"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. good good morning --nejra: morning from london. a nejra cehic. quality -- volatility rips through markets. japan 60 per into a bear market -- sinks deeper into a bear market. mattis secretary jim resigns in a letter to the president. what does this departure mean for forum policy -- foreign policy in the new year? investors have another concern as a partial american government shutdown looms. ♪

nejra: good morning and welcome to daybreak europe. 6:00 a.m. in london. 1% on themore than s&p 500 yesterday, nasdaq plunging and futures plunging lower, ending just shot of a bear market, down 19.5% from its peak. 10 year treasury yields steady. still not relief in equity markets, certainly in the u.s. session. they question is what -- big question is whether the review is coming from the dollar. we talked about the losses in equity markets. bloomberg dollar index is heading for its worst week in 10 months, biggest drop yesterday in seven weeks. a touch of strength against the yen, but gaining for the first time in six sessions.

.8%, bouncing back, up below $47 of wti, but a loss of 9%, so we are heading for a weekly loss. in terms of european equities, the cash market open in europe is in two hours time. we could see a red end to the week. let's check on the market in asia. juliette saly has more. you.to see markets still struggling to climb a wall of worry. juliette: yes, where is that santa claus rally? not here. butmore trading sessions, we are on track for the worst december in history and second-worst month of 2018. japanese stocks extending into bear market, msci pacific index poised for its lowest close in months. we are seeing weakness across the board today, these renewed u.s.-china tensions weighing on chinese stocks.

let's look at the stocks we are following. tencent has been rising. we are hearing reports regulators in china are going to lift some of these bans on games, which helps tencent. nissan to hold a press conference. we hold carlos ghosn will remain behind bars and the former chairman of nissan has had fresh allegations brought against him, nissan shares down 2%. coca-cola raising prices for its drinks for the first time in 27 years. we're not seeing inflation in japan, but maybe in terms of trying to make bottles for the drinks. share prices have climbed the most in five years. nejra: juliette saly and singapore, thank you. a departure in washington. jim mattis resigns in a two-page letter to the president. he cites differences over

policy. "because you have the right to have a secretary defense whose views are better aligned with you, i believe it is right for me to step down." it comes after the president called for the withdrawal of u.s. forces from syria. the president said a successor would be named soon. he was seen as a force of stability and foreign policy in an administration that had to manage crises from of korea to syria. rebuke fromw sharp a number of lawmakers. >> everything that indicates strength, everything that indicates knowledge, is leaving this administration. general kelly, general mattis, so many others. mcmaster, exactly. there is chaos now in this administration. this week was one of the most chaotic weeks we've seen in

american government. >> yes. i'm shaking by the resignation of general mattis. what it means to our country, the message it sends to our troops, and for the indication of what his view is of the commander-in-chief. nejra: joining us from hong kong is david tweed. great to have you with us. how damming is this departure from the trump administration for president trump's worldview? david: it really does give us right trumps worldview. we will be talking about the letter mattis wrote. two parts i will highlight because i think they are important, when working out the implications of u.s. foreign-policy. the first thing he talked about was the importance of the u.s. strength as a nation. it's linked to the strength of

our unique and comprehensive system of alliances and partnerships. -- underscores the risk to u.s. alliances going forward with only trump calling the shots as he did in syria, when he withdrew troops without consulting his national security team. we will look to see what happens between the united states and nato, for example. or for more importantly, for asia. trump questioned the need to have 28,000 u.s. troops stationed in south korea. he said it's too expensive. but to remove those troops would put questions under the south korea-u.s. alliance. and that's an alliance that's a cornerstone of stability in north asia, when you consider the risk coming from north korea. the second part i want to point he's talking about how he believes the u.s. should be unambiguous to the approach to

countries whose interests are increasing tensions with hours. he's talking about china. he's talking about russia. one can only imagine what donald trump -- he thought about donald trump's performance in finland when he fawned over president vladimir putin. what will be the continuing relationship between russia and china? and what happens to the alliances? nejra: david tweed, thank you so much for joining us. we are asking the question on mliv, how best to trade the u.s. shutdown situation? join the debate. i.b. plus tv on your bloomberg. let's get bloomberg first word news with debra mao and hong kong. debra: the u.s. plans to dramatically cut troop levels in afghanistan. it comes one day after president trump said he would pull forces from syria. 7000 ofagon will draw

14,000 troops in afghanistan as trump fulfills long-standing promises to bring military forces home. easyjet says get what airport runway is open -- gatwick airport runway is open. it was suspended wednesday evening following illegal drones. incoming planes were diverted to other airports, disrupting thousands of passengers during one of the busiest travel periods. the house of representatives increased a chance of government shutdown by voting to give president trump the money for his border wall. the spending bill goes to the senate, where it's almost certain to be rejected. trump surprised republicans by insisting he won't sign a bill without the border money. that was after the white house hinted he would accept it. wtochief economist of the says indicators point to a meaningful slowdown next year and global trade looks

precarious. the wto downgraded its forecast for trade growth to 3.9% this year and 3.7% in 2019. he warns of a rising risk that those numbers could be cut again early next year. washington is turning up the heat on beijing, accusing officials of an espionage campaign to steal intellectual property and other data from u.s. companies. they issued indictments against a chinese national, accusing them of being a part of a hacking operation. chinese foreign ministry said the government never supported individuals in stealing commercial secrets. global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. nejra? nejra: debra mao in hong kong, thank you so much. volatility is on the rise. the vix hits the highest level since february amid selloff in

the u.s.. nasdaq close to entering a bear market, closing 19.5% below its august peak. this follows as investors criticize the fed for criticizing its tightening path despite volatility. but ill doubly says it isn't the central banks job -- a bill dudley says it isn't the central banks job. >> you only care about market prices in how it affects the economy, the unemployment rate, and inflation. the fed is not there to take away the market's pain. they are there to follow the monetary policy of sustainable employment and price stability. nejra: joining us now is the head of asset allocation and macroeconomic research and head of u.k. equities at aberdeen standard. great to have you with me. let me ask you where the equity

markets are overreacting from what we heard jerome powell this week. >> yes, the markets are very concerned about funds in the u.s. economy after the full decay of liquidity injections by the central bank in order to finance and to recall all segments in the u.s. economy. now we are going in a positive direction with liquidity for a second segment in the u.s. economy. i'm thinking about how to to refinance operations, which has been done in the past. i'm not sure it will be so simple. second, in terms of financing cost. the financing cost is rising very sharply everywhere in the u.s. economy. it's still a macroeconomic venture, that's for sure.

when the u.s. economy becomes more stretched in terms of situation, and this is a white liquidity market is in bad shape this year, despite the macroeconomic fund on the other hand. nejra: what can we read into the tumble in the nasdaq, just shy of a bear market? >> i think is reflecting a lack of confidence. one of the justifications of a selloff in technology stocks was the increase in 10 year yield and higher rates would lead to lower valuations. we've seen those rates come down to where they were in september and you can only explain the recent selloff in the fact that it's a lack of selloff. nejra: i want to talk about quantitative tightening because there were a thousand things we could talk about, but one thing is the concern in the markets about qt. there was a great piece on the bloomberg about the fact that markets are scared of a monster

of their own making. more, the fed have said or should it say more rather than it's on autopilot with qt? does it need to new wants that more? christopher: probably, the federal reserve's should be very cac 40 regarding the diction in the economy. this is probably the liquidity consisting to marginal appropriate way. the exit strategy of the tv -- qe monetary policy -- it's a for, very dangerous period the u.s. economy. this is what we are experiencing amid the 2018 and it should last lap -- next year as a full year, probably, in terms of monetary policy.

we are in a transition period this year and it should last until next year, as well. there are concerns that regarding the capabilities to extend economy growth around 2.5%. nejra: all these doubts, we talked about reaction equities. leasing bond yields move lower. some say that's an unusual reaction. the market is interpreting it as less dovish. i want to ask about the dollar. i read a comment this morning that perhaps the dollar was the most damming rebuke of the fed because we've seen it weaken, heading for its worst week in 10 months. i know in your outlook, you think the dollars a performance in 2018 is a rebound within a multiyear downtrend. is the dollar telling us markets are concerned about where the fed is going? you have --in fact,

on one hand. in terms of the economic approach, what we expect for next year is a narrowing spread in terms of interest rates, economic growth of the u.s. versus the rest of the world, including the eurozone. this is what we are expecting the second half of next year, a weakness in the dollar against the euro. the u.s.ime being, should remain quite strong, especially versus the g10 currencies. economic rivers of the trend first. we have to be careful. next year, in order to manage the situation, in case of a sudden rise in concern regarding the economy growth in the u.s. in that case, the u.s. dollar will -- again because -- you buy

it in order to protect your portfolio think is of concerns of economic growth. we could switch from one status to the next one. regarding concerns in terms of economic growth. it's very difficult to be absolutely clear-cut regarding the next trend because of it. nejra: but we will watch those dynamics. they will stay with us. coming up, carlos ghosn faces christmas behind bars. he's been arrested for breach of trust. we're live in tokyo. when you're traveling to work, tune in on bloomberg's dab digital radio. this is bloomberg. ♪

nejra: 6:19 a.m. in london.

let's check in on the markets. a weaker session in asia following the u.s. yesterday. the nasdaq closed just chart of a bear market. is the dollar given the ultimate rebuke to the fed? it's headed for its worst week in 10 months. the vix hit 30 yesterday, closing at 28, so volatility big and high in these markets. wti bounces back, but we see losses of about 9%. equities will open lower, too. japanese executives rearrested former chairman carlos ghosn. he's been accused of transferring his personal investment losses to the carmaker. joining us is currently moret. good to see you, as always. carlos ghosn isn't getting out of jail today. what does this mean? >> what a day it has been here. we expect him to walk out of the

tokyo attention house. -- took it detention house after the decision to not extend his detention. but prosecutors rearrested carlos ghosn on aggravated breach of trust. prosecutors allege he transferred investment losses to nissan back in october of 2018. meanwhile, greg kelly, his lawyer, applied for bail. instead of carlos ghosn walking out of this building today, it turns to greg kelly to walk out of the building. nejra: grooming moret, thank you so much. china demanded the u.s. withdrawal charges alleging china courtney did a decade-long campaign to still and torture -- steal intellectual property from u.s. companies. ben are still

with us. ben, of course european equities, carmakers in particular, caught in the freight of this trade war. how has the trade war impacted your allocation across european equities? us: it's certainly making more cautious. you are seeing tariff disputes. carmakers under some pressure. but it's starting to affect wider confidence across the industrial space. that's quite concerning. nejra: you've increased allocations in chinese and indian equities. talk us through that. is that to do with who might benefit from the trade war or despite of the trade war happening? christophe: just to put into context our chinese view, what we consider for next year is a slump in global economic growth, but momentum is turning from positive to negative yet -- next

year. usually is a tough market for markets. the global equity markets for next year. having said that, within the global economy for china, probably a lot of things, a lot of bad news has been priced in by markets. all markets are down, especially emerging markets. chinese markets are -25% down year-to-date. variations are very low. toreached variations similar the variations we had in previous recessions. but the rest of the world. pointrobably a good entry for buildup allocation in the chinese equities. so we will go step-by-step. it's not a straightforward allocation. we are going step-by-step,

that's for sure. and maybe just to complete the picture, maybe a bit more. regarding the capabilities of the chinese authorities on the chinese government to stimulate its economy growth, thanks to the fiscal budget policy, they still have a way to compare budget situation regarding the u.s. on one hand, china on the other hand. it's only 40% in china. they still have leeway to use fiscal policy to stimulate growth, which is probably an advantage at the end, for chinese equity markets. nejra: how closely are you looking at european companies that have more exposure to china, and therefore how you make your decisions around equity in europe? christophe: it's not

it's notlly -- ben: specifically about china per se, but you seen the slowdown. you seen share prices fall, but you haven't seen earnings fall. the market is pricing in deterioration next year. it's about going slowly to some extent, continuing to add on weakness. but wanted to make sure we investigate -- invest in businesses were if we get it wrong, we are looking for good visibility, recurring income, and strong balance sheets. nejra: i just want to push you on indian equities. i understand your case for china. i spoke to the ceo and he said india could benefit with the escalation in the trade war. however, you think we could see in -- bounce back in oil prices in 2019. will that hurt your case for buying equities? no, in spaced on

domestic demand, economic growth. its domestic demand based. in terms -- the target is around 6%, 7% in china. it's achievable. nejra: great to have you both here. ben stay with if us. betters against the pound. that is next. when you're traveling to work, tune into bloomberg radio live on your mobile device or dab digital radio in the london area. lots more to discuss on tv if you're staying with us on tv. we talk european growth next and more on the volatility, the vix heading 30 yesterday. this is bloomberg. ♪

nejra: the pain for equity markets continues and it's only getting worse for asian markets, set for a 21 month low. a lot of red on the screen after the nasdaq closed just shy of a bear market. we're asking the question on mliv, how best to trade the u.s. shutdown situation? join the debate. reach out to us, i.b. plus tv on the bloomberg. let's get bloomberg first word news with debra mao in hong kong. debra: jim mattis is set to retire. the president tweeted his thanks

and set a successor would be named soon. a report said the president's decision to pull troops out of syria was a seen as a rebuke to the army general. he argued their mission wasn't over. singapore is said to have expanded its criminal probe to include goldman sachs. authorities are trying to determine whether the $600 million in fees from bond yields flows to the bank of singapore subsidiary. goldman is cooperating with investigations and previously said it acted in good faith over the bond sale. london's gatwick airport said the runway is open and flights are scheduled for departure. all flights at the airport had been suspended since wednesday evening following numerous sightings of an illegal drone. incoming planes were diverted to other airports, disrupting thousands of passengers during one of the year's busiest travel

periods. washington is turning up the heat on beijing, accusing officials of a decade-long espionage campaign to steal intellectual property and data from u.s. companies. they issued indictments against two chinese nationals, accusing them of being a part of an expensive hacking administration. the chinese government said it supportedicipated or individuals in stealing commercial secrets. global news, 24 hours a day on air and at tictoc on twitter, powered by more than 2,700 journalists and analysts in more than 120 countries. nejra? nejra: debra mao in hong kong, thank you so much. nejra: let's check in on the markets from around the world. davina and maria. what is the picture like in india? davina: similar to what the asian market region is doing this afternoon. we started off on a slightly

weak note and that exaggerated. they've given up on the benchmark indices. the total indices are trading with losses anywhere between .5% to 1% apiece. the last seven days of the runoff, it had outperformed the benchmark and started to give way. you are seeing profiting and money off the table, traders coming in and looking some profits. aside from that, you are seeing a focus on the volatility picking up, as well. this time around, volatility has picked up. oneve got 15.2 on the nifty volatility index. nejra: thank you. maria, what are you looking at? maria: i'm looking at a chart that caught my eye. u.s. stocks are more volatile than emerging markets.

if you look at the two lines, the green and the red, we see bigger strengths in the s&p 500 compared to their counterparts, and this is an unusual move. we've only seen it happen four times ever, three of them in february, when the fed first spiked. the so-called fear index is up 150% this year amid markets that feel jittery. i want to move to the next chart, but continue to look at emerging markets. i want to focus on the indian rupee. it's a story about currency, but oil prices. the tumbling has given the indian rupee a boost for the end of the year. we could be on track for the best quarter since march 2016. and analysts expect the rally to continue into the new year. nejra: thank you so much. here's a look at what you should be watching. we'll get two final gdp readings

later, with france due at 7:45 a.m. london time, and the u.k. at 9:30 a.m. watch for volatility in the last hour of trading. that's the simultaneous expiration of stocks option, similar stock futures, and we get final gdp for the third quarter. that shows the rate of expansion held steady at 3.5% annualized pace at 1:30 p.m. ben are still with us. is there a case to be made for u.k. equities based on the growth number in 2019? ben: i don't think so. the case for european equities requires a recovery in global confidence. to do that, we need positive signs from the u.s., more confidence quantitative tightening is being executed effectively.

we need to see stimulus out of china. and many the political dynamics in europe of proof -- improve. if we see those things improve, we could build a more constructive case. laid out some of the things that could make investors less bearish on europe. but you look at individual stocks. take me through some stocks or sectors you would be more constructive on, despite this backdrop you've painted. ben: it's been an interesting period of time. you seen rapid rotation. certain areas, like medical technology, relatively highly rated companies. areas that have high visibility and a relatively cyclical demand patterns. those are somatic's we look for and with it will be important going forward from here. we are willing to pay a premium for good businesses. we think of we go into a tougher time in 2019, people will pay

for visibility and certainty over cheaper, but less certain options. nejra: christoph, you favor companies with pricing power, measurable growth drivers, and low leverage. what does that mean for the companies or sectors you favor in europe? christophe: it means we have concern regarding negative impact regarding the europe and korean markets. negative momentum of economic growth is also concerning regarding earnings growth. the earnings growth momentum is negative in europe, especially for the eurozone companies. and it's, as i said, very past markets to navigate. against headwind, momentum is negative. and this is why we are looking for this typical thing you mentioned regarding a high-quality stocks, low

leverage company, pricing power. because it's a kind of approach in order to try to find the macroeconomic approach, which we don't have a for a macroeconomic approach. so, what we are expecting to do is a balanced approach within liquidity. exports for the back picture, and companies getting statistics that create -- approach. nejra: you also point out dividend yields are higher in europe, but the total cash returns for dividend buybacks plus dividend by back and yields are basically the same between the u.s. and europe. any thoughts on that? ben: it reflects the traditions of both markets. in the u.s., they prefer buybacks. in europe, it's been a

preponderance to say dividends. when we see that in markets, europe has typically traded cheaper, so you end up with a high yield. as we look across european markets, you can find companies that are returning cash next year, that do have strong balance sheets. if we go into a different time, they not only will be able to buy back stocks, but create important expositions. that can give you options. otherwise you will have to seek to refinance under pressure and have the opposite if you have the right business. nejra: great, great insight from christoph and then. they stay with us. we still have more to get with you. let's turn to brexit and the referendum in 2016, which sparked the largest crash in every major currency. some traders that bet against the pound benefited from the actions of nigel.

he helped drive the pound to its highest mark all year hours before it plummeted. two closet closedwo -- associates proficiently -- personally profited. joining us now is cam simpson. great work on this story and great to have you with us on set. tell us how this relates your investigation earlier this year of nigel and others who secretly worked hedge funds around the right to vote. cam: we revealed in june, just ahead of the largest crash in history, a relative handful of hedge funds were able to profit by tens of millions and hundreds of millions of dollars in just a matter of hours because they had information, known public material, by hiring britain's leading pollsters. they knew how people were voting while the voting was underway. secret exit polls, information

was streamed to them that would have been illegal for the public to have, and they knew about market moving polls before the polls were published and moved to the markets. the fca is now looking into this. lawmakers are concerned about it. questions about market abuse and insider dealing. what's done with this story has filled up the picture and shown people around nigel were profiting from trades in the same direction. people with him on the night he told us he learned the results of the biggest and most accurate hedge fund pull that was done by his parties and arsenal pollster survey should. and people with him in the room were betting exactly the same way. they were trading through an account in chicago, rj brian and associates, and george cattrall, who was nigel's personal madetary, wrote that he six figures that night, starting at 10:00 p.m., when nigel was

moving the markets in the wrong direction with his premature concessions, and ultimately falls concessions he gave on the night. we've come back to fill out this picture of it more and to put it in the room with nigel. not just hedge funds, that it secretly hired pollsters, but they were able to beat the market when everyone was completely wrong. nejra: the country facing the possibility of a market moving can be all about brexit. has anything been done about this? cam: they said they would get ahead of this. nicky morgan said she wants to either find a way to close loopholes, if they exist, or enforce the laws as it is. market abuse is really strong and we been told the fca could easily shut this down. but everyone is so distracted by brexit. there's such chaos in the

country and housing handled that these -- in how it's being handled that these questions, there could be another market moving election. other another referendum, or a general election that would be all about the referendum and would probably equally move markets. when we did the original investigation, some pollsters told us they would be waiting to do the same thing. this is where volatility is in the system. we got used to know volatility because of the interventions, for now our politics are really creating opportunities for volatility, and some of the people who were funding brexit and these inner politics are benefiting. nejra: thank you so much to cam simpson. i urge you all to read his and his colleague's story on the bloomberg. it's like you taken us to our next chat on volatility. coming up, we will talk

volatility and speak to former u.k. labour party leader david miliband. that interview at 5:30 p.m. london time. bloomberg's radio app or dab digital radio. this is bloomberg. ♪

nejra: ending the week on a low for equities, we see the red in asia. we could see a lower open for european equities, s&p futures fairly steady after the drop in u.s. equities yesterday, the nasdaq particular closing just shy of a bear market. let's check in on what's trending on tictoc. finland rangers get a high-tech makeover as people use wi-fi tracking to protect them from predators. tom coburn.com with fewer than 100 days before they leave the eu, theresa may is putting

together a brexit plan b to avoid armageddon. facebook is working on a cryptocurrency that will let users transfer money on the whatsapp messaging cap. aslos ghosn stays in jail investigators bring on more serious resignations. resigned.ttis has let's get bloomberg business flash. debra mao has that in hong kong. ebra: japanese prosecutors rearrested carlos ghosn on fresh, more serious allegations on misconduct. in the latest twist, prosecutors say the former nissan chairman is suspected of transferring his personal investment losses to the company. every arrest gives prosecutors the right to retain ghosn, who has previously denied wrongdoing, for at least another 10 days. danske bank cut its forecast for

2018, blaming the markets long and ending a year dominated by scandal on a decidedly weak note. denmark's biggest bank said it will reach 15 million kroner, down from of forecast range of 16-17,000,000,000 kroner. it comes as they deal with the fallout of multiple money laundering investigations. nike surged in late trading after reporting strong trading china,h america and being the forecast $.46. this is their first earnings report since the controversial ad campaign featuring colin kaepernick. nike ceo said the ads drove an uptick in engagement. qualcomm secured another victory over apple, gaining a ban on some iphone models in germany. the court agreed apple is infringing qualcomm intellectual property on an energy-saving

feature. the devices will still be available up until christmas is qualcomm would post a bond of $760 million to cover apple losses if the ruling is reversed. that's your bloomberg business flash. nejra? nejra: debra mao and hong kong, thank you so much. the blame game is heating up mud hedge fund -- amid hedge fund closures. the latest comes from stan druckenmiller who told bloomberg that it's messing with his market signals. dani burger brings us terminal hearts -- charts to understand the closures. current market volatility, we saw the vix hit 30. dani: more are doing the same thing and they are running for similar exits. that could have some market impact. we've seen signs of deleveraging among the quantitative community. i have equity quite returns. you see just how bad they were in november. this is a eureka hedge index.

quantum platforms fell 4.8% in november, and are down another one points percent, worst losses in about a decade. they also say growth exposure for this crowd has dropped dramatically. that gives us signs there's been a lot of deleveraging. that could feed into the market. that 3 trillion number you cited, most of that is discretionary. if you blame the quantum, you have to blame the humans. i want to address another claim he made. it's harder for him to make a profit because the market is so crowded with quantum. he's a trend follower across assets. it's a popular quantitative strategy. i have the quarterly returns for that strategy. it was credit enough to ruin his returns, we would expect to see extreme movements as it grows in popularity and size. look at the trends recently. they never exceed two standard

deviations. they look not that dissimilar from a decade ago. on this regard, extreme moves were not seen, so this doesn't look to be having as much as an impact as duncan miller said. nejra: that was dani burger. great job. kristof and ben are still with us. i want to get a quick reaction. how much more challenging are quants making investments for you, if at all? ben: certainly we see more sectorial basin trading or factor based trading the necessary stock specific trading. at some point, that can carry things beyond fair value. that can also create opportunities. some things were oversold or overbought, that could create opportunities. it swings around. if you are in the place where things are going against you, is not fun. but when they are going with you, it can be helpful.

christophe: every time we are in a regime shift, it's a strong change for everyone, not only for quant asset managers, but others, if i may. dynamicsperspective, are changing in the economic growth inflation, growth as well. the dynamics within all asset classes have to readjust more or the value you, have to take into consideration. valuation dynamics of markets take times. it takes a few quarters, and this is why we should expect rising volatility or volatility in the freeot quarter to comes. you have to be nimble and the

way you manage. nejra: great. you brought us to volatility. who is more volatile now? it shows the s&p 500, wider price springs -- price swings than emerging-market stocks. s&p 500 more volatile than emerging markets. what do you advise? how do you allocate? christophe: we consider first the u.s. market. the u.s. equity markets was leading in the bull markets. this is why volatility, now higher in the u.s. than energy markets. second, regarding the way we like to allocate in the we havement, deteriorating economic growth. there are risk assets. yes, we prefer a liquid assets -- illiquid assets.

matter of alpha. it's an alpha generator asset class. for this reason, we prefer to overweight private equity. yeah, we've talked to so much how difficult it is to get returns in 2018. how are you going to do it in 2019? ben: focusing on our processes. we anticipate a challenging year, may be better than people expect, but there will be volatility and it will be tough. it goes back to focusing on good companies, good balance sheets, not egregious violations, and putting that together. what we've seen is fairly indiscriminate selling, people moving from sectors to sectors, a more factor based driven approach. what we will see in 2019 is whether companies deliver. that will be the key.

it's ok to place premium valuations on companies, providing they deliver. if they do have those business models that can grow in a secular, a cyclical way, 2019 shouldn't matter that much. but those companies have suffered quite a lot. nejra: using tightening financial conditions will affect credit faster than equity? christophe: yes, correct, especially for u.s. because of the spread in the high-yield segments didn't reflect a crew the and the rising and costs, but also on the european economies, as well. nejra: wonderful to have you this morning. ben at aberdeen standard. christophe will continue the conversation with us on bloomberg radio. up next, asian equities probably

lower, japanese stocks falling further into a bear market. we'll discuss. this is bloomberg. ♪

nejra: good morning from bloomberg european headquarters in london. i am nejra cehic. this is "bloomberg daybreak: europe." volatility rips through markets. the vix hits a february high as the nasdaq slides towards a bear market. u.s. defense secretary james mattis resigns in a skewed -- scathing letter to the president, seen as a force of stability in the administration, what does the departure mean for foreign policy in the new year? with uncertainty, investors face a partial u.s. government shutdown as the house picks a fight with the senate over border wall funding.

welcome to "bloomberg daybreak: europe." less than an hour from trading in europe. the vix, set for its biggest annual surge on record. we saw u.s. equities take a hit yesterday. dropping,. we are looking studying european futures today. in u.s.seen studying futures, looking at s&p 500. perhaps not the pain we have seen other days this week in european equities. 40 futures, dax futures pretty unchanged. the treasury revealed it is not going to fasting today's session. after the fed decision and jerome powell's press conference, we dropped on the 10 year. a 2.80 handle right

now, hovering around that level and in terms of how markets might move, these are the futures, we could see yields move a little higher. yesterday, we saw 10 year yields track the 10 year treasury yield, bund yields, gilt yields. let's check on the markets in asia with juliette saly in singapore. i have dressed in theme for the markets. asian stocks had a 21-month low. the australian market closed at a two-year close -- low. the nikkei, off over 1%. concerns about u.s.-china trade tensions weighing on chinese stocks. the csi 300 closing lower by one and 2%. we have -- 1.2%. we are on track potentially for

the worst month for asian stocks in history. the worst weekly loss we have seen since october. let's look at some of the foreign exchange moves. we did see the japanese yen rise earlier in the session, but giving back some of those gains. the dollar, stronger against the yen. victim had touched a three-month high against the dollar. the korean won, the frontrunner. won strength continue as investors get out of dollar and into won. we have seen the indian rupee fall, dollar strength for the first in five sessions. juliette saly, good to see you in red. thank you for joining us from singapore. a departure from washington. jim mattis resigned in a two-page letter, he cited difference over policy.

"the right to a secretary of defense aligned with yours on these matters, it is right for me to step down from my position." the decision comes a day after the president with -- called for with the withdrawal of troops from syria. he said a successor would be named soon. james mattis was long seen as a force for stability in foreign policy in the administration that has had to manage crises from north korea to syria. the move drew rebuke from a number of lawmakers. >> everything that indicates strength, everything that indicates knowledge is leaving this administration. mattis,kelly, general so many others. >> mcmasters. >> exactly. there is chaos now in this administration. this was one of the most chaotic weeks we have seen in american government. get the first word news with debra mao in hong kong. more news from

washington, the house of representatives has increased the chances of a government shutdown by voting to give president trump the money for his border wall. the spending bill to keep the federal agency open goes to the senate where it is almost certain to be rejected. surprised republicans by insisting he won't sign a bill without the border money after the white house had hinted he would accept it. turning up the heat on beijing, accusing officials of a decade-long espionage campaign to steal intellectual property and other data from dozens of u.s. companies. the justice department issued indictments against two chinese nationals, accusing them of being a part of hacking operation. china's foreign ministry said the government has never participated in or supported individuals in stealing commercial secrets. gatwick airport says its runway is now open and limited numbers of aircraft are scheduled for departure.

one of europe's busiest had been suspended since wednesday evening following -- following numerous sightings of an illegal drone. planes had been diverted to other airports, disrupting thousands of passengers during the busiest travel period. economist of the wto says leading indicators point to a meaningful slowdown next year. as global trade looks increasingly precarious. the wto downgraded forecast for trade growth to 3.9% this year and 3.7% in 2019. thatrns of the rising risk those numbers could because again early next year. japanese prosecutors have rearrested carlos ghosn on fresh, more serious allegations of financial misconduct. in the latest twist in the promise that has shocked the car industry, prosecutors said the former chairman is suspected of transferring personal investment losses to the company. the rearrest gives prosecutors

the right to detain carlos ghosn, who had denied wrongdoing, for at least a further 10 days. singapore to have expanded its 1mdb criminal probe to include goldman sachs. authorities are trying to thermine whether some of $600 million in fees from bond yields arranged for 1mdb flowed from subsidiaries. goldman is cooperating with investigations and has previously said he acted in good faith over the bond sales. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. nejra: debra mao in hong kong. breaking news crossing the bloomberg. seti and capital -- bought a stake in one of the biggest activists, a prominent activist investor in europe. withoutze potential

unnecessary delay. it will work with nordea's directors and management. cevian sees value potential in nordea and has been following it -- four years. to sum up, the key line that cevian has bought a 3.2% stake in nordean bank. the worst set -- december for the s&p 500 since 2009. earlier, bill dudley told us the fed is not paying much mind to the route right now but that could change. bill: i think jerome powell in his press conference yesterday made it clear he is thinking about it. he is talking about the tightening of conditions and says the fed is taking that on board but he said financial tightening had to be significant and long-lasting to have an

effect on the economy. and of the day, the thing to focus in -- on is what is the fed's outlook for growth, what is the consequence on employment, and for wages and prices? says in their forecast that despite the selloff in the stock market, despite the slowdown in global growth, the economy is at above trend case next year. -- pace next year. >> what would you say to people who don't understand what you said? is there a point where a stock market selloff -- the fed says we had better cause? if this went on farther for longer and changed the fed's of you about the outlook. the fed is looking at the stock market broadly, but also the economic news. what is happening to payroll employment. they need to see gains of about 100,000 a month to stabilize the unemployment rate. they have been seeing gains greater than that. their view is, the economy is

growing above trend, we are already at a tight labor market. we need to slow the economy down, so somewhat tighter financial conditions aren't really a bad thing. they are probably a necessary thing for the fed to achieve its objectives. nejra: that was former new york fed president speaking to bloomberg. volatility is on the rise. the vix fear index hits its highest level since february amid selloff in the u.s.. the nasdaq close to entering a bear market, 19.5% below its august peak. european equities have tumbled this year amid political risks and slower growth in the region. persistent outflows and valuations at a five year low could set the stage for recovery. italyncertainty around and brexit and economic data pointing at weakness, is their appetite to get into european stocks? justina lee, bloomberg's equities reporter.

in a back here, how has 2018 treated european stocks? justina: the year started off ok, but ended up being a pretty bad year as foreign investors fled the market. the outflows is the second biggest year on record. we got a lot of political headlines this year from brexit to the italian budget and at the same time, we saw a slowing economic growth in europe, slower earnings growth in europe and it has not helped. nejra: if we look at the outlook for next year i want to ask what it will take for investors to come back to the market? is there any other proposition for european equities other than valuation? you have a chart showing low valuation. justina: the good thing about valuation is it is setting a low bar for what constitutes good news for europe. the problem is a lot of foreign investors are waiting for the political all clear and that

might not come next year. brexit, italy, and european parliament elections next year and possibly early elections in places like sweden or spain. there is still a lot of risks investors will be looking out for and at the same time, earnings estimates probably are still too optimistic and we could ceas -- see growth slowing. nejra: justina lee. joining us from amsterdam, the chief investment strategist aipac at northern trust. great to have you on the show. i am looking forward to talking with you about u.s. equities, fixed income, and volatility. as the conversation is on europe, i want to put the question to you, given european equities have been so unloved this year, will we see a better year in 2019? i think that depends on the political landscape. we are going into the year from a neutral stance because we feel

although valuations are attractive and have a good outlook for corporate earnings, we don't have clarity on the political situation in france protestsyellow vest and brexit. we still don't have a sense of where the resolution will be. we are looking for clarity on the political front before we will move to an overweight position in european equities. waiting to move to an overweight in european equities. i know you are positive on high-yield in the u.s.. if you look at credit in europe, could we see europe do a little better, underperformed the u.s. this year? we think it should. the growth outlook for europe is fairly robust. we have seen a slowdown and no europe is exposed to the emerging market slowdown, but overall, growth in the world is going to be ok. china is restimulated. global growth will pick up a little bit, europe should profit in on the back of that --

starting positions are attractive. credit and equity should do well next year. nejra: what about fixed-income? how would you position around sovereign bonds in europe, with regard to your view on what the ecb might do in 2019? on sovereign bonds, our view is similar. we don't think the ecb will do anything in 2019. there won't be any rate hikes, though mario draghi talks as if there will be one at the end of the year. we don't think that will happen. there is not enough growth momentum for the ecb to do that, so we expect rates to stay close to where they are. maybe a little upside potential on the back of global rates going up a little, but nothing in particular for europe so rates should be fairly flat and no rate hikes in 2019. nejra: wouter sturkenboom, northern trust a.m. chief investment strategist emea & apac. with you. to discuss

as we have been talking about european equity markets, the picture for futures, we are just 45 minutes from the start of cash equity trading in europe. it was painful in the u.s. yesterday, asia has followed the u.s. lower. ftse futures, pretty unchanged. work, tune in to to bloomberg radio on your mobile device or dab digital radio in the london area. "bloomberg markets: the european open -- this is bloomberg. ♪

nejra: 7:18 in london. 41 minutes from the start of cash equity trading europe. we saw losses in the u.s. yesterday. the msci pacific inject -- index in the red. nasdaq closed short of a bear market yesterday but futures point to a lower open today.

volatility, the fix hitting 30 in yesterday's session. heading for its biggest annual jump in your. 1%, but oil still under pressure. european equities look under pressure when the market opens in 14 minutes. we are asking the question on mliv how best to trade the u.s. shutdown situation? you can join the discussion on your bloomberg. let's get the business flash with debra mao in hong kong. has cut itse bank forecast for 2018, blinking this quarter's market slump and ending a year dominated by scandal on a decidedly bleak note. danske bank said net profit will krone, downlion from a forecast range of 16 billion to 17 billion krone. the warning comes as they deal with the fallout of money laundering investigations.

nike surged in late day trade after earnings reports. forecast oft the $.46. this is nike's first earnings report since its ad campaign featuring quarterback turned activist colin kaepernick. nike ceo says the ads have driven an uptick in traffic and engagement. -- part of a deal to take a stake in the start up. ul valued it at $38 billion. $1.3 million per person at the company. all come has scored another victory over apple, getting a ban on sales of some iphone models in germany. applegional court agreed is infringing qualcomm intellectual property on an energy-saving feature.

the devices will still be available up to christmas as to cover anyd have apple losses if that ruling is subsequently reversed. that is your bloomberg business flash. nejra: debra mao in hong kong, thank you. the chief investment strategist for -- at northern. is still with us. we talked about the spike in the vix hitting 30 at one point. you said you are neutral risk generally, so how would you invest around volatility at these levels #do you look through it? think at the moment, we should be focused on what is driving volatility, what is causing it. this week with the fed is the fed failing to ameliorate concerns that it is over tightening going into 2019. in that environment, you should be careful with volatility and we choose at northern trust to

pick our exposures not in equities, but high-yield at a moment because of the tension, because is a more defensive way to keep your risk positions at neutral. nejra: i don't hear many people refer to high-yield as defensive. about risking assets, so what is your thinking around why you prefer high-yield? good point, is a and i need to clarify here in terms of making sure you pick your high-yield exposures relative to equities. is we took our equity positions down, increased our position within high-yield and by doing that, we are able to take our risk exposures down and it is basically a representation of our belief that high-yield is doing pretty well in terms of how exposed it is to the selloff. margins theseofit companies are operating at is so much higher and the technical down 40% in the last

year, which has provided a shortage of supply in high-yield bonds. it is a better place to take risks, but relative to equities, not investment-grade bonds. nejra: so relative to equities. on the equity market, then. i've been asking people whether equity markets have overreacted to what we heard from jerome powell. let me put this question to you because people commented the fed needed to give more clarity and nuance around quantitive tightening, the balance sheet, rather than saying it was going to be on autopilot. is that with the equity market needs to hear about to recover from here? wouter: i think it would. it also needs more clarity around what the final neutral rate is that the fed is targeting. the fed held onto that 3.1% neutral rate at the end of 2019-2020. we think that is too high and needs to come down by about 20

to 50 basis points. pause ind went on march and signaled its expectations have gone below 3% as opposed to above, it would go a long way in calling this market down -- calming this market down. that is what is causing the volatility right now. nejra: another conundrum for some people has been the move we saw lower in bond yields. some said you would expect bond yields to be rising if the fed was less dovish than expected. we have come back to a 280 handle. have we seen a peak in the 10 year treasury yield? wouter: we think we probably did, yes. we think the fed is over tightening. we think the market is seeing that had pricing that in and therefore, the tenure isn't going higher. that is a representation -- 10 year isn't going higher. you are underestimating what

this rate hike environment is doing to growth, over invest -- over tightening going into this economy. we think rates have probably seen their highs for the year and for next year, as well. nejra: what will you be doing to get returns in 2019? it has been very difficult to get returns cross assets in 2018. wouter: it is a difficult environment. it is the classic tale, if you don't want to start from here with valuations at stretch levels. will be opportunities going into 2019, especially if the fed goes on positive, which it should do come march. we think it would be opportunities in asset classes like em equities and asset classes that still have strong fundamental backdrop with high yields. those three categories are places we are looking for in

2019, but other areas you should be more careful, especially given how much rates have come down. i think the investment grade spectrum does look more fair value than attractive like you did a couple of months ago. nejra: where are you seeing the best opportunities in emerging markets? wouter: we still think that the china is going to do well if the stimulus measures kick in. that is what we are looking for. it is -- it profits from the fact oil prices come down. that is a plus for china, as well. the asia pac reason is the place -- region to be. the stimulus measures have to kick in and we may need a few more months for that to shine through. nejra: wouter sturkenboom, to catch up. vinorthern trust a.m. chief investment strategist emea & apac. the european open is next. tune in to bloomberg radio.

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anna: welcome to bloomberg markets, the european open. we are live from power european headquarters in london. i am anna edwards, alongside matt miller in berlin. matt: another resignation from trump's cabinet and a looming government shutdown. a selloff in u.s. stocks, yet again. deepens,equities route as welcome as begin holds gains. europe points lower. the cache trade is less than 30 minutes away. -- the cash trade is less than 30 minutes away. anna: