francine: the biggest rally since 2009, the bulls come roaring back. the nikkei bounces back from bear territory. oil initially rises before moving lower. russia's oil minister says the market will be more stable in the first half of 2019. keeping the momentum, copper rebounds on trade optimism is bloomberg learns the u.s. delegation heads to beijing in january. good morning, everyone. good afternoon if you are watching from asia. welcome to "bloomberg surveillance."

i'm francine lacqua and london. there has been quite a lot of movement over the last couple days. euro-dollar. i'm also looking at the stoxx 600. they are pretty much flat, but they beginning significantly earlier on. if you look at the main movers, technology is gaining. we did have the rally that is phasing out when it comes to europe and asia. we did have american wti at $45.51. coming up, we are joined by the chief economist at img. will focus aations lot on what is happening in the markets, what will happen om 2019. then the chief economist at strata guess research partners joins us at 11:00 a.m. london time. let's get straight to the bloomberg first word news. , francine. a u.s. government delegation is

reportedly traveling to beijing for trade talks the week of january 7. bloomberg sources, the deputy u.s. trade representative will lead the white house team, the first face-to-face discussion on trade since president trump and xi agreed to a 90-day truce. donald trump says he has no plans to withdraw american military personnel from iraq. he was speaking to reporters after making his first visit to troops in a combat zone as commander-in-chief. iraq is a base for regional operations against adversaries, including the islamic state. the christmas visit was to the joint base located west of baghdad. it comes days after trump ordered the withdrawal of u.s. forces from neighboring syria. vote oft trump's confidence in treasury secretary steve mnuchin and the u.s. federal reserve helped stir the stock surge. it is a u-turn following the president discussing firing the central bank chairman, which contributed on monday too much of the stocks falling.

trump says the fed is raising interest rates too fast, but he has confidence the fed will get it pretty soon. >> 100%. the fed chairman's job is not in jeopardy. >> in other washington news, the partial u.s. government shutdown is heading for a sixth the day with the white house and lawmakers still at also for president trump's demands to fund a border wall. the president wants $5 billion for the wall. democrats have proposed $1.3 billion for border security. democratic leader nancy pelosi pelosi says the house will pass a bill to reopen the government without money for a wall if the shutdown lasts past january 3. global news 24 hours per day and on tictoc on twitter. this is bloomberg. francine: thank you so much. u.s. futures are pointing toward a lower open after equities saw the biggest rally in nearly a decade yesterday. all major indices surged with

the s&p up nearly 5%. the doubt had its biggest ever -- dow had its biggest ever point gain after the nasdaq fell into bear markets. powell's job at the federal reserve is 100% safe according to the president's economic advisor following reports the president had discussed firing the fed chair. patrick, think you so much for making us a little bit smarter on the markets. what do the markets do from here ? >> what market are you talking about? i think the market getting along as the outcome for the u.s. economy. i don't see recession on leading indicators. lagging indicators are strong. there is wage growth, pmi is still an expansionary territory. the market has gone from pricing and 1.5 hikes to know hikes. francine: are we seeing slowdowns? patrick: growth is slowing, u.s. probably has capacity to grow

about 2%. i think all of 2019 we are going to be well above capacity for growth and that means inflation. the markets are not pricing that in. all of our models are saying the economy is still expanding. we do a recession indicator where you look at all the leading indicators, lagging indicators. a 20% chance of a recession next year. normal is 18%. the markets fall into this narrative of everything slowing, i don't think the market is right for that. francine: let me bring you over to my favorite chart. thank you to hillary clark for working to bring us great charts. this is the u.s. stock market. i was trying to figure out where we go from here. we had gains of more than 4.5%, we had not seen that in eight years. what was the rally on the back of? patrick: basically, the market got into a panic about the white house administration potentially doing a lot of silly things, so you had mnuchin trying to

reassure investors and it just spooked them. you had fears that jerome powell might be fired by trump. you have the mueller investigation. and you have probably a lot of pension fund rebounding. fixed equity bond allocations. a rebalancing weather got to buy the equities. all of these things came together. a massive rally. francine: are we going to see more volatility in these kind of markets? can you pick up bargains? do you go in and buy? patrick: you were at that point where maybe you want to be buying the dips again. u.s. markets have been incredibly overvalued all the way up until november. a lot of the excess has gone out now. markets are cheap on earnings. the dow multiples are very expensive. we are at a point where the u.s. markets are both fair value. ifyou are in an environment

the fed was government or staying on hold, i would be buying u.s. markets. i think we will have pretty normal growth and the fed will hike into that. i'm more attracted to the rest of the world and i think that is where the real bargains are. i would be looking at emerging markets right now. francine: we will talk a little bit more about emerging markets next. delivering you over to my other chart. the like this era bloomberg. looking at the fed funds rate through 2019. what are you expecting from the fed? patrick: i think they will hike. i think the economy is going to support that. i still think three is more likely than the zero or the one that the fed funds futures are pricing in right now. i don't see the big slowdown in the economy. the tax cuts were a tailwind last year. it is to let consumer driven economy. oil prices are not good for credit or business. it is good for the u.s. consumer and it is effectively a tax-cut, the lower oil prices we have gotten. francine: what do you like an

emerging markets? emerging markets as a whole? patrick: i want to wait for a bit more of a selloff in emerging markets because i think there is still a bit of a selling pressure to come. emerging-market asia is where i think value sticks out. the lower oil prices are really a boost for emerging-market asia because the emerging markets have some headwinds from producing oil. emerging-market asia is cheap. i think china is going to come through with monetary policy to support markets. i think we probably get a trade do between the u.s. and china, if you look in after where there is nothing really concrete, but it just stops tensions escalating, and i think china rallies a lot more than the u.s. on that. francine: i have several people coming on the set saying that emerging markets is where they want to be investing in. is there a concern that this is what investors want because they want yields and it won't really selloff? patrick: you were even getting dividend yields on the stocks right now, so they are trading at the 20th percentile against the run history. -- emerging markets are

cheap, it has the headwinds we are worried about. if the good news happens to the united states, i think that is much better news for emerging markets than the valuations and the negative pricing that are priced into these multiples. francine: what does dollar do from here? patrick: i don't think dollar is really going to rally through 2019. a lot from geopolitical risks. i think the mueller investigation is going to create some headwinds were people may want to diversify reserves. if i'm china or anywhere that has a letter amount of reserves , ilarge amount of reserves think it makes a lot of sense for central banks around the world to diversify their reserve base. think that is going to keep a lid on the dollar despite the fact that the fed is going to hike twice. francine: patrick, thank you so much. patrick armstrong stays with us. oil ticking lower. russia handset more cooperation with opec among its partners to support the market. more on that next. this is bloomberg.

♪ ♪

francine: economics, finance, politics, this is "bloomberg surveillance." i'm francine lacqua in london. let's get straight to the bloomberg business flash. >> vinci has agreed to acquire a majority stake in get wic airport for 2.9 billion pounds. with total traffic of 45 million passengers in 20 18, it will become the largest single a report in vinci's global network. it comes less than a week after the airport was thrown into chaos by multiple sightings of an illegal drone. shares in south africa have surged after a carrier settled allegations that it transferred a .1 billion funds out of nigeria. nigeriaral bank of

agreed to clear the carrier, which means the company will pay $56 million to satisfy officials over the allegations. nigerian authorities initially wanted a full reversal of the dividend payment. likely to cut more jobs in the next year as it shifts business to more profitable centers in asia and the u.s. -- speaking to bloomberg, the chief executive says the bank needs to reduce headcounts will finding ways to grow revenue in the region. japan's biggest investment bank has struggled to generate profits in europe since it bought lehman brothers operations in 2008 and that is the bloomberg business flash. francine: thank you so much. oil moving lower the last couple hours after initially riding a wave of optimism leading to a rebound across risk assets. investors remain wary about the prospect of the sick like -- supply glut. hasia's energy minister

told russian state tv that the situation in the oil market will be more stable and balanced in the first half of 2019 thanks to the opec plus deal. joining us now is bloomberg's emea managing editor will kennedy. patrick armstrong is still with us. patrick, think you for sticking around. will, welcome to the program. we have had quite a volatility -- a lot of volatility, but what is the outlook for the price next year? patrick: clearly, there is a lot of pessimism about the outlook for the global economy at this price as most analysts will tell you. if the conversation was dominated by supply this year, in the early part of next year, it looks like the conversation will be dominated by demand. how much will the chinese economy slow? what will happen with fed policy? so, that is what people are thinking. these prices seen plenty

desperate he gloomy. if the economy continues to grow , perhaps the be room for a strong rebound. francine: do you agree with that? you are not pessimistic on the world economy. patrick: i think demand will grow by one million barrels per day by the time we get two-year not matchupply may that if u.s. shale production falls off. you may start to see her mental fall down -- slowdown -- incremental slowdown on u.s. shale production. francine: how much control does opec have? is it kind of out of their hands? will: the action the last few weeks will tell you that they have very little traction at all. they had the meeting in december in vienna and the outcome was a cut of 1.2 million barrels per day, more than people expected going in, and when you add in what saudi has promised to do, you are looking at 1.7 million barrels per day that come off the market and what happened to

oil? it has fallen since. opec is really struggling to gain any traction over the market. and that must be a concern for the saudi's in particular and i think you see in the comments you mentioned earlier that these prices are becoming a concern for russia too. francine: this is my chart on oil. you can see the oil volatility we have had. in white, volatility 60 days. blue, -- do you like anything linked to oil? do you buy the sector? patrick: the only equities i have bought over the last few months have been european integrated oil companies. they are cheap, they are dividend sustainable at $50. if you go below that, they have to start looking at dividends. i think oil prices will be supported at these levels. the adjusted cash flow. those are very attractive multiples for those companies. francine: what prices to shale fields actually need to continue

pumping? at 40 five dollars is it worth their while? will: these prices will start to have an impact as patrick said a moment ago on the outlook for shale production. main --rget that the the most important thing is that used -- u.s. production was an astonishing 2 million barrels per day. no one is expecting a repetition, but there were forecasts of an excess of one million barrels per day. what we have seen recently is producers and independents starting to pare back their forecasts for spending. you are already starting to see some followthrough from recent declines in oil prices. that will be the most watched number of all next year, just how much oil is coming out of texas. lower oilwho does the price benefit in terms of regions? is it europe? asia,k: i think it is emerging market asia. they don't produce any oil.

the consumer is very hit by the price of oil in that region. francine: and you are not worried? worried that it is because of lack of demand? the market isnk overreacting to this global growth scare. i think the market is totally , i think we are seeing the slowing in growth. i think a lot of markets have moved from pricing in growth to pricing in a high probability of recession that is not going to come. knowine: let's say and i this is speculation, but let's say there was a fall in demand, how quickly do we find out in the numbers? bit: it does take a little of time and that is part of the problem. we have not seen that much of it yet. that indiafeeling was full or a prices. it should probably be mitigated

with the impact and what is actually becoming the key market to drive all demand globally. francine: thank you both for joining us. will kennedy, editor. and patrick armstrong. happy holidays. he stays with us. up next, the end of stimulus. we discussed the next challenges for the central bank. ♪

francine: this is "bloomberg surveillance," i'm francine lacqua. mario draghi's decision to end ecb's stimulus program may have come at a curious time. the central bank says significant monetary stimulus is still needed to support the economy. the ecb says there are increased downside risks. the québec to patrick armstrong. when it comes to the ecb, we are also hearing from the ecb saying the downside risks, the ongoing economic growth, what do you think their options are? patrick: i think it is steady as they go. i don't expect there will be a re-initiation of qe. ,y the time q4 comes around they will still get them close to zero. it is by no means a hiking that is starting to get restrictive.

european economy is performing above its potential, which is not quite enough for the southern countries. , theyou look at as a whole european economy is going to grow around 1.5% next year. it should let the ecb meet their target path. francine: do you worry about germany? patrick: not so much. germany, the fact that its last quarter there was no growth, i think that is a bit of an aberration. i think the economy is still doing well. if you look at the very high savings rate, i think that will come through even if it is a bit of a global slowdown. i think the german economy should whether that. thecine: when you look at politics of things, the populism, will it impact a lot of these economies. italy is done. but there could be other things coming up. patrick: you have france and italy and i don't know if it is bad news, i think the real reason europe has lagged the united states of a recent years is the u.s. had a big fiscal

expansion and europe did not do it. i don't necessarily view it as bad news that you were getting a bit of a fiscal thrust and economies that are lagging their potential, which i think france and italy are right now. a little move in that direction is not a bad thing. the debt economics of the eurozone are not terrible. a bit of a fiscal thrust is good news. francine: how much would brexit hurt the eu if it were to be not -- unravel in a bad way? patrick: the best case scenario for the eu is a prolonged uncertainty where the transition agreement is extended because that uncertainty pushes capital allocation toward europe away from the u.k. a hard brexit is terrible for the united kingdom, but bad news for the eurozone. neither wants the hard brexit. that is the tail risk. a very goodt was chance to months ago, but now it

is 15 percent, 20%. francine: i have not even ask you who is going to replace mario draghi, so we will have to come back to that. patrick armstrong stays with us. as a u.s. government delegation is said to be planning a visit to beijing to talk trade in the week of january 7, we will bring you more on that bloomberg scoop next. we will continue looking at what markets are doing. after the rally we saw yesterday , we are seeing a limited momentum in europe. dollar actually giving up some of wednesday's advance, but i'm looking at construction and technology shares still leading gains. this is bloomberg. ♪

francine: this is "bloomberg surveillance." i'm francine lacqua and london. is's check in with what trending on tictoc.

on bloomberg.com, u.s. stocks registered the best rally since march 2009 after falling to the brink of a bear market. and the most read stories on bloomberg terminal, jpmorgan will pay 130 $5 million to settle allegations it mishandled securities that represented chairs of foreign companies. in second place, super mario cavalli will not collect millions and compensation. story, trump defends the withdrawal of u.s. troops in syria in his first visit to soldiers in a combat zone. but get straight to the bloomberg first word news in new york city. >> hi, francine. secretary wille lead a u.s. delegation reportedly traveling to beijing the week of january 7 for trade talks. it will be the first face-to-face trade discussions since president trump and xi

agreed this month in argentina to a 90-day truce. donald trump says he has no plans to withdraw american military personnel from iraq. the u.s. president's statement coming after he made his first visit to troops in a combat zone as commander-in-chief. he said the u.s. may use iraq as a base for regional operations against adversaries including the islamic state. the christmas visit was to the joint base and comes days after he ordered the withdrawal of u.s. forces from syria. confident inmp is the treasury secretary steve mnuchin and the chairman of the central bank. this is a turnaround after he contemplated firing the central bank chair. he says he has confidence the central bank will "get it" pretty soon. an of brick of the ebola virus will push back a long embroidered presidential election. the scheduled election will be

delayed for months in certain communities where hundreds have been infected. the vote to choose a successor to the longtime president is operative been postponed for more than two years. england doubling the charge on disposable plastic bags. it is part of a drive to protect the environment. the fee will be extended to all shops. the current five pence charge introduced in 2015 has cut average and will usage from 140 bags per person to 19. global news toy four hours per day and on tictoc on twitter in more than 120 countries, this is bloomberg. francine: thank you so much. bloomberg has learned the u.s. and china are set to reopen trade talks, the first since president trump and xi agreed to the 90-day tariff truce. the u.s. delegation will travel to beijing early next month for negotiations. since the temporary truce most a month ago, china retrieved -- removed a retaliatory tariffs on

u.s. automobiles. meanwhile this morning, the profits of chinese industrial companies fell for the first time in almost three years, highlighting the effects of snowing economic growth -- slowing economic growth. john, give us is a sense of what kind of economic agenda we will see from china. fallingentioned the industrial profits, that is the first decline we have had in three years. internally, there is pressure between the administration and beijing to get the growth back up to generate jobs. we have millions of new people entering the workforce, so that is going to be high on the list and to make sure whatever is happening with the u.s. is not causing a drag on that. francine: talk to me about these trade talks. on what issues are the two sides furthest apart? john: i think right now it is probably technology. there was a report this morning about the white house mulling

possibly an executive or that would effectively ban american telecoms from buying from chinese companies. at the same time in beijing, we had this announcement the chinese alternatives to gps, they were starting officially their global service today. you have the bifurcation bifurcate and of the world in terms of technology and that really takes root in a deep place -- ohn, how likely is it that a deal will get done by march 1, which is this deadline that trump and xi gave themselves that g20? john: i think we talked about some of the issues where the two sides are very far apart. think it is very hard to close those differences in 90 days. i think the two sides definitely want a deal. i think trump and xi have made that clear. i think by march 1, we will probably get a deal.

will it be enough to end this trade war or ease tensions? that is probably going to be harder. francine: if we do get a deal, would it be a real deal, a deal of substance, or is it going to be smoke and mirrors? john: i think it will be substance in the sense that you will see the chinese buying a lot more american goods to shrink the deficit. a lot oft will kick trickier issues down the road. it would not surprise me in however long if we were back at the table. francine: john, thank you so much. bloomberg's executive editor for greater china, john liu. patrick armstrong is still with us. if we do get some kind of trade deal, you were saying it will be a little bit of a dodge. patrick: i think so. that is what we have had with nafta and iran. you get something that the white house can come out and say we got a deal, it is the best deal ever, but there is nothing much of substance. i think the core issues are

almost unresolvable in the short-term. getting deals to fix the current account deficit. get china to say we are going to commit to this many soybeans, more oil imports, natural gas, things like that, we will get something like that, but i don't think it will get to the real crux. underlying tensions will continue, but the overhang of the market may lessen on the deal that will come. francine: i'm also looking at china industrial profits dropping for the first time since 2015. does that make you worry about the strength of the economy? patrick: it makes me worried about profit margins and i think that is what investors who are worried about equities have to worry about. the s&p 500 never had a higher profit margin than it does today and the economy continues to expand, but it does not translate into earnings growth the way we have in the past. anytime the economy moves past you are going to continue to get economic growth as the base case, but the earnings growth is not going to

fall through as much. francine: does it mean that it leads to a domestic downfall for equity markets? patrick: you will get a wealth effect. in some countries, probably the u.s. in particular, when the u.s. stock market weakens, that ties into the confidence of the u.s. consumer. that is the only thing the fed should we worried about in terms of the wealth effect, not just elevated multiples to more normal multiples, despite the fact the economy has not deteriorated significantly. i think the environment is not going to slow the economy. the profit margins are not going to be great. francine: i know you like emerging markets and you have not allocated which markets you want to put your money in, but what is the correlation between asian emerging markets in china? patrick: very much the same factors dominate basically china and emerging markets. they have all been hammered because of trade basically. u.s. markets have been hit a

little bit because of trade tensions. china, you have not seen the economic numbers, that will probably be a more q1 story. the rest of the emerging market asia has links to china, so therefore it has slowed down a little bit, but they are going to be net beneficiaries even with the trade war between the u.s. and china because we will see trade pick up there. it is a case where valuations are depressed in emerging markets. the u.s. is still relatively elevated on multiples. that is where we like emerging markets, not so much the economies expanding robustly in emerging markets and -- then the rest of the world. francine: do you like india at all? we are looking at some of the calls on renminbi going forward. patrick: we don't have any calls on renminbi. it is getting a bit of a stimulus. it has weakened over the last 12 theys, but i don't think want to get it to disorderly. they will probably manage it around the current levels. francine: patrick, thank you so much. patrick armstrong stays with us.

coming up, u.s. versus european stocks. we get patrick's take on what he prefers and why he thinks the u.s. equity premium is still elevated. this is bloomberg. ♪

francine: this is "bloomberg surveillance," i'm francine lacqua in london. we have been discussing a sharp rally in u.s. equities. yesterday's session, it was the best single day since 2009. does the market turning point or a cap bounce? adds het host, he prefers equities outside the united states.

let's get back to patrick armstrong. you like emerging markets you were telling us. are there specific industry groups you are looking at or do you buy currencies? patrick: for emerging markets, we will be looking at media. in europe, we look the french banks. we think they are the outlier. they are very well capitalized. they have great dividend yields. they are competing against a very fragmented banking industry. the german banks have their issues. they have a great wealth management and finance divisions. that is the sweet spot in european equities in terms of value, dividend yield, and relative safety. francine: are you expecting and a day in the banking sector? patrick: there has to be. i don't know what will be the catalyst that sets it off. maybe it. is foreign banks moving into europe europe is over-banked. economy have a slowing

, that may not be the time for m&a because the bad debts are still there and a lot of european banks need to be acquired by stronger banks. that question mark is too large right now. if we go into any period of stability in the economy, that may be the catalyst for some takeovers. unless you get some really distressed values, that will not happen in a weak economy. francine: what is an industry group you like least in europe? or worldwide. patrick: in europe -- i still think big caps are still very expensive. i prefer the more traditional companies that are trading at reasonable multiples. they are still pricing in an outlook that is going to be very difficult to achieve because all of them are going to face different issues. data protections for alphabet and facebook. amazon is a great business, it is not a monopoly position, but

it has a defendable franchise, but it is trading at such lofty multiples. that is hard to keep up the growth as you get close to a $1 trillion company. francine: what do you do with currencies in your model? patrick: we don't have much in the way of currency. we are short sterling a little bit. we have been long dollar, short euro, but we really close to that often december. we think that has run its course. if we do get the growth we expect, we think that is probably supportive of the euro going forward. its qe at the ecb end and start hiking by next year. francine: the way you play emerging markets is through etf's. do you buy the currencies? patrick: there is no currency in particular i like right now. if we have to have currencies, we would put them on brazil and mexico looks relatively favorable. equities, the asian ones look attractive. we do have bonds that you are getting a real yield of about 3% right now, which typically in equity risk is about 4%. you are getting an equity-like

risk to buy inflation linked bonds right now. francine: german bonds? patrick: we are short. francine: at some point, they have to re-price. patrick: they have to at some point. francine: but they haven't. patrick: they haven't. we will see how that changes into 2019. all of a sudden, you were going to the market participants who a real recession or breakup of the eurozone, then you could be attracted to yields. as an investor, you are not getting compensated for any inflation risks. inflation is running much higher against the bond yields. other than that, there is no attraction to it. we are going to need to get to entice investors to buy them or worry about the end of the world. francine: anything that you want to be invested in when it comes to bonds in southern europe or treasuries? patrick: we have sold our italian position in bonds right now. fonts we don't think look

attractive right now. we think the economy is going to surprise a little bit to the upside. we think the market was right on the economic outlook. i think it is very bond-negative. francine: patrick, think is so much. patrick armstrong stays with us. up next, luxury's growth potential. it is on course to grow 8% next year. we will talk luxury. this is bloomberg. ♪

economics, finance, and politics, this is "bloomberg surveillance." i'm francine lacqua in london. let's get straight to the bloomberg business flash. >> president donald trump reportedly considering an executive order that would prohibit u.s. companies from using telecommunications equipment made by hauwei and zte. they would direct the commerce department to block companies from buying equipment from foreign makers it views as posing significant national security risks. n theiggest outflow i weekend, redemptions topped $50 billion, that is the biggest outflows since october of 2008.

while investors dumped mutuals, they added $45 billion into exchange traded funds. -- $25 billion into exchange traded funds. india's trade ministry saying on-time retailers like amazon must treat all vendors equally by providing the same terms. the rules are an attempt to solve predatory pricing and deep discounts that threaten the domestic retail industry. amazon isrting that partnering to contest new rules. that is the bloomberg business flash. francine: thank you so much. approaching $300 billion, the global personal luxury goods market is likely to grow 8% in 2018 after third-quarter spending maintains the same organic sales growth as the first half of the year. bloomberg intelligence predicts a similar rate of growth for 2019, but macroeconomic uncertainties surrounding trade tariffs and lower chinese gdp

forecasts have seen valuations for global luxury goods companies slump in recent months. here to discuss and what to expect for next year is our senior analyst for bloomberg intelligence. still with us is patrick armstrong. think you both for joining us. what do you see in terms of numbers since september? a christmas period, the holiday season, is huge in terms of discounts. >> less so for the very high end of luxury stocks. kateve seen companies like spain still emptying out inventory, so there have been regular discounts leading through the last quarter of the year. if we go from the 8% which we have delivered through september, what we have seen, i think we could look at a couple of points of trend data, 8.4% for the first two weeks in december, and also the data which was over $2 billion, the best we saw since 2015.

with growth, 10% in hong kong. 18% of exports in the u.s., 15% into china. overall, there is a mixed picture, a lot of positive indicators. francine: that is a lot of numbers. what are people buying? deborah: at the low-end, the generation z are buying smaller items. lots of these are big luxury names bringing in lower price point entry price points and also cosmetics and fragrances at the high-end. they are doing very well. hot given the weather. also lots of high-end ath-lei sure. we had the acquisition of stadium to get their hands on a lot of individual brand names and very high-end, some of the footwear is coming out at over $1500 on that website. francine: are we going to get more m&a? deborah: absolutely.

half-year 2018 on the latest numbers. we can just look at also what is going on with lpmh. the acquisition of belmont. the cipriani hotel, the copacabana hotel. lots of names where we have $2 billion or less market cap. some of those could be taken. i think it will be very active on the m&a front. top salesround 3.8%, growth of 8%, 11% eps growth. francine: patrick, do you like anything in the luxury space? patrick: it is something we sold out about a year ago, something we sold out of year ago too early. it is something we are starting to look at again right now and i suppose the swing in your opinion is that the high net worths, china and the emerging

markets, buying, or is it more domestic? deborah: i think for 2019, at least the first half, if things stay as they are with usf in china trade situation, it will very much be the u.s. consumer and the chinese consumer when they are traveling. they will make up well over 50% or 60% of purchases through 2019. francine: how much of the luxury spending is done when traveling? deborah: if we think about the chinese consumer as they are now , the latest numbers, a third of the luxury market is chinese spent. 45% is at home. ,he rest, 75% of what they do around 25% of the total luxury market is when they travel. with repatriation, we have had companies, the gucci brand, reducing 3.5% on sales in mainland china because of what is happening over there. that still does not make china, mainland china, as cheap as buying into hong kong or another.

the reason we get that 15% number four swiss watch exports, we still get 10 presented to hong kong. francine: when you look at trade itsions, we talk about impacting technology stocks. does it impact luxury? deborah: i think it is perceived to be so, so if you look at the half year and how strong luxury rallied in some of the , it is not actually so much the case because the biggest luxury brands had a huge fluctuation stored in key locations, mainland china and asia. inlook at what is happening terms of e-commerce, only 10% of the luxury market. a lot of that can be captured. then you think about the luxury goods, the biggest brands who have done the best, and they are produced in france, produced in italy. out ofo you have a case the u.s., even companies like

michael kors, 65% of what they do is still within america. they are very much exposed in their own economy, so to speak. it is less exposed as compared to some other things. francine: thank you so much. patrick, think you so much for joining us as well. now, "bloomberg surveillance" continues. we will be talking to the chief economist at ing. we are seeing a little bit of a downturn for some of these stocks overall. the biggest rally in american equities since 2009. momentum faltering. looking at european stocks, they are down. this is bloomberg. ♪

♪ the bulls have come roaring back, with the dow

posting its best ever first-day gain and u.s. futures. oil rides the wave of optimism before a rush lower. and keeping the momentum, copper rebounds on trade optimism as bloomberg learns a u.s. delegation heads to beijing in january. "bloomberg surveillance ." i'm francine lacqua in london. tom keene having the day off. we did see a pretty historic rally yesterday in the u.s. that kind of continue to japan, and now seeing a downturn when it comes to u.s. futures and european stocks. we will have a look at that alone bit more. you can see futures in the u.s. down around 2%. let's get to the bloomberg first word news. here's viviana.

reporter: deputy u.s. trade representative will lead a trade delegation to china for trade talks. it will be the first face-to-face trade discussion since president trump and xi agreed this month in argentina to a 90 day troops. trucd trump -- 90 day e. donald trump says he has no plans to withdraw troops from iraq, saying the u.s. may use it as a base for regional operations against adversaries. dayschristmas visit was after trump ordered the withdrawal of u.s. forces from neighboring syria. a vote of confidence in the treasury secretary and fed chairman strength and

confidence. partial u.s.e government shutdown, as the white house and lawmakers continue to clash over president trump's demand to fund a border wall. the president once $5 billion for a wall. democrats have proposed $1.6 billion for border security. the number of corporate executives and officers buying shares of their own companies is outpacing sellers by the most in more than eight years. the number of u.s. company bosses making purchases has doubled in the past two months from the previous two. 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. vivianaana or todd -- ortado. this is bloomberg.

francine: we are seeing quite a lot of volatility when it comes to markets today. we did see the biggest rally in american equities since 2009. through japanese stocks, momentum faltering thereafter. if you look at some of these stocks in europe, they are definitely down some 1%. the bigger story is what is going on with remedy -- with remedy. to a lowers pointing open after equities saw their biggest rally in nearly a decade yesterday. , with theces surged s&p up nearly 5% and the doubt jumping to its biggest ever points gain. this followed a downturn which into -- theaq fall

dow jumping to its biggest ever points gain. this followed a downturn which saw the nasdaq going to a bear market. joining us is bloomberg's executive editor for china from beijing. take you for joining us. john, let's kick it off with you. when you look at these trade talks, are we going to have a deal by march, when the presidents what a deal by? >> the likelihood is pretty good we will have a deal by march. i don't think it will be a final deal that solves all the issues on the table, but it will be good enough that both sides can tout -- francine: what are the main sticking points? how do they get around? reporter: i think it is really hard to get around it. there's the argument that a lot of progress china has made in technology has been from

stealing u.s. ip, and on the chinese side, xi jinping is trying to move china from a middle income country to a wealthy country. the only way to do that is if china has its own innovation, its own mobile phones, telecom equipment something set the rest of the world is going to want to buy because they are added value products. francine: how important are these trade talks for the markets? guest: absolutely crucial. it's been a big driver of , a biginty in 2018 headwind for global demand, for global growth. we are seeing the repercussions of that in december with the s&p having its worst performance in 80 years. francine: does it give a lift to the markets if there is something agreed, or do you expect it to be smoke and mirrors? if we there would be lift have a meaning for agreement.

i am more cautious on the structural aspect of these trade negotiations over the next few years. but i think into march, we have a window for the trade talks to have a short-term positive results. donald trump cares about the equity market. the reason why things got so in terms of trade was because u.s. assets were doing well, so donald trump felt very comfortable pressing aggressively against china. now that we had this adjustment, i think we will see donald trump turned down his rhetoric against china, so i think we will have a window for things to improve. francine: when you look at the importance of these trade talks with china, how did is it -- how big is it? reporter: i think it is fundamental. china worries about having a more fundamental conflict with .he united states

they are trying to do all these things domestically. francine: talk to me also a little about some of the data we had today. this is china industrial profits dropping for the first time since 2015. should we be worried about that? reporter: i think it is just another data point that shows how weak the economy has been. you've already seen central chinese policymakers talking about the things they have available to them to help prop up growth. we should expect them in the coming year to take advantage of looserit a slightly monetary policy stance. the policymakers have the right tools to sustain it? the policymakers have

tools, but i think they have significantly fewer degrees of freedom that in the past. the key reason for that is that the balance of payment picture is completely different. huge amounts have of dollar inflows every year into the chinese economy, which they could then use at times of to prevent excessive weakness. the current account balance by the end of next year could be zero. economystimulate the successfully, current account balance goes into deficit, and in they start getting capital flight from the economy, and rmb we can -- rmb weakens. if you look at industrial production, retail sales, week this from 2003. consistently weak chinese data.

they can do a lot less than they used to. canink we see growth we about 6.5 -- growth we can -- for 2019.ken 6.5% i think the market in general can provide a bit of support for rmb as some of those positioning's cleanout. in my view, the path of least resistance is for the dollar to go higher. the renminbi should weaken. in my view, dollar-renminbi will weaken. liu.ine: thank you, john abbas stays with us.

coming up, we will ask a thing or two about china and japan at 10:00 a.m. in new york, 3:00 p.m. in london. this is bloomberg.

♪ reporter: let's get the bloomberg business flash. acquire majority shares -- vincy agrees to acquire majority stakes in gatwick. shares in south africa have

surged after allegations of an illegal transfer of funds out of the central bank -- out of nigeria. pay just $52.6l million to satisfy officials over the allegations. --erian authorities of nigerian authorities originally what they -- wanted a full reversal of the payments. nec has spent years turning itself into a technology services consultant with customers including phone companies and retailers. that is the bloomberg business flash. francine: mario draghi's fiveion to end the ecb's ship stimulus program may have

-- of flagship stimulus program may have come at a in interesting time. joining us now is carsten ,rzeski, and still with us abbas arnell-renani. what do we misunderstand about the ecb? will they be faced with a tougher economic environment in 2019? >> i think they are facing a tougher environment right now, although you could argue we had so much negativity there might be a point to become slightly optimistic again. we have many downside risks. the big question for the ecb is whether they are able and willing to only shelve another oronventional measure whether they would be willing to do nothing at all throughout 2019. francine: i'm looking at the

economic bulletin of the european central bank that came out just a couple of hours ago. they say the incoming information remains overall consistent with economic expansion. where do you see the most weakness in europe? >> i think germany has been surprisingly weak in the second half of the year, but i would see a rebound in economic activity throughout 2019. the entire euro zone been hit by trade tensions, by uncertainty, uncertainty. the big question will be whether investment is really able to pick up, to accelerate. this could be across the entire eurozone economy because we still have interest rates, we will have high capacity utilization, and there is a big point to be made that investment could be the next thing for 2019. if it doesn't come, we are confronted with a slowdown, which doesn't have to be a recession, but would be a clear

slowdown. francine: where do you see euro going? and what moves markets? it seems the market is pricing in a second mario draghi, so unless we have a big surprise on who takes over, will it be steady if they go? >> first thing is what is the fed going to do. are we going to see two more rate hikes, or less? when you look at what is coming from the eurozone, the question is will the ecb act at all in 2019? be au said, there could new mario draghi coming in, but markmannot rule out mr. picking overcome a which would be a slightly more hawkish ecb president and which would probably also make the case to at least shelve the unconventional measure so we ecbd see some action before of next year.

the vice president donald trump home after an unannounced visit to iraq, where he was greeting u.s. soldiers. he did deliver this speech to u.s. soldiers, making it to first best deliver a speech to u.s. soldiers, making it his speech to-- deliver a u.s. soldiers, making it his deployed soldiers. abbas, how much does what the ecb do depend on fed? >> i think the cycles have decoupled. the fed started hiking interest rates in december 2015 and then again in 2016, and another four. difficultit is very for me to see the ecb doing anything. one factor that i don't think is

talk about enough is the timing of draghi's departure. us that ratesold will be unchanged through summer 2019. draghi is leaving in october. is he going to do anything in his last meeting? i don't think so. if the next ecb governor doing anything hawkish in his first meeting? i don't think so. i think ecb will be in weight and hold mode, but that is what the market has priced. that is why i don't think further lack of ecb rate hikes next year will be a drag for the euro. if you look at what has happened in terms of rate expectations between the fed in the ecb over the past months, you have stunted rates in the u.s. relative to the eurozone. typically that leads to euro-dollar strength. we have not seen it yet. the euro has been extremely range bound. i think that could catch on to

the upside as the market has priced in a more dovish, unchanged ecb, but the dollar has not yet weakened. i think there is time for that to catch up. francine: thank you so much. both of you staying with us. coming up in "bloomberg markets: ," this is bloomberg.

♪ francine: this is "bloomberg

surveillance." by8 has been a year marred trade wars and political risk. points to the populist government in italy, vladimir putin's drop in popularity, and turkey's president erdogan's mismanaging of turkey's economy. we are back with carsten brzeski, and abbas arnell i.naldi -- abbas arnell-renan how do economists deal with some of the political risks out here? >> geopolitical risk is difficult because the market doesn't tend to have much patience when it comes to the materialization of political risk. it is happening on the back of

our mind, and we traded when we think it is close. what was interesting this year was oil prices. this was completely out of sync with where global risk sentiment was. three --s were up were up 3% year on year. we saw that supply premium that existed completely washed out and all our prices come crashing down. i think geopolitical risk becomes very meaningful at the right time. i think next year we need to worry about a lot of hodgepodge. europe is going to be a key focus, especially with parliamentary elections in may. populists are holding very well in europe. are sufferingron from very low opinion poll ratings. rating in europe is

for matteo cellini in -- matteo salvini in italy. i would be a bit cautious, and i think especially when you look at europe, it is always good to go under the surface of what out there populism. in germany is still the most popular politician. her ratings are still pretty high. when i look at the european elections, yes, there will be some populist party gaining some votes. gains of populist parties back in 2014, only leading to their gains in national elections after 2014. there will only be a very few populist parties a actively gaining compared with 2014.

if brexit goes through, we will in the european elections. we've seen all of the last year that the populist parties are never able to really cooperate in european parliament. i did that more optimistic that this will not be the end of europe after the european elections. tom: we are just -- francine: we are just looking at pictures of president trump with the first lady of the united states, melania trump, walking out of air force one after the president delivered a speech to u.s. soldiers in iraq yesterday, making his first visit to u.s. troops in a combat zone. this is a week after he dismissed his defense secretary in a dispute over the middle east strategy. the government shutdown. how does that make you worry about the u.s.? does it impact the way you look at u.s. strength in 2019?

>> i think it clearly is an economic thing for the u.s. economy. that's for sure. but then when i look back at the years we've had come up off off, ias -- had come would expect to see some solution in january. when i look at the relationship between the u.s. and the eu, i think there are also ongoing talks on finding some trade agreement. i would also assume that we do see some breakthrough because there is this fear of this risk thatfar spread trade war was not materialize, and we could actually get some positive surprises in the first half of 28 team -- of 2019.

francine: how will president market?pact the stock this is a president that cares most about the stock market, but he's also delivering on campaign promises, whether this hurts the u.s. economy or not. >> i think donald trump represents policy uncertainty when it comes to the u.s. the federal shutdown is a case in point. we also now have gridlock in the u.s. congress. that will be important as we approach the debt ceiling in march. unlikely that any of these proved to be systematic risks, risksthink they are nevertheless, which need to be priced in asset markets. you look at the u.s. economy now and see a market where there is huge policymaking uncertainty. there is policymaking uncertainty, you need to apply a discount to those assets. when the u.s. economy is running and continues to run the largest

fiscal deficit it's had outside of a recession since world war ii. francine: thank you so much. abbas stays with us. let's get to the bloomberg first word news. reporter: deputy u.s. trade representative geoffrey garrett will reportedly lead a u.s. delegation to beijing for trade ,alks the week of february 7 the first face-to-face discussions its presidents trump and xi agreed to a 90 day troops. president donald trump's vote of confidence in treasury secretary steve mnuchin and the chairman of the federal reserve helped sentiment.market said he has confidence the central bank will get it pretty soon. stays?fed chairman

>> yes, 100%. that's correct, yes. lawmakers and the white house continue to clash over president trump's demand to fund the border wall. the president wants $5 billion for the wall. democrats proposed $1.3 billion for border security. an outbreak of the ebola virus in the conga will push back -- in the congo will push back a long awaited election. in certain communities, hundreds have been infected. in england, planning to double the charge on disposable plastic 10gs -- plastic bags to pence.

it will be extended to all shops. the government says the current charge introduced in 2015 has cut and an inch -- has cut average annual usage. 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. oil moving lower in the last few hours after initially writing a wave of a them is him to a rebound across asset. wary of aremain supply glut not being enough to counter booming u.s. shale output. the russian oil market has said it would be more stable and balanced in the first half of 2019. will come a what happens to the

price of oil in 2019? is an almost impossible to predict? >> it's been a pretty crazy christmas for oil, as you say. eve, 7%% on christmas yesterday, down almost 3% again today. markett people in the think the recent selloff may have been down to us really pricing an economic slowdown which isn't yet on the cards, will rally early in next year. francine: i'm looking at whether russia and open will continue with this, and that i'm looking at u.s. shale producers. we see from january to the end of this year and increase of 2 million pounds a day, which is astonishing. people want to see if the pace continues in the first part of next year.

you see a lot of oil producers pulled back on their plans to suggest growth might not be as big as people expected. the other key factors going to be demand. people want to know if there is a slowdown. arrierld have a big b on the overall market. francine: geopolitics in the middle east will impact oil price. what are your outlooks? >> from these levels it is easier to see upside than downside, but i am not sure we have necessarily overdone the correction, mostly because if you compare oil prices today versus other commodity prices, they are fairly and sink -- fairly in sync. q3 ishange we had in q2 or

because of supply numbers that didn't materialize. we are comfortable with the global demand picture for next .ear i think it should be expected that oil can bounce next year. 2014,revious downturn in we had similar dynamics. all of the discussion was when would shale producers go out of business. most estimates at the time were $45, $50 per barrel. they've made significant deficiency gains since then. whatever that level was in 2014, 2015, it is probably lower today . we can't be overconfident about oil prices bouncing back. should be confident about a further shutdown before

pushing is higher. francine: shale producers, do they stop producing at these levels, or still produce because the need to make up some of the financing? reporter: it will depend company by company -- >> it will depend company by company. one important thing to bear in mind is the rise of the big oil majors as a force in texas. reporter: they are the ones drilling many wells. they are taking bigger positions . they have less sensitivity to the ups and downs of oil. what we've seen in previous year , and its ability to innovate, cut costs has been shown time and time again. francine: let me bring you over

to my chart, a nice way of looking at price volatility when it comes to crude. how you buy into this for your portfolio? i think it is reasonable to expect reasonability to pick up .ignificantly twoas down in the past trading sessions. it is normal to see this kind of volatility. for us, the precaution is how it? this make us look into the currency impact is a lot less than it used to be. when you look across the emerging-market landscape, you see far fewer economies that are -- matters book that our big the emerging-market landscape, you see far fewer economies that

are big exporters. you are left with russia of syria. -- and algeria. i don't think the impact is going to be huge on any of these countries. francine: this is my other chart. when you were coming on, you are so gracious. we talked about contango in the past. how difficult is it to understand if it is demand-concern? we look at a cross-section of oil prices and world growth. if demand is lacking, it could be one of the first indicators that would point to a downturn.

reporter: certainly the last few weeks have been driven by the global growth scale you seen driving equity markets. we had an opec meeting december . and seven and --summer six december 6 and 7. people to be demand story could out run the supply story next year. one more point about opec and would like to make is that they are a dangerous in this low oil prices for a lot of opec producers. what happens to venezuela if we see oil prices this low? could it collapsed totally? that could bring many more out of the market. libya has shown signs of instability. there are all sorts of risks .ntailed

francine: your bread-and-butter is emerging markets. are there countries you worry about more than others because of the price of oil? guest: i think where we are going to see impact from the move in oil prices is going to be in rate markets, where -- where you want to have exposure to the local interest rate story, central banks will be under less pressure to hike interest rates because of lower oil prices. i think gcc countries are going to come under pressure next year. most of them have closed their budgets for 2019, with assumptions of all prices much higher than where they are today. somehow came up with the assumption of $18 per barrel with a relatively high amount of supply. a really don't expect that to materialize, so we should expect a very wide buffett -- very wide

budget deficit again in saudi arabia and other countries in gdc. francine: thank you both, will now--- and of us are and of us are now -- and abbas arnell-renani. this is bloomberg.

♪ is "bloomberg surveillance." let's get the bloomberg business flash.

he -- vinci gatwicko acquire airport left in a week after he was thrown into airport by multiple sightings of a legal drone. cut mores likely to jobs in europe next year as it shifts business to more profitable centers in asia in the u.s.. the bank needs to reduce headcount while finding ways to grow revenue in the region. japan's biggest investment bank has struggled to bring the bank. trump is donald reportedly considering an executive order that would prohibit u.s. companies from using telecommunications equipment made by while way -- made by huawei. use ofd prevent equivalent from foreign

producers it considers predatory. francine: equities and bonds of developing economies have found a floor according to a survey of 30 investors, traders and strategists. brazil was the top pick for all three asset classes, with indonesia another standout. arnell-th us, abbas renani of a monday asset management -- of amundi asset-management. what stands out for you? guest: i think we see overall positive returns for emerging markets. the problem with this year was that everyone was overweigh ed, and they all got washed out.

we are very cautious about the reform story in brazil. i think bolsonaro is going to have a difficult time pushing through congress, but market expectations on the reform story are not massively elevated, so any positive will lead tohink big rallies in brazilian assets, especially in the currency side and the right side. hasink credit in brazil tightened massively. the effects could be the story for next year. we do see some value in that space. turkey is an interesting one. we've been bullish on turkey for the past two months. expensive are more now, on the currency and sovereign credits. spreadmple, sovereign now trade around 350 basis points compared to about 250

basis points in south africa. we think that makes turkey look quite cheap. on the currency side, you look at a country where 12 months ahead, the biggest single factor we've always worried about in the country has been the current account deficit. 6% to 8% current account deficit, resulting in huge need from inflows from abroad. that is going to shrink to about 2% or 3% in a couple months. that will be a ". -- a big improvement. especially because of the amount of kerry. carrie. .5%j of -- you get .5% in 2019. francine: is there more

volatility to come? guest: there's a few factors. first of all, we will be in an environment that continues from 2018. the most significant macro feature was the withdrawal of the safety net from g3 central banks. markets have been walking a tightrope of financial markets, but we always known there was a safety net below is from the central banks that would bail us out in times of stress. that is going away. the fed is normalizing its balance sheets, carrying out quantitative tightening. that is going to continue in create a lot of macro volatility. we've got a ton of elections in emerging markets next year, in south africa and in the and a new tee shot, argentina, -- and inigeria

indonesia, argentina, ukraine, nigeria. south africa is one of the few countries in the world where economy surprises have been very positive over the past few weeks. data has continued to be ok in the past few weeks for south africa. the biggest risk is going to be a presidential election -- sorry, parliamentary election in june of next year. francine: thank you so much for joining us today. enani of amundi asset-management. go to gtb go -- go to tv . we will get some of the emerging-market charts we were talking about with abbas.

this is bloomberg.

♪

francine: this is "bloomberg surveillance." on to europe. the italian prime minister says the government will keep pursuing expansionary economic d the populist coalition would complete its five-year term. last week the avoided a disciplinary procedure. joining us from rome is bloomberg's italy reporter. great to have you on the program. are we expecting more from the populist government in 2018? will it be -- in 2019? will it be a smooth transition with brussels? reporter: the last few months have been quite rocky for markets driven by italian political news, and 2019 is promising to be no less exciting. expectedoming up

calendar. items like the may european likeions -- calendar items the may european elections that could be a threat for government leadership positions with very different agendas. francine: will the government hold with early elections? reporter: this is the biggest talking point in rome right now. all has said in recent weeks that they are here to stay for .he full term of five years yet, elections could shift the balance to one of the two parties, likely the league if polls are right. that can offer some leeway in a it by to just have

himself. francine: it seems as though salvini is doing quite well. what is so popular about him? salvini has definitely been the biggest winner since the government was formed in june. he is very popular because he is measured. his measures are extremely tangible. it is something that really ars,nates with italians' fe and they can see the impact of his statements. at the same time, he is a very good political animal. he's able to change very much rhetoric. he can speak to households, two businesses. bosses aboutopen

what he is doing, what he's eating. he posts selfies and speaks directly to the voter. francine: thank you so much for the update. bloomberg's italy reporter there. -- coming s up, we will talk about the rally we saw over the last 24 hours. we saw that impressive rally in the u.s. yesterday, the biggest one-day rally since 2009, then it flopped. european stocks are down, u.s. futures also down. this is bloomberg.

♪ francine: the bulls come roaring , but the dalles best again

your points lower. rises before a move lower. the russia oil minister says the market will be more stable in the first half of 2019. copper rebounds on trade optimism as bloomberg learns a delegation heads to beijing in january from the u.s. good afternoon if you're watching from asia. i am francine lacqua in london. tom keene has the day off. we saw that rally in the u.s., the biggest since 2009, filtering through japanese equities, then petering off for europe. and u.s.all lower futures pointing to a lower start. let's get to bloomberg first word news. will lead aerrish

delegation to beijing for trade talks, according to bloomberg sources. it will be the first face-to-face trade discussion since president trump and xi agreed to a truce. president trump says he has no plans to with draw the military from iraq. may use iraqe u.s. as a base for regional operations against adversaries, including islamic state. after president trump ordered the withdrawal of forces from syria. the political u-turn following the president floating the idea he would sack the central bank chairman over future interest rate increases and contributed on monday to markets falling,

trump now saying the fed will "get it" very soon. u.s. lawmakers continue to clash over president trump's demands to fund a border wall. for a wall.billion democrats have proposed $1.3 billion for border security. nancy pelosi says they will reopen the government if the shutdown lasts beyond january 3. according to data compiled by u.s.ashington service, the companies making purchases of their own stock has doubled in the past month. 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. francine: thank you. looking at the markets overall, a downturn in the last couple of hours, u.s. equity markets

futures. we had a spectacular rally over the last 24 hours, then moment him faltering treasuries climbing, giving up advances. stocks in europe down and crude open aftera lower equities saw the biggest rally in nearly a decade yesterday with major indices surging and the s&p 500 up 5%. this follows a downturn that saw a downturn into a bear market. job is said to be 100% safe following reports the president discussed firing the central bank chief. joining us now is our guest. thank you for joining us, michael. what was the catalyst for the

rally yesterday and the correction today? >> first of all, yesterday's , we are dealing with heavily oversold conditions in the short term. you get relief of bounces. we are dealing with a lower liquidity situation during this holiday week, and that would motivate some people short the markets to cover, then you have other things that can enhance that move into the close, but i don't read too much into yesterday's price action or the price action on the 24th, both notable, but in terms of what it means for 2019 or january, there is a lot of noise and signal other than we are in elevator volatility right now. it mean we will

see more volatility in 2019? >> certainly. look, as interest rates have , on themalizing volatility question, if you look at the volatility for u.s. equities, the vix and the equivalent for emerging-market is at a, the vix notable premium to the emerging equity volatility, which is striking when you consider the trade tensions and the fed hiking that should put more pressure on em then u.s. equities. that is very instructive, the volatility while elevated, it will not shoot to the moon for the u.s. certainly. francine: what will markets get

their cue from, politics, the economy, and our markets to pessimistic about 2019? key uncertainty factors driving the volatility. one is the fed and they would hike us into a recession. the second is trade. powell for the bond market has answered the question that rates are not spiraling out of control , powell when not hike for hiking sake here. he reiterated that. certainly softened from early october and september. the big factor is trade. when you think about the two largest economies in the world and the potential all-out trade war with second order impacts

almost impossible to quantify, yeah, that is the giant uncertainty factor. if that is just result, soon,lly it is resolved then risk assets probably, but the u.s. equity complex will find more support. risk assetswill see continue to trade in a choppy or downward trajectory. francine: thank you so much. our next toow is guest. when you look at the concerns, , our.s. economy in 2019 markets to pessimistic or too optimistic? >> it is great to be here. i would expand on the list we were talking about saying it is probably about the fed, then

china trade and the domestic economy slowing as well, and also oil prices and what that means in terms of the signal on global growth and inflation. this can work out. we saw a similar situation three years ago when it was the fed and china and oil that where the not be asbut it will easy as we saw yesterday. this is some sort of tradable low, but we need to see the fed take into account the inflation impulses that have come through and progress on the china trade side. see progress on china domestically in terms of the stimulus working, and oil prices stabilize as a way of judging all of that for together. china, oil, the fed. if you were to give a great to the u.s. economy right

now, be minus? b plus? how many times are you expecting the fed to hike in 2019? >> b plus. holiday sales look like they will come out with some good readings, retail stocks have had choppy performance around that then inventory swings, but fed can remain in a tightening cycle as long as the investment heart of the economy comes through. that's why it is not an "a." it is the investment part of the economy where we need to see the action, and that is how we will think about this tax cut. we need to see capital spending increases, increasing productivity, then productivity paying for higher wages coming. that is how we make the pie bigger and make that great into

"a". i would say we had a good start to the year, but recently we have given some of that back and flattened out, some of that could be related to trade uncertainty, but that is where we need to see action. francine: thank you very much. we will get back to trade shortly. peterson, the institute for economic's japan,nt, trade and 10:00 a.m. in new york, 3:00 p.m. in london. this is bloomberg. ♪ this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the bloomberg business flash. to take a majority stake in gatwick airport. it will become the largest singer airport in the global network. it is expected to complete in the first half of 2019. nvi to acquire a majority stake for 2.9 billion pounds. illegal transfer of funds out of nigeria, the central bank cleared mtn. this means the company will pay $52.6 million over the allegations. authorities originally wanted a full reversal. pay $1.2greed to

from a for denmark's kmz private equity firm as it looks to expand services in europe. once best known for tds and has turned nec itself into at technology consultant services. mutual funds suffering the biggest outflow in 10 years 2019, redemptions topping $56 billion, the biggest outflow since 2008. investors added $25 billion into etf's. that is the bloomberg business flash. bloomberg has learned the u.s. and china are set to reopen trade talks, the first since president trump and xi agreed to a truce.

eight u.s. delegation will travel to beijing for negotiations and comes as the chinese economy shows continued weakness and profits of chinese industrial companies fell for the first time in three years, highlighting the effects of slowing growth, falling prices, and the trade war with the u.s. john is joining us now. when you look at the concerns, should we worry about the data points, including today? they are evermore growing evidence of the economy being weak and growth not coming in as expected. government is taking steps to address that. the central bank made it the known that it supports lending to businesses and monetary conditions will be slightly looser. in the property market, you're seeing some loosening by individuals and curbs put into rein in home prices.

there is a lot of movement happening now. someine: how should i view of the property prices in china? where would i see a big downturn in china first? into smaller cities first, and that is starting to come through. have examples where property developers were cutting the price of new homes i a quarter -- by a quarter, causing protests and riots by people who relies the price of their home has been cut by a third. that would be the most dangerous for the country, because so much of total household savings is in the property market. that would have a big reverberation throughout the country. francine: how should i look at trade talks between the u.s. and china? main sticking

points and will we be able to have a truce or deal by march? >> the possibility of a deal is quite high. will that deal be enough to ofve the expensive number conflicts the u.s. and china have? probably not. there are things china will want to do to reduce the trade deficit, by more agricultural, energy, commodities from the u.s. to do that, but in terms of technology, ip, subsidies by the , those are harder problems to solve and probably won't be sold in march. francine: -- solved in march. francine: thank you. than theylling more were. s&p futures down 1.7% after a remarkable rally yesterday being

dented by this fall in futures and european stocks. we will be back and talk more about your markets and talk about globalism. this is bloomberg. ♪

francine: this is "bloomberg surveillance." francine lacqua here in london. president trump won't try to fire jerome powell according to

a top white house economic adviser. the chairman of the white house council of economic advisers told reporters that jerome powell's a job is 100% safe. joining us now is our guest. at the concernbou about central bank independence, is anyone taking it seriously? >> there is more uncertainty generally. it doesn't help. i don't think the idea that the fed chair was going to get fired was the cause of this volatility , at least by itself. . where do you see and 2019 and will they be symptomatic of a slowdown in the u.s. economy? >> the economy is still growing, but at a slower pace. , inflation isme

picking up because the economy is at full employment, so rising wages, falling delivery times, gap close, meaning inflation should be higher and treasury yields should continue to rise. we are probably where we should see treasury yields in a normal environment. it would be hard in the absence of a big downturn or recession to expect bond yields to fall from here. francine: what do i do with the phillips curve in 2019? >> it is coming back. it has been a slow process. the relationship historically certainly has not been deep rest guide, but it is hard to think you can take unemployment down

to any number whatsoever and not start to get which inflation. when you have the unemployment rate below 4%, you are starting to get to any number, so there is still value in that approach, and wages are starting to fast, but not overly once you turn, you develop momentum in wage data because you develop momentum in the employment data. francine: why do think the markets are so pessimistic about the u.s.? a lot of them are starting to price in a recession in 2019. is it the market feeds itself with estimates and, momentum, housing? >> that is where the opportunity could come from, to price in a recession, then have a recession. there are weaker points, housing is one.

some parts of the u.s. economy have started to level out, but this is not 10 years ago because you did not have the bubble before this. if you're not as high, the fault does not hurt as much. capital spending is interesting because that is where we will see the productive part of the tax cut come through. that is how you could see productivity rise get a more sustainable increase in economic growth. the sustainable pieces are going to be in portent, and the -- important, and the lack of confidence is a question going forward. that is not enough to go into a recession. that gets you a slow down next year, but you need some other shocks. francine: in 20 seconds, what does dollar do, higher in 2019? higherprobably start out

, but if the call is for a fed pause in 2019, you have to think about a dollar top sometime in 2019, but it may be premature to do that today. you look for that, but that is not the right call just yet. francine: thank you. you will be staying with us. coming up next, we will talk .bout oil, copper that is coming up next. this is bloomberg. ♪ ♪ there's no place like home for the holidays ♪

♪ 'cause no matter how far away you roam ♪ ♪ if you want to be happy in a million ways ♪ ♪ for the holidays you can't beat home sweet home ♪

francine: this is "bloomberg surveillance." i am for seen the quad in london. let's get to the -- francine lacqua in london. let's get to first word news. >> geoffrey garrett will

reportedly lead a delegation to beijing for trade talks. it will be the first face-to-face trade discussions since president trump and xi agreed to a truce. donald trump has no plans to with draw u.s. military personnel from iraq, the statement coming as he visited troops in a combat zone for the first time as commander-in-chief. they may use iraq as a base against adversaries including the islamic state. the visit comes days after president trump ordered the withdrawal of u.s. forces from syria. ofsident trump vote confidence in steven mnuchin in and the u.s. federal reserve politicals surge, a u-turn following the president discussing firing the central bank chairman, which contributed to markets falling. trump said the u.s. is raising

interest rates too fast, but has confidence the central bank will "get it" very soon. the fed chairs job is safe, 100%, not in jeopardy, absolutely. house and lawmakers clash over president trump's demand to fund the border wall. the president wants $5 billion. immigrants have proposed $1.3 billion. nancy pelosi says the house will pass a bill to reopen the government without money for a wall if the shutdown lasts past january 3. england is planning to noble the charge to 10 pence as part of the drive to protect the fiat taxnt, a being extended from all shops. it has cut average annual usage in england from 140 per person

to 19. 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 so much. oil lower after rising on a wave of optimism, leading to a rebound across risk assets. investors are wary about a supply glut stoked by fears output cuts won't be enough to counter u.s. shale output. joining us now is the head of commodities research at ed&f man , and will kennedy, and don is still with us. first of all, where do you see oil going? predict?ossible to protect >> i think we are oversold.

2019, the risk reward should be to the upside. plus have pledged this cut back up 1.2 million barrels. there is the story whether they will comply, and more importantly if you have the with more cutbacks. with geopolitical tensions where they are, the middle east is always volatile. it has shifted because of their countries have taken focus, but those things can suddenly flare up in the background. wti, howbarrel for much more expansion can you see in u.s. oil? you are hearing spending cutbacks, so at some point the market will rebalance. francine: is it in possible to predict the price of oil? is it range bound between $40 and $80?

>> that is a big range. the market clearly has taken people by surprise in the last few weeks. we had the opec meeting two weeks ago, and there were large cutbacks agreed. normally you expect that to boost the price, and we see prices fall on this global provingcare, so it is hard to predict the price of oil and you have volatility off the charts in day-to-day prices are moving more than 5%, extraordinary. don, what does it mean for your outlook? you are a specialist on the u.s. economy are we expecting shale producers to keep pumping? $50, youhe wti below jeopardize the capital spending parts of your models. we saw this three years ago. this doesn't look as extreme as

we saw back then, but there is some risk to the investment part of the equation. we talked about housing before. this is an additional risk if we stay here, but the volatility makes it such we can get whipsawed and be sitting here three months from now talking about something else. this makes it hard for the fed and others to judge. francine: how difficult is it to call the bottom for oriole? -- for oil? >> it is difficult, at least in 2018. , $15 to $20 per , $40 tobut u.s. shale $45, so that is getting close to where we could be looking at capital spending cutbacks. prices will see

demand come back and the asian and european economies will start enjoying some of the low prices, and ultimately that should help rebalance the market. we're expecting the markets to rebalance by mid-2019 come if not earlier. francine: what is the man looking like for emerging markets. >> china and india have been importing huge amounts. economies,elp both emerging markets, but also in particular allow the import numbers to go up. francine: we were discussing for countries like venezuela that this could be difficult 2019. >> yes, that's right. part of the one of market that has helped opec to manage something that is beyond their control. we have seen one million barrels production in

venezuela has slowed as economic turmoil gets worse. one of the risks people aren't is at some point the entire venezuelan economy collapses and you see the remaining oil production disappear, which would be a huge shock to the market, so there course prices,at low the geopolitical turmoil can become more intense. francine: don, when you look at a lower oil price, does it benefit the u.s. consumer more than others around the world? >> it is a tailwind for the u.s. consumer. the u.s. has produced more of its own energy and you get a change on the capital spending side, and sometimes that hit comes faster than the consumer boost, so it may take the better

part of the year to see the full benefit because consumers won't stockpile energy. you have to go to the gas station, fill up, save a little money, spend that, go back two later, so it takes time to get to the consumer. the hit to capital spending could happen faster, but the benefit to the us consumer should wind up being larger. francine: how many opec meetings and 2019? >> the next big meeting is april at the moment. meetings,ese periodic the joint ministerial monitoring they have small summits between the meetings because you have the main players, saudi arabia and russia , and one of the things we saw this year is opec plus ring managed by two countries, saudi arabia and russia and the rest

are along for the ride to some extent, so that will continue. the russian oil minister made comments this week, russia has been relaxed about the oil price. it said $60 is fine. we are getting to levels where it is more of a concern for russia. their budget is $42 a barrel break even. moremay want to act assertively this year to ensure $50,rices stay well above toward $60 a barrel. francine: thank you all for a good conversation on oil. on your commute, tune in to nathan and karen on radio on bloomberg radio. this is bloomberg. ♪

>> this is "bloomberg surveillance." let's get the bloomberg business flash. a company will acquire a majority stake in gatwick airport. it will become the largest single airport in the global network. the purchase by the french company is expected to complete in the first half of 2019 and comes a week after the airport was thrown into chaos after multiple sightings of an illegal drone. cutting more jobs in europe next year as it shifts to asia and executivethe chief

said the banking needs to reduce headcount while growing revenue in the region. japan's biggest investment bank has struggled to create profits in europe since it bought lehman brothers operation in 2008. donald trump is considering an executive order that would prohibit u.s. companies from using telecommunications equipment made by huawei and zte and direct the congress from from makerschases that poses a significant national security risks. india has heightened rules for foreign investment and e-commerce companies, saying on online retailers like amazon must provide terms that treat old genders equally to prevent predatory pricing and thatnt discounts threaten the industry.

that is the bloomberg business flash. francine: thank you. bloomberg has learned the u.s. and china are set to reopen trade talks, the first since president trump and xi agreed to a truce. the u.s. delegation will travel to beijing next month for negotiations. removed a retaliatory duty on u.s. automobiles and is drafting a law to prevent forced technology transfers. .oining us now is kevin cirilli talk to us about trade. this president trump won a deal at any costs? kevin: i think the administration are digging in. , sayingg is reporting there will be these talks in the early part of next year. you have that march 1 deadline. the treasury secretary has said

consistently he is working with chinese counterparts to continue these talks, laying the groundwork for them and whatnot. the volatility in the marketplace has really been thrown, a wrench in these types of negotiations. francine: when it comes to the partial shutdown of the us government, how can it play out? >> yesterday the president on his first trip to a combat zone since becoming president, now he returns home, and there is no one in washington for him to meet with, because they are on holiday recess. the president is forecasting this could be a long government shutdown. i asked the chairman of the council of economic advisers about this when he was talking to reporters. can'td the government

remain partially shut down forever. there were have to be some type of negotiations. january 3, democrats take over the house and there is no incentive for nancy pelosi to pass a budget with $5 billion worth of wall funding. francine: thank you very much. staying with trade and the tariff war, beijing has started buying american soy again. purchases have been small, but the physical flows have not picked -- picked up yet. first of all, talk to me about soybeans. imports zero for the first time in november, now back at it. >> there are some little cargoes being done following the 90-date

chair of -- 90-date tariff truce. it has not been enough, but it is baby steps and lifts sentiment in the market, but the supply and demand fundamentals for the market remains overwhelmingly heavy, so china will have to do more heavy lifting to make any kind of dent in that surplus. the u.s. soybean stocks are huge, brimming, and they don't know what to do with it. .t might end up rotting they don't have enough warehouse space. next year is when the farmers decide what to plant for the next bring, and -- francine: you can have a shortage? i am francine lacqua. i don't -- >> i don't think they will have a shortage. you have brazil and argentina with massive soybean crops, so globally there is no shortage at all.

though the u.s. might reduce acreage, brazil and argentina, both of whom have this stuff in the ground and will start .arvesting by q1 2019 they will be looking at the crops, because they benefited from this new chinese buying, so they are loving it. francine: sugar and coffee, these were some of the big stories in 2018. they were amongst the losers. >> they were the worst. francine: what happens in 2019 for them? >> sugar and coffee have suffered from heavy supply demand fundamentals, big surpluses, perfect weather, and performance in the brazilian real. before the election, there was a big rally in the currency, but ultimately it was very weak, and this influenced commodity prices

and sugar and coffee highly correlated to the currency. sometimes with these two atmodities, markets look what happens to the currency on whether to go longer short on the coffee and sugar markets. i think they are very low. they are close to cost of production and sugar and coffee. i would say this like upward bias could move into a deficit. francine: thank you so much, as always. more.l have plenty this is bloomberg. ♪

francine: this is "bloomberg surveillance." for our single best chart. u.s. officials will travel to china to talk with chinese representatives the week of january 7. we are back with our guest.

let me bring you to my chart, looking at renminbi to december 2017. thank you to hillary clark for doing this for costs. there was something ugly in terms of trade, in the chinese economy, and does it get shown in renminbi? >> it is a great place to look. china thought they had a trade may, and itntly as has been a struggle since then to make progress between the because botha sides have probably misinterpreted the other at one time or another. here we have volatility in markets recently, some weakening and local china they cut, so -- china data, so both sides are incentivized to get a deal. atncine: if we have renminbi

seven, is it only a psychological level or signal something more troubling? >> it is a psychological level but the trouble is real. what ittart to consider means when you have that type of currency move and what it means in terms of market discipline thinking about their confidence in both a trade deal with the u.s. and confidence in the chinese economy, which is trying to turn around. there have already been measures taken, some aimed at the china consumer, may be less impactful theyother countries, but are probably not done and you see another round of stimulus. francine: very quickly, do you worry about the supply chain? do these trade talks mean u.s. companies if we don't have a trade truce, do they put them under significant pressure? >> i worry about the supply

chain. some manufacturing readings in the second half could have been suggesting stockpiling ahead of this sick, so maybe we get a drop in 2019 since we have ordered these things, preorder these things, but concerns are real. thank you. we will continue the conversation on bloomberg surveillance radio. watch out for any currency moves. this is bloomberg. ♪ this is bloomberg. ♪

♪ alix: monster relief rally meltdown.

the s&p surging the most since 2009, but is it just a short covering rally? new year, new trade talks. a u.s. team will travel to china , the first face-to-face meeting after a truce. china under pressure, industrial profits fall for the first time since 2015, equities left out. welcome to "bloomberg daybreak." i am alix steel. david westin is off today. yesterday, the biggest rally for equities since 2009. like, we wills never see this action again. there is no follow-through buying today. selling taking it down 1.5%. is it just a dead cat bounce. europe up agains