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 against the dollar.

no traction into the stronger yen story. as risk comes off, you will want to buy safe haven assets. k option yesterday for the five-year and the two-year on monday. we see that safe haven demand come in. crude camp get any love. now down by over 1.5%. we are joined by rachel evans and peggy collins. we want to get to it. the rally yesterday, take a look at the bloomberg. it shows the move and all three indices. the dow up 1000 points, that can't be real? >> we don't have a lot of people in the markets this week. it is a holiday week. people jump in

yesterday and say we see some buying opportunities. last week, we saw people hesitate and think is it going to go further down. today we are not seeing as much euphoria. alix: the volume was huge across the board, oil or equities. what do the flows tell you? atyesterday, i was looking where we saw money come into funds. it is coming into defensive-oriented sectors. they saw the biggest inflows since july 2016, so that is a huge inflow for gld. it is positioning for more risk and volatility ahead. there is going to be some profit takeg, people trying to

advantage of this followed till date to close out with a profit or something not terribly in the negative. interesting flows. alix: you have fund investors pulling the most out since 2008. you are bound to have relief rallies. ,> this is a fascinating story where we saw $50 billion coming out of mutual funds. at the same time, $25 billion going into etf's. if that money reinvests in the market back into mutual funds or etf's? we have seen this shift from active to passive. one thing that has held back flows is when you sell a mutual fund, you have to take that capital gains tax. if you're pulling out, do you put it into a mutual fund or an etf? alix: what you think?

>> with etf's, we're seeing money flow into government, safe haven, u.s. treasury etf's. one of those surprises this year is we talked about the 10 year treasury yield hitting 3% and moving past 3%. now we are back down to 2.7%, which is amazing. we saw a lot of money flow into etf's, u.s. treasury government safe haven etf's, so we are seeing people move, but the money is flowing into safer assets. alix: you're going to sell equities, by bonds. that wasn't always the case over the last couple of years. >> one place where i'm looking to see if this is a genuine bounce are these short term bonds. we have not seen any outflows from there in two months. to three months securities

have also seen few outflows. that will be interesting. itil we stop seeing inflows, is unlikely we will see sustained buying and the equity markets. alix: the news is you will have lower-level talks between the u.s. and china around january 7, so what would be a win? would be for the markets to feel like there is some development in a positive direction around trade and a cooling off of tensions between the u.s. and china. been so what has unstable has been around political uncertainty. the meetings will be held in china. that is interesting. a certainly is in some ways sign that we are willing to do something, at least get on a plane. alix: it also feels like china will be waiting to hear what the u.s. will be asking.

they may be willing to talk iput a trade deficit, but and other issues will be a different conversation. how do you hedge that? >> that is a great question. i was looking at some move in the chinese market and yuan and you did not see a huge amount of reaction. i think short-term debt is a great indicator of whether risk has abated. this before, signs of hope and trade talks back on track, only to be disappointed. we still have not had any meeting between steven mnuchin and the top chinese guys. it seems we are at that stage where we are watching and .aiting again i think we will see cash on sidelines for the time being. alix: yesterday you heard one guest say we want to be in cash.

this is china's industrial profit coming in at the lowest in three years. peggy, this sets up an interesting dynamic when it comes to trade talks. it is hard for them to stimulate in the same way they normally would when they have to answer to president trump. >> right. our story says this is the first decline since 2015 and puts numerical pressure on china. they want to say to their people we are not backing down to the u.s. and otheris covered people to trade with, but the numbers are showing up, and they are not looking good. meanwhile, india is chugging along at a great pace. china has to make sure its economy does not go off the rails. alix: in terms of etf flows, you notem big rally, but chinese flows. fxi has seen consistent

inflows. we have not seen an outflow since july, which is crazy given the drop in the shanghai composite. we have stopped seeing inflows over the past couple of weeks. the wider story is whether you can take the data out of china at face value. there has been mr. burton's between the growth year on year and the data on industrial profit. to talk about this mismatch between what hong kong was importing versus what china was exporting. there was always a gap between the two. it will be interesting to see if those converge and we can believe what is coming out is a true picture, or whether there is a slightly worse picture. alix: it is looking like the latter is the narrative, at least today. thank you.

you can find all the charts we used and more gtv at on your terminal, browse features and save charts, gtv . coming up, more on the market moves in the last 24 hours. everyone has an opinion. this is bloomberg. ♪ confirmation and it does not look like we are going into a recession, and we have this fierce rally coming office oversold condition. it is wonderful. merry christmas. ♪

>> this is "bloomberg daybreak: americas." this is your bloomberg business flash.

trump is considering barring u.s. companies from using telecom equipment used by huawei and zte. ordering to reuters, in would direct commerce department from buying equipment for makers that might threaten national security. nci agreed to buy gatwick. nearly 46 million passengers have passed through gatwick in 2018, the largest airport in their network. next year is shaping up to be a tough one for nomura, more job losses likely as the firm shifts away from the region to more profitable centers in asia and the u.s. the ceo says japan's biggest investment bank needs to cut staff and find ways to spur revenue in the region.

that is your bloomberg business flash. alix: thank you. the surge in u.s. stocks still struggling, futures in the red have to the biggest surge in equities since 2009. do you want to buy the debt? how much -- the dip? >> you need to wait for the falling knife the bottom, so you wait for the bounce, but no, it is not the time to put risk back on. i'm not sure this bull market is over yet. >> i think the market has gotten ahead of itself. people panicked and at low liquid market around christmas time. >> short volatility here, there, everywhere, because this is a gift we need to take advantage of, and investors can make a lot of money right being short volatility. >> we got confirmation it does not look like we are going into a recession, and we have this fierce rally coming off this

oversold condition. it is wonderful. merry christmas. alix: always so cheery. neil, good to see you. happy holidays. think of the price action in the last 24 hours? economists in the room and you get four opinions. that is true for strategist as well. alix: from an economic are we oversold, meaning the economy is ok and we ip, or wey the d need to be revisiting our expectations for 2019? stock slow down the market is potentially pricing in for 2019 is within the consensus expectation. you look ats, if the latest estimates from bloomberg news, the consensus consistently

expecting weaker growth and 2019 than 2018. that has been consistent for the last 12 months, so the slow down next year is not going to come as a shock. what has come as a shock is how quickly the markets have rested in. it in.ed if you look at the speed of the decline since early october in u.s. equity markets, that is consistent with recession-like a hader. you don't -- like behavior. to me, the markets are price for recession and 2019. i don't think that is what -- will happen, so eventually we get a relief rally. now whether this is the right entry point or not, i have less morection around that, but conviction around the idea recession is unlikely next year. it is not in the household sector there.

we have expanding employment and declining gasoline prices. that basically means you have real wage growth accelerating in the household sector in the u.s., which is one reason you have seen a strong holiday shopping season. you may see some softening in business investment. understand that with uncertainty related to trade negotiations ongoing. at the end of the day, if companies aren't investing and final demand is holding up, that means they are not investing enough, so that could lead to gearing up. alix: you say market expectations for the fed hike, we are basically pricing out any hike now in 2019 and 2020. >> right. alix: that is obviously way overdone. what happens if the market catches up? see theould probably

interest rate starting to back up and equity markets rallying in tandem. would expecti if the fed were priced back in. fed not saying that the should hike is quickly as they were planning to. alix: you don't see three. >> maybe two. the fed has a different outlook than the equity markets at the moment, and to a lesser extent the financial markets more generally. we will see who is right. i also think this idea the fed is aggressive, i think there is some merit to that, because inflation is not a problem whatsoever. we have strength in wages and wage growth is accelerating, but price inflation has not, so my sense is what is the fed trying to cool down here? is where larry

summers and president trump agree, which you never thought you would see in a million years. larry summers on twitter yesterday said financial conditions substantially tightened, inflation below target, declining, you'll curve inverting, confidence declining, growth slowing, why is the federal reserve planning interest rate hikes? what is the appropriate response? >> that the federal reserve has a different outlook than financial markets, obviously. the fed is not stupid as some would like to thank, and -- think, and they have inflation moving back to target, slower than before, continued tightening in the labor markets and growth above trend. the markets have a different view. we will see who is right. the fed could be right. it has happened before. the markets could be right.

alix: hence the volatility. say is i think that is overdoing it. the economy is not falling apart. youave some headwinds, but talk about fiscal stint is fading, fiscal stimulus is likely to still be a tailwind for the economy and 2019, and don't forget about the boost of the state and local level. alix: a big part of that has to do a trade and the u.s. and china. we got industrial companies and profits at the lowest in three years overnight as a trade war comes into play. ,f you come into the bloomberg i can show you industrial profits here. joining us in the phone from hong kong is tracy alloway. tell me what happens. we are still waiting for tracy to join has. ,eil, when you look at china

emerging markets and asian markets rallied except china. how bad is it in china? what is your take? >> the chinese economy is slowing. bloomberg is a monthly gdp tracking estimate. that is at the lowest level since early 2016. when we were in the thick of it last time, now i think it is below 6.5%, and this is despite looser monetary conditions in china, which might suggest the economy is more sick than we thought, because it is not responding to financial conditions. at the margin, you hope this data pushes china and the u.s. closer to a deal. the u.s. markets are in turmoil. we have seen weaker manufacturing data out of the u.s. regional pmi's in december have consistently cracked.

the fed earlier this week was quite soft, so that is the data that the leadership of both sides says maybe we have pushed this far enough and now it is time to come to some type of negotiation. we will see. i think generally speaking this is well understood that china's economy has slowed much more rapidly than the u.s. alix: tracy alloway now joins us on the phone. what was the response to the slowing industrial profits? >> we have seen them respond to it to some degree. china policy makers basically confirming more monetary and fiscal support would be coming in 2019. that included significant cuts to taxes and fees. there is that fiscal stimulus that supposed to help out what neil was just saying, this is an

expected development when it comes to industrial profits. last week, china quietly lowered and interest rate for a bank liquidity facility by creating a targeted version of the medium term lending facility. that is clearly meant to support businesses that will be suffering in this environment. alix: how does that set of china heading into these lower-level trade talks as the delegation goes to beijing in january? >> it is sort of a who blinks first. the news from china is not great when the u.s. is still performing relatively well. between one similarity china and the u.s., which is china is the worst-performing stock market this year, while the u.s. is narrowly avoiding bear market territory, so the question is who is suffering the most. we have seen china make overtures to the u.s. on that

front. they have also been reducing tariffs. i love reading the lists of tariff announcements because you see such wonderful items. , but it is symbolic when people will not be watching ahead of that january 7 meeting. alix: only you would pick out glass eye imports. >> imported dolphins and whales. alix: to pay if it off of that, what would be a win for you when it comes to these lower-level talks? for don't have a good sense that. i will let the markets decide that. alix: would you expect it to be a trade deficit conversation or a structural intellectual property conversation? >> the latter. focusing on that trade deficit is myopic and a mistake the administration's matin making.

looking at the trade deficit is not the right way of going about it. ironic things we have seen over the last couple of when president trump came into office, we had reasonably good export activity, exports in recovery, then to some extent this issue around trade has contributed to some extent, not the primary driver, but one reason why global growth has been slowing. that has put upward pressure on ouru.s. dollar and weakened export activity, which has contributed to a wider trade deficit. to keep an eye

on let's go for growth. largely in terms of intellectual property, i think that is where we should be focusing our attention, not specific sectors here and there. that would take longer than 90 days to sort out. which means incremental steps are important, which raises the question who is worse off. tracy, the other narrative in the market is the worst the growth in china, the harder it is for the government to stimulate, because yuan that would lead to a lower -- because that will lead to a lower yuan, so how hamstrung our politicians now? >> the yuan is a thorny issue. ,his is a tale risk for 2019 you could get a devaluation in the yuan if trade talks go badly.

is trying to stimulate its economy at the same time it's trying to affect a massive deleveraging program. you can see from the industrial profit number how difficult that will be. enterprises, we had debt ratios improving, but for state owned enterprises, the are deteriorating at the same time the economy is slowing, so how china will pull on those levers will be interesting to watch. alix: always good to catch up with you. thank you. coming up, bargain-hunting in 2019. what about corporate credit. this is bloomberg. ♪ rg. ♪ amazon prime video is now on xfinity x1.

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that's how xfinity makes tv... simple. easy. awesome. alix: this is bloomberg daybreak. happy thursday. hang on to your seats. it looks to be another big mover day. dow futures off by 1.6%.

this is after the unbelievable rally we saw yesterday, the biggest rally since 2009. 52-weekember has hit a high. also weakness in european equities, down why -- down by 1%. europe is giving france a pass when it comes to those budget deficits. cac holding up overall in europe. dollar-yen down 5/10 of 1%. you had the break in that a day losing streak yesterday, a different story today. you are seeing money come into the 10 year yield. the seven-year auction coming in, about $32 billion after a very sloppy take down. vix stays elevated.

how do you find the bottom, whether it is equities or crude or other asset classes? that is a question we will be discussing. look at an update on what is making news outside the business world. here is the "first word news." >> president trump made his first trip as commander-in-chief to visit with troops in iraq. the president said he has no plans to withdraw american troops from the country and that iraq may serve as a base for regional operations against adversaries including what is left of the islamic state. >> the other reason i am here today is to personally thank you and every service member throughout this region for the near elimination of the isis territorial caliphate in iraq and syria. two years ago when i became

president, they were a very dominant group. very dominant. today they are not so dominant anymore. the president and first lady were in iraq for less than four hours, the president arriving back in washington this morning. he is expected to begin negotiations with democrats over ending a partial government shutdown. news about the death of a second guatemalan child in the custody of u.s. customs and border protection. among for crowded facilities from his apprehension until the is death -- until his death. israel has confirmed its responsibility for airstrikes in syria. security officials say the air force hit a series of targets related to iranian arms transfers to hezbollah.

israel is ramping up efforts to prevent iran from establishing a permanent military presence in postwar serious -- in postwar syria. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. loans were in a place to take advantage of rising rates but now the whole sector is delivering negative returns. of allianz bernstein discussed cracks in leverage. >> the credit quality has not been nearly as good because people have wanted floated great debt. have of risky companies gone to the loan market because there has been so much demand. and: joining me now is -- neil dutta of renaissance macro

is still with me. there is a lot of risk out there and what you are starting to see is that investors want higher yields and they thought they were going to continue to get it. we are seeing floating-rate securities are less of a nap -- appetite. alix: we may not get three or four next year but what about two? matt: they're telling you the market is not strong enough to withstand anymore hikes but if they hike in the middle of next year, they are taking a bit of a pause and saying the economy is thing, but is a good we think that is the best scenario for risky assets. you want to buy on

the dip? matt: to your corporate credit is the safest right now -- two-year corporate credit is the safest right now. wait for those bonds to roll down into the market and we think that is the best way to play this. alix: neil, what do you think of the market -- credit market right now? neil: the credit market has been hit somewhat but it is important to remember if you look at corporate credit, it does not ink as bad today as it did 2016 when the fed was backing off and talking about four hikes in the ballpark. i think corporate credit looks we arebly ok considering down 20%. i think corporate credit has been holding up in the macro

question for me is in -- is 2019 going to be a year where companies earn profits? alix: and? neil: i think so. i think corporate credit has gotten hit during this market uncertainty and exploring global growth but generally speaking, it will be ok. in 2019 alix: -- be ok in 2019. some banks like wells fargo or barclays are having trouble unloading some of their leveraged loans. do you feel that is a short-term situation? matt: we do. the fundamentals for corporate credit are still quite strong. you have to take a step back and realize we don't get the upside that the equity market does so we don't need companies to shoot the lights out, we just need them to keep the lights on.

slowing but where valuations are, you are still paying down debt and we are in a good spot. alix: when you hear things like loans are getting pulled, it feels like it is going to be more of a buyers market, is that true? matt: there is definitely a mentality shift going on. at this point, corporate credit, we pushed back a little bit on issuers and making sure they are deleveraging but the other thing that is happening is the equity market is telling you we want you to deal -- we want you to deleverage. dividends, pay down debt. alix: do you agree that it should be more leverage rather than a buyback or dividends? neil: look at the fed. the fed has been talking about the leverage loan market.

you are seeing that in some of the investor stories we are looking at. pay down debt and expand cap backs is part of the 12 -- one-two. are they generating enough funds to do all of these things? we are not going to see the story we saw in 2018, but you are still looking at single-digit corporate profit growth as we look at it. is a decent environment for corporate credit. earlier --e route thatearlier was energy but sector i think is right sized and is a mitigating factor in terms of making this be worse than that go around.

alix: what is interesting is the view you have expressed conflicts a little bit with what -- talked about. here is what he had to say. >> i have been short credit for a while because again, if rates are going up, i don't want to be short credit because they are in interest-rate instrument and if i make money in treasuries, because the economy fell apart, and there will be a lot of good credit shorts, but the risk reward is terrible. alix: what about if you break down specific areas in the market? matt: triple b's will outperform treasuries in 2019. the reason why is because corporations are starting to deleverage and that will be the number one thing corporations will talk about on their earnings call.

once the market starts to realize that, you will be in better shape. angels,u get the fallen etc., what would be a trigger for that? what could possibly trigger it? matt: if you have an intensifying weakness in the global economy, that would do it. alix: we do have that. neil: not enough to derail the profit story. it is about are we going to see macroeconomic conditions that result in weaker corporate profits and that is very because we are not in an environment where we have to worry about deflation. we have solid real growth. me, generally speaking, i don't get as much in the weeds

as matt does but generally speaking, a good environment for corporate credit. up,: just to wrap it all you can take a look at spreads on my terminal. why?we hit the have moreight volatility in 2019 but investors have waited 10 years to get to this point and they are selling now because -- but when they wake up on january 2 in a look at yields and returns for the year, it is going to look pretty attractive. alix: matt brill of invesco and neil dutta of renaissance macro, always great to catch up with you. more job cuts ahead away from european operations. this is bloomberg. ♪

alix: -- >> this is bloomberg daybreak. coming up, the president of -- your bloomberg business flash. two years after the u.s. federal trade commission while against qualcomm, the chipmaker will get its chance to square the record. the regulatory agency will try to prove that the company has forced apple and others to pay in faith -- inflated license fees. india's --

the rules on attempt to stop predatory pricing and deep discounts that threaten domestic .etail industry the u.k. is planning to double -- forrge on disposable the first time, the fee will be accepted by larger retailers and smaller shops. the current charge was introduced in 2015. the government says that cut annual usage down to 19 banks per person. -- bags per person. alix: we turn now to wall street beat. first up, hedge fund graveyard. limit of the age or size of the fund, closures plague the hedge fund managers in 2018.

gamco's ceo will not collect this year as they have for the worst year in a decade. signalss ahead, nomura: more european job cuts that focus on profitable regions. heidi collins is and -- this is a depressing wall street beat. how bad was it for hedge funds? which types of hedge funds closed? peggy: it was a range. well-known funds, little-known funds. a range of them closed this year. one of the biggest was in july , essentiallyperman what of the ones that built it up basically said that it was time. he was tired of chasing the s&p 500 and wanted to turn into a family office. around the others world essentially say that they were throwing in the towel and

it was interesting because this was the year we thought hedge funds had a shot at coming back and shining because of the volatility returning. >> some of these were also market-- we are seeing a that is turning to value after years and years of growth. some of these people may be missing the ball as some continue to shine. right.hat is absolutely they did not knock it out of the park coming out of the gate. returnsy the volatility but not the right kind of volatility. it was too sharp, too fast and there have not been trends that hedge fund investors have been able to jump on. alix: it is hard to be a traditional investor. why not just go manager own money instead.

-- manage your own money instead? peggy: private debt strategies are still hot right now, equity is still hot and the family office industry has been booming. that is a great point. one that is not optimistic is mario gabelli. >> a really strange story. he put out a press release yesterday. it was two paragraphs. he did not explain why. it was the worst year since the crisis for him. he is saying the first .uarter at least

thatis a lot of management he is giving up but he is also one of the highest-paid executives out there. interesting to see that he is essentially saying i am to give my business a little bit of a jumpstart in the new year. >> it is hard to see exactly where he has been losing money. was down about 1% in consumer and then up another 1% in industrials. another thing he was betting on as an assets gam manager. alix: another said, we know how that went. nomura: signals more job cuts in europe to reverse some losses. the ceo said we have to bolster our top line. it did not go well this year in employer or in europe either. >> this year we have been

talking about 10 years after the europeand nomura:'s operations were born out of nomura's european operations were born out of lehman. in japan, the home country where interest rates are negative, they are ultra low and they are having trouble across the world and trying to find growth in america, where everybody is trying to grow. it is a really competitive landscape. alix: that is a great point. you hit on the right things in terms of negative interest rates in europe and it has been difficult. also we have seen a number of investment banks, how technology is the places where they are trying to gain profits and also downsize in terms of staff. they are trying to cost -- cut cost. alix: great stuff, really appreciate it.

we will pick up something more interesting or happier next time. cover the we will weed predictions for 2019. more on what i am watching, next. this is bloomberg. ♪

alix: what i'm watching is in 2019 and that is what is going to happen with cannabis companies. global spending on legal cannabis could jump 40% next year in north america. joining us now is can shake, bloomberg intelligence senior analyst -- is ken shae, bloomberg intelligence senior analyst. ken: north america is where the action is right now. california is coming online in a big way. that is going to drive a lot of the growth in 2019 but this is an international story and i believe that europe is

increasing the liberalization on who qualifies to get medical marijuana. as it becomes more normalized, you will see more medical research and i think it is a good growth story for quite a number of years yet. alix: is that going to translate into higher stock prices or are we going to see another year of hemp played with this volatility? ken: stock prices are hard to predict but i will say cash flows and traditional metrics will become more of a reality next year and beyond. a lot of this is because of the canadian companies looking some real sales and profits but other catalyst investors need to look out for are the tieups they are getting with some of the big consumer product companies. this validates the business model and growth -- growth

prospects. alix: which industry is going to have the best success at absorbing cannabis? ken: consumer products is the holy grail. personal product companies have yet to come in and put topical lotions and shampoos and all that stuff. while the brewers have made the first tried, distilled spirits companies are going to be there too. a lot of consumer savvy. alix: great to catch up with you, ken shea. coming up, several hunt. her call on the last 24 hours of craziness. ♪

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and historic move, equity struggles followthrough momentum after a short recovering rally on monday. the u.s. that the trigger presented it will travel to china. over after the biggest rally in two years, back on track for its worst quarterly loss since 2014. welcome to bloomberg daybreak. you took off monday through wednesday, you did not miss anything. the s&p is off by 3/10 of one point. it was a wild 72 hours. , the dowve yesterday up almost 1000 points. now we are giving back a lot of that rally was it just a short covering rally? a very risk off field permeating through other areas. -- feel permeating through other

areas. moving into safe havens and the 10 year yield. watch the seven year. optimism.up on that on what isn update making headlines outside the business world. here is the "first word news." >> president trump and first lady millennium are back in d.c. after a trip to iraq -- first d.c.melania are back in after a trip to iraq. federal reserve chairman jerome powell telling white house aides he is open to a meeting with president trump. that is according to a wall street journal report. while he has not specifically requested a meeting with the president, he indicated he would not turn down an offer.

china's former dictator intelligence chief has been sentenced to life in prison for corruption. he was found guilty of crimes including accepting bribes and insider trading. -- was also ordered to pay more than $7 million in penalties. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. alix: thank you so much. the s&p 100 -- it looks like a dead cat bounce. risktors wonder how much you need to take on and how much uncertainty is there for 2019. >> we are not immune to geopolitical situations. for us to stay focused on the work we are doing is important. >> trade is a thing we worry about. i do think the stimulus in the

u.s. economy is more powerful today than the potential negative impacts of trade. >> when he to be prepared for a world that will be less global trade, more local. sidet so much on the labor but really on the material and commodity side. >> the biggest headwinds are the ability to expand. bank,ay with the modern everything is a risk. future and the lights on and we have a risk asset. where you have to watch is when that manifest in people. lori about the risk of a slowdown -- worry about the risk of a slowdown. joining me now is sarah hunt, alpine woods portfolio manager. is it going to be by the debt or sell the rally -- by the dip --

buy the dip or sell the rally? the tax bill out of the way, things should start to get better, but a lot of forces people were not expecting, everybody was waiting one more day and it was not helpful in that regard and i think you have a number of factors going on. central banks pulling out -- pulling away. starting to wonder what is the right pe in this environment. a market that has gone straight up since september and has done nothing but try to stabilize and come back down. we are going to have some slowing growth and we will see what the fed does but are we had a point now where they are starting to make more sense relative to other choices? alix: to make that call you have to look at a bottom. what would show you we are at

the bottom? sarah: some sort of stability. we cannot really maintain that range and that was not so great so now you have defined some sort of time you get some stability and don't look like you were taking another leg down in that is hard to wait for because you don't want to be not active but at the same time you want to see the stresses. yields coming, are you seeing people -- is there some sort of exhaustion yet and so far, it is starting to look more like that but two weeks ago, it really wasn't. alix: take a look at the bloomberg. this is a risk parity of portfolios it is the worst since 2009. there is no place to hide. it has been hard to find a place. sarah: that is where you see the

correlation of assets all moved together. -- move together. this looks a lot more like take risk off the table. you've got toong much value at the end of the year in the market is coming down. that ends up being a negative spiral. as the market goes down, you have to keep taking more risk off. that is not positive for any asset class. alix: fairpoint but that raises the question what does the fed actually do? now we are at no rate hikes 2019. no matter what you think, that is going to be a very distressed recessionary environment. there has to be some kind of re-rating in the market. sarah: is that what people are looking at and saying now we have something like a 14.6?

are we seeing that somewhat in the marketplace? growth, people expecting much slower growth in the u.s.. arehat slow enough and things going to slow down or are we going to go into a recession? will the fed take that into account and will they look at that yield curve? are they going to look at that and say maybe we don't want it so flat and we do need to be careful because the backend has been saying that we need to keep raising rates. alix: we have not hit the bottom or anything. what do you do? do you need to be sitting in cash? sarah: there is discussion that cash is an asset class but that is a difficult thing to have too much but there is nothing wrong in having some.

the defense sector has come down incredibly with more normalized normals. some of the industrials people are worried about, they look like they are priced for the growth they're going to get as opposed to price for growth that people were expecting was going to go on at high levels. you are seeing those valuations normalize. widely you have a large market that has come down across the board. it is not as if you have a couple sectors that have held up. alix: walk that forward to the trade issue. as we have lower-level talks going on and david going to you,, looking at trade for what would make you feel better about industrials? sarah: if you got some sort of framework where we were going to stop escalating tensions on raw materials and steel.

people have already baked in what is already there. a lot of the problem with industrials is also global growth. things like the oil and gas sector are dependent on a higher economic framework, not just in the u.s.. we need to see things in china start to be better is there have been concerns about the data coming out of china even though they have been letting credit get easier. you need to see not only some agreement but also some numbers that start to look like they are not getting worse. alix: sarah hunt of alpine is going to be sticking with me. we are taking a look at tech next. this is bloomberg. ♪

>> this is bloomberg daybreak. japanese technology company nec has agreed to pay $1.2 billion for denmark's kmb. the japanese company is looking to expand services in europe. they have spent years transforming into a technology services consultant. china's industrial profits declining for the first time in almost three years. the november reading fell 1.8% from a year ago, in contrast to a 3.6% rise in october. november factory prices grew at the slowest pace in more than two years. robert mercer and his family spending just $2.9 million influencing federal elections this year, less than a third of

what the hedge fund tycoon donated to republicans during the 2016 reap -- 2016 presidential election. the decline in spending suggests his importance in conservative politics may be waning. that is your bloomberg business flash. the: in the tech sector -- tech sector participated in the rally yesterday. amazon, netflix, twitter and facebook all gaining more than 4%. still with me is sarah hunt of alpine woods. this is one of my favorite charts. it is tech versus utilities. the white line is where we are now and the blue line is the tech bubble. we are tracking it on an almost one-for-one basis. much more does the rest of the market have to rerate? are we at a place now where

people can -- or multiples multiples -- are reasonable? now are we had a place where -- where is the growth? let's start talking about fundamentals again. areid not matter what you paying for growth and now you will start talking about how much growth is there. and i just trying to chase something every year for two years and then on to the next? alix: how much more upside do utilities have? has that gotten oversold to the same extent -- overbought to the same extent? sarah: utilities are acting as a

bond to the degree that people are still looking for some way to get an income stream when you have a 10 year back three. 6%.ities were yielding 5%, i think people chase those yields closer to bond yields. the argument should be that they come down but they are moving at the short end of the curve. there is going to be some movement out of utilities. there is some trade-off there but i think that people are also looking at a place to hide within the equity market and the utility sector was looking like a reasonable place to do that. alix: is it sticky? sarah: that is part of the problem, it is not. with more etf flows and more instruments people are using to take on whole sectors, you can go in and out of the sectors much more quickly and part of

the reason you see sectors get whipsawed around a little bit is you have big movements in and out and there were some statistics coming -- the distance on big-money coming out and moving into etf's but then the etf's need liquidity so when people move out of those funds, then you have the selling for that. the structure of the market looks now -- looks different than it used to and that is part of the reason you see what the volatility starts, it starts to whip saw a little bit. the flows out are the worst since 2008. how do you handle that pickup in volatility? to notwe are so used having volatility that part of it is getting used to seeing it again and saying this is part of my new normal. alix: was yesterday the new normal? sarah: i would hope that much. -- volatility is not. after monday was a short day.

all of a sudden, it was off to the races and i think because of the different market structure, they're also tend to be self reinforcing mechanisms that happened during the day. when think you to go well, when you had the volatility, you saw that beginning in december and you were closer to staying in a trading range. you saw days where it down a bunch and then up a bunch. there is more outer rhythmic trading in the hand -- more algorithmic trading. i think that has to volatility. the question is, where is it going to settle? right now it is too high. 7, 8 years of very low volatility. right now it is still looking for a place. alix: a window into 2019. what sector is going to have the most stable earnings? sarah: what is going to come out is a surprise in retail sales.

the retail sector taking a lot of pain before christmas. that is a place where people were expecting spending to not be so good and some of that data has come out and it has been pretty decent. obviously your commodities sectors are going to have a hard time. tech should have reasonably good numbers. everybody is down on apple for a number of reasons. i look at that and say if we are going to be growing services and you are still going to replace your ipad and iphone, do we get to a place for that is more normal and people look at that and say maybe apple is starting to look reasonable again customer google did not go very far last year. you look at that model and say that is starting to look reasonable. some of the bigger stocks that were driving everything have come down answer to to look more attractive. alix: sarah hunt of alpine woods

is ticking with me. coming up, all eyes on goldman sachs -- is sticking with me. coming up, all eyes on goldman sachs. this is bloomberg. ♪

alix: time for the bottom line, a look at three companies worth watching. here with me to discuss is our bloomberg deals reporter and still on set is sarah hunt of alpine woods. i was surprised yesterday when you had a monster rally and goldman was only up by 4%. company. quantify this >> the stock is now down about 30% since november 8. that is huge. investors are worried about how much goldman is going to have to pay up to make this go away. intelligence analysts are estimating they could have to pay $5 billion and if they settle early, they could get

away with $4 billion. about $5we care billion for goldman sachs? sarah: the issue is partially the fine. it puts a negative spin on a company that has had a fairly broadly accepted business model. i think the problem is they start losing out in other business going forward. of the combination uncertainty on the fine and also the culture and there are questions about whether or not who knew what and everything else and all those things put a bit of a pall over the stock. alix: fair enough. have a sense -- i saw the report on how much bad news could be in -- are we going to have more lawsuits, shareholder lawsuits? >> those things are still on the

table. is, goldman has not handled this that well because there is this dripping of information coming out. remember, goldman is trying to db ashe bank involved in 1m well. alix: let's move to our second story which is apple. the analyst we all love to talk about, saying apple is going to be the best-performing stock in 2019. walk me through the wine. >> it is the second worst-performing stock this year. it is going to be a big turnaround. he is saying people are going to walk away from focusing on iphone sales to looking at what new revenue growth is like and what profitability is like. bit about how but he ipo do so each quarter.

he is saying to settle down and look away from that to the bottom line. they are launching a new service in 2020, upgrading. alix: does this lead to a bifurcation? is tech about the growing names or the more stable names? think microsoft ended up three rating some of the services they were doing because it used to be just about the software cycle and then people should looking at that and going that is much less of a factor, but what else are they doing? they had a huge cash horde and they put it to work. apple is doing the same thing. musict want to give up my and my this and my that, so again, there are ways that can get revenue from when it used to be just hardware and you change it to just being services.

i think you start to see a little bit of a trade-off. apple is trading at quite high levels. >> apple has been pretty good at safeguarding, others have not. facebook and others have been punished hard. if you think government is going to bring in new privacy regulations, then apple is one of the best. alix: our third story is tesla. bush upgrading this, saying tesla has turned the corner on model three production. >> they are poised to generate improved profitability. we have been talking about tesla 's cash burn and how much they burned through it. what a tired year shareholders have had.

model three production is stabilizing, they got that factory up and running. they have a shanghai factory opening up, the first outside the u.s. they are registering a tesla financing business out there. they are hoping some of this news will start to be boring and it will sort of stabilize. alix: and elon musk has to stop tweeting. thanks a lot. sarah hunt of alpine will be sticking with me. coming up, oil heading for its worst quarterly loss. this is bloomberg. ♪

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leave no room behind with xfi pods. simple. easy. awesome. click or visit a retail store today. alix: this is bloomberg daybreak. 30 seconds away from initial jobless claims in the u.s.. it is a risk off field. and thebout the s&p 1000 point rally in the dow.

there is not a safe haven. the yen again takes dominance here, right on that 200 day. initial jobless claims coming out. two hundred 16,000 individuals filed for jobless claims for the first time, in line with the week before. angst amongstf some who are looking at the numbers. this appears to be steady as she goes. talking about not study, the oil market. oil heading for its worst quarterly decline in about four years. you can really see the huge decline that we have seen. still with me is sarah hunt of alpine investments and joining me is philip verleger of pk

verleger. i him a lot of my guys you included and what happened? thing wet is the same have been writing about. of put obligations. the great story in the united states and the world is the emergence of the fracking business. the untold story is the fact that these people have to hedge. the new york financers want some sort of financial protection. that means we haven't the beginning of the quarter, -- we had at the beginning of the quarter, 5 million barrels of oil. ,ost of these hedges and puts swats -- swaps and puts have not been hedged and the prices were

between $50 and $60. when the price started falling having tole started hedge and suddenly we wound up selling effectively 10 days worth of opec production. 500 million barrels had to be sold. on christmas eve, the price started to fall and they were more puts sold by producers who were doing three-way calls and that drove the market down because there were no buyers. pointit is such a great and you had a chart in one of your weekly notes. it takes a look at the positioning and the price. if we bring up that chart, the vertical line is the cumulative amount of oil that needs to be hedged and then on the flipside, that was on the line, you have the swap price. that is in essence what you are blaming the recent exacerbations on. philip: it was a computer-driven

hedging drive. flash -- a was a huge crash because people were selling stocks. this is the new part of the most people following oil did not take account of. you have this range of $60tility between $45 and for the price is going to move up or down in very violent ways. guest wasevious talking about, you watch it and suddenly it moves by five or 10 times the amounts we have ever seen. alix: doesn't it make it impossible to call a bottom? -- does it make it impossible to call a bottom? philip: that is exactly right. no way to worry about a top.

it is not algorithmic trading by speculators, this is hedging of financial obligations to the people who are producing all this oil. alix: sara, what do you do with that? talk about volatility. sarah: he makes it really interesting point and because there is so much more production in the u.s., u.s. producers are more likely to hedge. i think this is one of those places where i am looking at energy saying there are some great companies on sale right now but on sale is a relative term until we have some sort of bottom where you feel like that volatility is not going to stick around to the degree it has very recently but you have some really good producers out there that are starting to look reasonable given what their capex and backlogs are.

you also need to see were oil prices go and to the degree that low prices can cure low prices, that can be helpful. the problem with oil prices extends to the fed. there are all sorts of moving pieces and they are all moving quite violently. alix: before we move on to the demand picture, sara brought up with the difference between big oil and smaller players. money in orderch to produce shale and get money pumping your consistently. -- pumping consistently. philip: it is a new permanent part of the oil market, as permanent as anything in this business is, for the next two to three years unless prices bottom down in this lower level. the other way to put this is the next step would be for the oil

exporting countries to do what some groups have done in the past which is as the team counsel did which is essentially enter the market and by the oil back if things start to fall. it would not have taken much in october for a producing group to buy a little oil and stabilize something at $55 or $60. if they were to do something like that, they would have to pick it price that is not going to lead to too much production. these things are hard to make work but central banks do a very good job of it. alix: and we don't target price. i don't know if you believe that. philip: if they don't target prices, then we are going to have to live with this extreme volatility. at this point, 45 is a good price. interesting when you talk about fundamentals.

talking about how hard it is to be a fundamental trader. >> ultimately i remain a fundamentalist. ultimately, oil prices are butrmined by fundamentals in the shorter term, they can detach because of money flows. that is one of the problems you have to face these days. alix: how do you feel about that sarah? those that is one of problems that those of us who grew up looking at the supply and demand side globally are faced with, a variety of bits and pieces. you can have a strong opinion about what you think should happen and right now, and those things are driving 1 -- driving one another. you have to wait for other people to feel that way. fundamental oil people will look at that and go there is some great stuff out there but you

look at that and go over what time horizon? you might see this works itself out and all of a sudden, oil starts to climb up again. are --is like there there is room for things to go higher. alix: which brings us to the real fundamental issue, which is demand. , you wrote in national economy, and talked about this, you said u.s. policies have laid the foundation for an economic onset of a 2019, the currency contagion or serious recession should not be ruled out, accompanied by a drop in global oil demand. philip: when i wrote that, i was focusing on the fact that we have three production policies. limits rate --ch

limits labor. construction prices. the second is our trade policy the iran policy. you see low investment and an economic slowdown and what will happen then, plus what is going on in europe, we could see almost no growth in oil in the worstn 2019 case and what that would do is pull the prices wherever they are going to stabilize down from $65 to $55. we have been doing exactly what we should not be doing in terms of trying to build a stable foundation for economic growth. alix: really great to catch up with you.

thank you for joining me, philip verleger, pk verleger president. sarah hunt of alpine, great to see you as well. now for an update on what is making headlines outside the business world. >> iraqi lawmakers are demanding u.s. forces leave the country. politicians from both sides of the political divide see president trump's surprise visit as a violation of their sovereignty. roughly 5000 u.s. service members are stationed in iraq as part of the coalition against the islamic state. new details about the death of a second guatemalan child who died of u.s. customs and border protection. the eight-year-old was moved among at least for crowded facilities at the border over the six days from his apprehension until his death. it is unclear whether his health deteriorated because of neglect personnel and facilities, his journey to the u.s., or a combination of factors. an independent union of sudanese

-- it is the latest in a series of work stoppages and protests calling for longtime president to step down. the three-day strike is meant to expose the government -- including censorship and confiscating newspaper editions. global news, 24 hours a day, on air and at tick toc on twitter, powered by over 2700 journalists and analysts in more than 120 countries. this is bloomberg. ♪

>> this is bloomberg daybreak. coming up on bloomberg markets, peterson institute for international economics president. your bloomberg business flash. president trump is considering barring u.s. companies from -- theelecom equipment president could issue an executive order in january. it would direct the commerce department to block companies from buying equipment from any foreign makers it believes might threaten national security. -- agreed to acquire a majority stake in -- airport for $3.7 billion. to expand company set their portfolio in aviation infrastructure with a major london hub. nearly 46 million passengers passed through gatwick in 2017

-- in 2018. five days ahead of the inauguration -- struggling to come together on pension reform. members of his economic staff reportedly having disagreements with the incoming chief of staff. there are a number of technical details to work out before sending the pension progress -- program to congress. that is your bloomberg business flash. alix: brazil one of a top picks for some investors in 2019. a bloomberg survey had brazil and the riel ranked number one followed by the mexican peso when it comes to bonds and stocks. joining me now are some investors with money and the game. the dxa investments ceo.

-- the only full-service logistics solutions provider in brazil. so great to catch up with both of you. oscars, -- oscar, start with -- >> we are always discussing how brazil adds someone the mental straightforward opportunities that do not depend on where the market is or where it is trading. is a verystics straightforward easy problem that is not easy to resolve, but very easy to see. brazil has only 4% of the roads paved. the fifth-largest country, size wise, and there is simply no logistics. you have a little bit in the south but not across the country. gerald company is the first to create a network to resolve the logistics issue in brazil, using airlines as a main strategic asset. that is why we have invested

with them. alix: how much? million and gerald started one of the first top logistics companies in the country. you and planes and airlines comes as no surprise. what was a like to start this company in brazil? -- what was it like to start this company in brazil? >> very interesting. infrastructure, and large path to build just about anything. investing for the long-term, you invest in something that is needed whether it is uncertainty or currency or fuel because it is something so basic. it is a lot of challenges and it took longer than we expected but we think bloomberg wrote a story on this, years ago.

here for the long-term, building something that is the stare today and in five years -- that is necessary today and in five years and in 10 years. we are building a platform that you can build off of in the future. alix: what was it like to pitch to oscar? >> that was easy. we were doing a much bigger deal as we have done bigger deals and brazil. i had just left is a will -- just left azul. it is complicated but we have to do it. had awas an investor that vision of investing in people and projects, even if we start small, and we wanted to and with the right investment group, from a private equity standpoint, liquid in the beginning, something for the long-term but it is needed.

2019, sectors that still hold opportunity for you. is it going to the infrastructure, transportation or other sectors? >> brazil lacks a lot of things but i think fundamentally, this new government will change the game because the government is bringing a lot of technicians in their path to reduce government debt, reduce bureaucracy, to reduce the corruption around these processes and it is just going to change the game for us. we will be able to address what we have been looking at for more than a decade now that they are actually going to happen. we have seen just recently now, the government being able to address with the current government and approve for a foreigner to own an airline. that is going to open up for several different sectors.

we're looking at health care, looking at consumer. we always talk about commodities and exports and imports. 80% of the gdp of brazil is a local story. we're looking at a lot of opportunity. lead in america think about mexico for instance. mexico is very similar to the u.s.. brazil is still lacking behind, maybe -- lagging behind, maybe 10 years. we will see these strategies developed in brazil also. are your quickly growth expectations? -- alix: how quickly can you get it there? >> 24 hours. what else needs to get there?

what else should be getting there in 24 hours and if you think time is important today, what is it going to be in two years, three years, five years? a solution that can change the way business is done and help companies grow and we connect more people and have more people participating in the economy and that is -- a lot of investments, long-term infrastructure investments that went nowhere and if i have 10 billion a eyes to invest and build out the infrastructure in brazil, we can turn the country around. there is said to be some resilience and resistance. we both have that quality of persistence and resilience and brazil requires that, and ethics too.

things that we apply and our business and oscar applies in investments which will help us grow in the long run. happening?s it it was so great to catch up with both of you. thank you very much. oscar and gerald. thank you very much. 30 minutes away from the market open in the u.s.. really struggling for momentum. sincegas rally inequities 2009. -- joiningthe phone me on the phone -- how do you judge when we had the bottom? >> it is so hard. after yesterday you would like to say that is it but those kinds of crazy bounces typically all happen in really difficult times for the market.

how do we know when the bottom happens? we would like to see a couple days of this kind of thing. a big update and then some sort , so toirmation nearby call it a low, we just don't know. alix: are their individual sectors that looks more promising than the overall market for example?. >> you are going to want the bounce to be composed of the rescue sectors. those guys need to get out. we need a bounce on materials, technology, what people will be doing is picking through the wreckage of big tech. the wreckage looks like a slaughterhouse, so if we can get some sort of move and some of these big tech heavyweights, those are the kinds of things you want to see. alix: we saw that rally yesterday but you have not had s&p, the majority of the s&p is not seen too many kinds -- has not seen too many highs. 95% of the volume on the nyc

was positive. that is incredible. all but one name in the s&p 500 was positive. incredible breath yesterday but you need to see stocks start approaching their 200 days again. the percentage of stocks above their 200 day is eight. we have to see that number bounce. we had to see some names start to recover. day, that% of volume would be really good. alix: how do you trade vol? talked to clients all the time that said what you going to do about this volatility? there are ways to get yourself some sort of comfort at night but i am sitting down to these tapes and i have to drink a red bull to play this game. it is insane, the moves in the markets.

guys out there are looking for protection from volatility but a lot of people are leaning in. some people are embracing some of this vol. vol, look down. -- look out. thank you very much. that does it for bloomberg daybreak: americas. coming up on the open, i am joined by andrew less than what he thinks of facebook and twitter. this is bloomberg. ♪

♪ >> from new york city, i'm alix steel. the countdown to "the open," starts now.

alix: coming up, rally interrupted. futures melting following the biggest one-day search for stocks since 2009. new trade talks, a u.s. team preparing a travel to china, the first face-to-face meeting after a 90 day truce. and social outcasts. shredded in market cap since august. in the markets, remember the monster rally yesterday? that is not the case today. s&p futures down 1.5%. moving to safety is the theme. euro-dollar up 4/10 of 1%. yields down five basis points. seven year off coming at 1 p.m. today. crude continuing to rollover, unable to find a bottom.