatnk he does not think quantitative tightening, the removal of liquidity from the market the fed is embarked upon is that big a deal. on this, often when stockmarket , there is a deep difference of opinion. a lot of people are genuinely concerned that the fed can't carry on shrinking its balance sheets on automatic pilot these days without causing an accident. francine: thank you to hillary clark, the authors chart of the day.

i know you were looking at qt. this is the rate of change in the balance sheet. the quote you were talking about john is when pal said we came to the decision we would have the runoff on automatic pilot and use policy as an active tool. do you worry about a fed policy mistake at this point? >> on the qt, yes, that does concern me. if you look at financial stocks around the world, in the u.s., down more than 20% for the s&p financials. asset management companies are back to where they were on election day, 2016. that is quite startling. when you get to the eurozone, the selloff is that much more spectacular. whitee been discussing there are specific issues with the eurozone, but plainly a lot

of dollar-denominated debt taken on in recent years. be a is now perceived to anding shortage of dollars, that plainly is hurting banks, specifically the eurozone. it could become a very serious issue. lisa: is the fed making a policy error? >> i agree with jonathan. the fed should not dismiss the quantitative tightening impact. it is $50 billion a month being withdrawn from the liquidity of the economy, $600 billion a year. that is not unimportant. i agree with that. second of all, the fed has tighten eight times in the last two years, nine times going back to 2015. that is a lot of tightening. digesting five or

six of those rate increases because there is an 18 month line -- lag. we should have taken a pause. i don't think raising rates theerday was a problem, but tone the fed struck this is with the market was looking for. lisa: would the tone make you shift your investments? are you going to make moves on the back of jay powell? >> there is an old saying, the fed tightens until something breaks. i think we may be on the course they were again, if to proceed in a robotic fashion two more times next year, i think we will hear something crash. lisa: what will crash? >> i don't know. maybe just china. i think the fed is failing like fed's due to

appreciate the 18 month like on their -- lag on their policy changes. francine: we will get back to china and the fact it could crash. powered ward will be staying ard ward-- how will be staying with us. sweden's riksbank has raised interest banks for the first time in seven years and bringing the repo rate two -025%. the decision was expected by less than half economists surveyed. the kroner searched on the news. thank you for being with us. there are a lot of conflicting information, unemployment, inflation. how hard the decision was to hike rates today? >> it actually wasn't that hard.

there is always conflict in information and you have to that thet keep in mind swedish economy has been doing really well for a number of years. the labor market in our context is pretty hot and inflation is close to target a 2%, and that means it would have been strange for us to stay at -0.5 forever. we have been there for quite a while and wanted to feel inflation expectations were firmly anchored around 2%. that is the case, so we were quite comfortable with our decision. francine: talk to me a little bit about how the fed and ecb factored into your decision. >> sweden is a small, very open

economy. what happens to the major currencies, where interest rates are heading when it comes to the eurozone and the dollar, it is something that matters to us. , how to perspective position ourselves relative to those very important central banks. it is not surprising given that we are part of europe that we keep an eye on what the ecb is doing. that is what his important and why we have a policy rate lower than the fed's rate. we have a floating exchange rate and have for many years by now. unemployment for us is lower and in the rest of europe. the inflation rate on average is a bit higher, and the growth rate in the swedish economy is higher, so based on those three numbers, it is natural it was

time for us to move despite the ecb doing what they do on their side. francine: the kroner rally today, is the exchange rate less of a concern now? we have said that given the swedish economy is doing well , oneive to other countries would expect the currency to appreciate gradually over time, and when the day comes to move the policy rate, it is not surprising it would appreciate a bit, but in a small, open on the, to pass judgment exchange rate over time where it is heading, it is difficult, so basically too early to tell. francine: you are keeping free investments of the bone portfolio.

do you see this going on longer if you keep raising rates next year? technically speaking, those decisions need not be handled from a technical perspective we can do many different things when it comes to the bond portfolio separate from what we do with the policy rate. this time our bond portfolio was not an issue because we did not deal with the bond portfolio at all. the nexthead of decision we raised the issue a few months before we decide what and sond what not to do, the whole issue of how to manage the portfolio will come back no later than april decision. francine: are negative yields more harmful than helpful at this point? pardon?

yields, aregative they more harmful can helpful at this point? >> from our perspective to have a negative policy rate has worked quite well. this was discussed at length eight years ago, and when you read the text books, you never expect to go negative, but from our perspective with hindsight the system the way we have constructed it in our environment has worked really well because we got the inflation rate back to where we wanted it to be, inflation rate 2%, and ins back to can't see in the major difficulties with what we have done, and then i combined with

my remarks having bought 40% of outstanding government debt. it is an unusual exercise over , butast four or five years so far the whole system and the way we have executed what we did has worked really well. that, for the world as a whole, one would expect rates to eventually go up because it would be strange if real rates stayed negative forever. that is highly unlikely. francine: thank you so much. the riksbank governor speaking to us there. we are back with our guests in new york. john, if you look at the concerns surrounding what central banks have to contend with, is this almost the last chance saloon for these banks to raise rates, and is this why

riksbank was right in doing it today? >> i am not the greatest expert on swedish monetary policy. they managed to come up with a surprise. columnists are never supposed to admit any level of ignorance. that said, you don't want rates to get caught hello zero. that is a dangerous -- below zero. that is a dangerous situation. ,n the specific case of sweden there is a problem with the housing market. it is worrying if the market can zero, rate that is still but i gather they are one of the many economies that has an overheated housing market. ward, ken the eurozone

move away from a negative freight policy without some dramatic effect? grow,ope is struggling to effectively zero rates. everything is going right in europe. we are maxing out to the limit on growth. you might reach 2%. that is not a lot. other than germany, which undertook structural reform during the east-west germany reunion, the rest of europe never did the structural reform to make it easier to hire and fire people, be more flexible with wage rates, all these things that can help growth. lisa: it sounds like you don't think they can move away from negative rates. >> why was jay powell more focused on the global situation? the european union is the largest economic unit in the

world, and we know they are struggling. the u.k. with brexit is a struggle. japan is struggling to group 1% with negative rates -- grow 1% with negative rates. massive quantitative easing about to end. the fed was not as global as i would have liked them to be. lisa: a lot of people would agree with you. thank you for being with us. you will be here when we come back. , 7:30 a.m. in new york. this is bloomberg. ♪

i am lisa abramowicz. the developing world is already flashing red thanks to a slowdown in china and the u.s. appears headed for a mild recession. still with us are our guests. he also said he would give the f.eral reserve and marketsmore bullish on were bearish in the developing

world? >> bearish. i am substantially underweight emerging markets. they are the highest beta markets out there. if you're expecting turmoil and weakness, you will find it there. that is a value trap. is different than other investors sank this time is different and emerging markets will outperform next year as the fed hikes rates. what is your view? , therehe long-term, yes is value in the emerging markets. in theren put money and forget about it for 10 or 20 years, there is interest and value there. there is the issue of the fed and the concern that if they continue to raise rates, a strong dollar is bad for emerging markets. whether or not it should be is a different matter. it is a problem.

the other issue is china. avoid anhey can upgrade version of their own lehman brothers incident. it's hard to see how they can process all the debt they have to deal with without a significant slowdown. no other country has managed anything like that growth without one big moment when they are youlow down, so emerging markets a compelling y uy? may be somewhere like mexico. francine: that sounds lovely at christmas. is it a dollar call? ,epending on what dollar does you go into emerging markets are not? >> the dollar is part of this. he emerging markets are export-driven, commodities priced and dollar, so when the dollar goes up, it hurts their

ability to raise money. they have are lot of dollar-based debt that becomes difficult to service as the dollar rises. if you look at the bloomberg 8%ex, it's probably up 7% or since april. that will continue to rise as long as the u.s. is growing faster than the rest of the world. is the big question. you are sticking with us. from oure highlights conversation with brian moynihan . find out his new strategy for investment banking. this is bloomberg. ♪ ♪ there's no place like home ♪

argh! i'm trying... ♪ yippiekiyay. ♪

mom. ♪ unstopand it's strengthenedting place, the by xfi pods,gateway. which plug in to extend the wifi even farther, past anything that stands in its way. ...well almost anything. leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. lisa: this is "bloomberg surveillance." francine: beautiful. it is so beautiful you would not think parliament is calling

recess today and thinking about her eggs it. beautiful blooms -- about brexit. beautiful blue skies. yorkiful scenery from new and london. you would not think markets are falling out of bed, but s&p futures gaining, so definitely off the lows. lisa: when you look at new york, you would not think the world is reeling from the fed meeting yesterday. let's get the bloomberg first word news. raised therea has stakes for efforts to hold a second summit. pyongyang will not remove its nuclear arsenal unless the u.s. takes its nuclear weapons out of the region. north korea insists the two sides agreed to the denuclearization of the korean

peninsula, asserting that only referred to north korea. president trump says the u.s. has eaten islamic state in syria , but critics say he has handed a victory to america's enemies. it leaves iran and russia to wrap up their victory in the syrian war. a tokyo court has rejected a request to extend carlos ghosn's time in jail, meaning he can seek bail amid investigations he underreported his income. whatsapp has banned about 130,000 accounts. according to the financial times , it found explicit images of children were being shared. whatsapp is owned by facebook. 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. thank you.

david westin spoke exclusively with brian moynihan about his strategy in the investment banking and his outlook for 2019. , ifergers and acquisitions billion,1 billion, $2 $300 million, $400 million, and the rest is capital markets, and they are interrelated, but it is attached to treasury services and global banking, the largest earner in terms of earnings on a given year, so it is attached and part of a larger whole. we believe that is the right model. what we did is when we selected clients around the world, we have the u.s. covered. we may not be covered in the higher end segment, but we have capital markets expertise.

that is the expansion we got to careful on. so the team is building that back out. we are adding fast. people covering deeper in the franchise. midsized dealsn in the united states. the team sell that and that is what they are after. they will do great job of plugging it. side, people can do it, and our job is to win on both sides. that is what the team is up to. >> trading, for those of us that are simplistic, volatility is good for trading. volatility is up, banks will make more on trading. that does not seem to be holding true. how are you doing in trading? >> volatility is up. the equitiesabout

business is doing fine because trade volumes are up, but it is just sheer volume. we don't make as much money as when we are doing derivatives and financing. there is not a lot of risk and not a lot of reward. , thisxed income business quarter has been interesting. originally, late november, we thought we had three percentage points, now we are probably down a couple of percentage points, but we will make good money in that business. we don't care, if you keep the risk under the right way, service the clients, volatility by itself is not the best thing. .t creates more activity with fixed income, when the yield curve moves, you have to get your inventory reset. it takes effort on the way up

and everybody freezes on the other side. that will come out of the system. january will be gangbusters and we will see what happened. francine: that was the bank of america chairman and chief executive brian moynihan. still with us guests. howard, when you look at the risk in the markets in 2019, is the financial industry in indicator of things that could be wrong? >> judging by the performance of the banks stocks, it is probably an area that is foldable the economic weakness, flat yield curve, less lending growth. citibank announced a big charge yesterday. citibank is essentially a five dollars stock. to make a reverse split the stock worth 10 times more than it was coming out of the recession.

the banks stocks have been bleeding this market lower. all of the outperformance of the bank stocks that occurred in the wake of the trump victory occurred in the one week following his election. they have not outperform the market since then, and now they are steadily moving lower so there is signal we should not dismiss. francine: what are the signals you would be looking at, john? >> the signals that howard just mentioned. thanks worrying when stocks selloff in this aggressive way. the pure play banks have been doing worse than the universal banks, such as bank of america. goldman, we all know about one i1mdb. what about blackrock? it doesn't have credit risk in there. it is also spectacular. income, theixed

notion when you have problems with inventory that everyone freezes on the other side, i a great area of concern we have to face, the area that everybody is worried about for 10 years, reasonably, and for some reason at the -- as the moment of truth has approached we have collectively convinced ourselves it is not that much of a problem. saying bond are market liquidity is not so much of a problem, when now is roughly the time to worry about it. the thing i found most compelling was brian moynihan was saying now is the time to be taking on more risk. now they are lending to smaller businesses. is that the appropriate strategy? >> it may be appropriate for bank of america.

he has to in a good job resurrecting the franchise. lots of free cash. of banks have been return of capital stories than growth stories. banks, credit loan problems , they have not risen to any kind of alarming level. there is a group of non-bank lenders that have accepted low quality risks during this time, and they could surface is problems. lisa: you said we have stopped worrying about bond market liquidity, and now is the time to worry about market liquidity. is now the time to start worrying about credit risks? >> credit spreads are widening. they haven't blown out. they have a long way to go to get back to a crisis level. they are on the uptick.

the yield curve, the credit spreads, price of commodities, the fed lowered its own forecasts for growth. there are these signals. things are slowing. we should be expecting greater credit risks. ankle america does have to take on more risk. ifit is good for the economy bank of america wants to take more risks. i don't know if i would want to hear that if i was a shareholder. talking generally about the , thetion that we are in point about volatility and how much more dangerous volatility is in fixed income than stocks is important. large numbers of people got caught on the wrong side of the treasury trade. we thought all the people who were short treasuries got flushed out a couple of weeks ago.

somebody somewhere made a lot of money buying treasuries yesterday. has been warning the natural direction for bond yields ought to be upwards. there will be much more supply. the fed is putting bonds in the market. everything suggests we should be getting into a bond their market, and we suddenly had a major bond market reversal. think on that subject of banks, we have to mention the european banks. they look really ill. not just deutsche bank at all-time lows recently. this is the problem, the reforms to rebuild the capital basis for for thepean -- bases european banks did not take place like the u.s., so they don't have the margin of safety

the u.s. banks have. if a major banking counters a problem, it will be felt throughout the globe through all the major banks. francine: howard, thank you. there is news out of russia. , we will continue the conversation next. let me bring you up to date. vladimir putin is holding his annual news conference. he has talked about brexit, sanctions, not much he hasn't talked about. he was just addressing syria, saying the pullout is the right thing to do. also i'm a one topic that comes up over and over is his personal life. did not answer on the question of when he will remarry. i think he is talking about president trump. we will continue to follow this

press conference and bring you any breaking news from it. this is bloomberg. ♪

>> much appreciated by all of us. the online publication -- francine: taking questions on following business, from the questions to the minister of women and equality. actually fielding questions on the datet deal, saying is set for january 9. the vote, the only deal theresa

may says on the table, will be put through parliament the week of january 14. before a vote there are days when they talk about it. today is also the boe final policy decision of the year. we are looking at pound and gilt. asa: u.s. senators passed bill to keep agencies open , putting offary 8 a confrontation over president trump's border wall. hasident trump says he eaten the islamic state in syria and is pulling out american troops. critics say it has handed a victory to america's enemies, including vladimir putin. joining us now is our guest to bring us up to date. let's start with that move from the military, president trump

going ahead without the advice or consult with his advisers. dangerous move, not just in terms of what he is doing, but when a president without military or political experience begins making unilateral moves with our military without consulting his advisers on this issue, that gets into some dangerous space. you look around a congress and the world, and the only praise president trump is getting is from vladimir putin. that should raise some eyebrows. lisa: he's tweeting on it now saying it is no surprise the u.s. is getting out of syria. meanwhile, corporate leaders saying policy uncertainty and decisions are the main thing holding back their growth outlook. take a look at what the fedex ceo said, most of the issues

today are induced by had political choices. do you think this is a legitimate concern on the part of corporate leaders? >> it is. there is some softening in the economy happening for a variety of reasons, but what he said is something a lot of ceos are thinking right now, that bad political decisions, decisions being made mainly because of tantrums and not because of solid, sound policy advice, is creating this rocking this and uncertainty where investors don't know what is coming next. that kind of uncertainty is dangerous for markets and ceos are starting to feel that. lisa: with the syria move, does that weekend his power internally given that there is so much criticism from his own cabinet? >> did weakens the president in terms of his cabinet, where

advisors will look at the situation and ask themselves, why am i here if the president is going to do whatever he wants to without the advice i am here to offer? it also weakens him within his party. some of the most robust criticism yesterday at the decision came from congressional republicans. so far, the president has been put acted by those republicans. lose them, heo has a bleak outlook politically. lisa: thank you so much. toward and john will be back with us. day coming yield-curve flattening day. this is bloomberg. ♪ this is bloomberg. ♪ this is bloomberg. ♪

francine: this is "bloomberg surveillance." i am francine lacqua in london. thate minutes away from boe delivering its final policy decision, expected to leave rates unchanged. andl with us is howard ward john authors. no matter what data points mark

carney is looking at, we don't know what kind of brexit we will deal with? have the uncertainty we do at the moment over rigs it -- brexit, there is nothing that boe can do. stand ready to flood the market with liquidity if we go into a no-deal exit. is making the decision she will carry on playing this game of chicken, spending money to care for and no deal outcome, more or less daring conservative colleagues to vote down her proposed fuel and leave only no deal as an option. it is maybe the only way she can get her deal through. it leaves the bank of england

with no choice at all as far as i can see. >> let me interrupt. we know the brexit deal it's a bad deal for great britain. how do we know that? because the 27 member states of the eu approved this in a nano second. when is the last time 27 different member states agreed to anything in a nanosecond? francine: to be fair, the brexit referendum was over two years ago. what you suggesting? this is a bad deal and theresa may can get a better deal? , they are either all in or all out. this is a halfway measure that is torturous. francine: go ahead, lisa. with do you agree with what we heard out of the boe that if there is a hard brexit that we will get a recession, one of the worst the u.k. has seen? >> the european union runs a

trade surplus with the u.k., which means they need to trade with the u.k. more than the u.k. needs to trade with them. the trait would fall under the wto treaty rules, and i think they would do fine. the fear of a hard brexit is overdone. the u.k. people are extremely , andg, iron-will people england will be better off for it. lisa: you have somebody sitting right next to from the u.k. iron-willed. my upper lip is always stiff. matters, ihat personally voted to remain here i dislike -- to remain. i dislike the decision deeply. i actually like freedom of movement and the u.k. at the

center of europe and all those other lovely, good things. what does concern me greatly given there is so little ananning for this, it count , but like the y2k fear some of the things that could happen within a negotiated exit is scary. trucking companies will have to deliver 7 million pieces of paper a week. francine: thank you. this is bloomberg. ♪

♪ david: waiting on brexit,

moments away from a boe decision on rates. day.ed has a bad jay powell speaks, the markets withn from a really hard the s&p and dow with one of the biggest point swings in history. as she goes, brian moynihan sees growth continuing, but at a slower pace and geopolitical risks holding us back. welcome to "bloomberg daybreak." i am here with carol massar. alix steel is off. we are waiting for the boe decision. keptise, surprise, they the rate at .75% and the and target atchase that level. this: