♪ matt: big progress. equities/futures rise after president trump expresses optimism over trade talks, but will the hope for a deal last? the fed in focus. becoming the latest the central bank will benefit from a better feel for markets amid reports the white house is trying to organize a trump/powell meeting. plus, italy's government passes the budget at the 11th hour, but good 2019 see the an easy populous fall apart? welcome to "surveillance."

time matt miller -- i am matt miller standing in for francine of this new year's eve. let's see how the markets are trading. in the civilized world have set for the holidays, but we have the yen trading 110 even. we see that across the board. to 1.2 736. to $54.35. is up new year's eve, obviously a holiday in most of the world, but there are still exchanges that have stayed open for some reason today. europe, their stock exchanges taking a half day, so they will be closing at 12:30 in the

afternoon london time. 1:00ng in spain will end p.m. most bond and futures markets are closed for the holiday. andmy -- germany is switzerland has fallen in line. we see very thin trading. i have a chart showing average volume at a time and it shows you the stoxx 600. this is where we would normally be trading. the dark, blue line. this is where we are trading, this white line. because so many markets are closed and because those who can have chosen not to come to work today, you see very decreased volume, and that means bigger moves and asset prices, so get ready for more volatility if you can handle it. let's get to bloomberg first word news.

>> the partial u.s. government shutdown could be defined by the wall, meaning what kind of physical barrier are acceptable to both sides of the aisle? the white house same president trump will not stand down on the wall at this u.s. mexico border. democrats say they support enhanced border security, but not what one lawmaker calls the medieval border. law.arliament -- budget they agreed to lower the deficit target to 2.04%. the initial target was rejected by brussels as breaching e.u. rules. the chances of the u.k. leaving the e.u. is 50-50 if parliament rejects a deal according to the international trade secretary speaking to the sunday times. he calls on his fellow lawmakers to back the deal, and said he

would rather have a deal that fell short of expectation than risk no brexit at all. russia and turkey have a crucial role according to president vladimir putin. this coming a day after the country's top chiefs met in moscow and agreed to court a military -- left by the void by president trump to order a military pullout. bangladesh's party has won in a landslide. the league and its allies winning almost 90% of the election, the opposition has called for a -- many people were killed in violence. this will give him a fourth term in office.

south korea has kim jong-un -- president moon jae-in's office is north korean leader said a letter of well wishes over the was willinging he to meet often then 2019. he is said to deliver his annual new year's speech on monday. stay in jail for another 10 days. this is another setback for the former nissan executive who defrauding theof company by millions of dollars. thank you very much. president trump expressed optimism after a deal. progress ishat they

says they, while xi hope to push for stable progress. the stocks closing in on their worst year. the indexes that were open rose with u.s. futures on hopes for a trade deal. they were few and far between, but -- they were few and far between. joining us is our editor from hong kong. how much do we know what president trump and xi discussed? as what trumpmuch told us via twitter that they made good progress towards a deal. he said it would be a comprehensive deal covering all manner of areas of contention between them, but he did not give specifics on what that would entail. over the weekend, we know that xi responded in kind with the chinese state media commenting.

these are things we are watching going into the u.s. delegation arrival in beijing several days away. matt: what does this signal for trade talks? are we getting our hopes up a little bit here? karen: i mean, we are, matt. i think people who have been watching the trade war over the last month have got in her up before and the are taking this with a grain of salt. trip may bes that overstating how close they came to an agreement. they said this could be a rolling back and a sign that trump and xi will be following certain commitments they made at the g20 in buenos aires. there will be a lot to watch in the coming days. matt: karen, thank you very much. karen, joining us out of hong kong.

let's get a government story in europe. italy's parliament has revised a budget amid opposition claims they were dictated by the european union. the country's kilis government had vowed to push through a costly campaign promise, including a universal basic income, but under a deal struck with the european commission, italy lowered its plans from 2.4% of gdp to 2.04%. joining us now from rome with the latest is kevin costello. kevin, the budget looks like it has been settled and that means everything is cool in rome? kevin: not really, matt. that is the problem. in fact, the growth for next year has been ratcheted back according to the latest projections. and there is a deep rivalry within the coalition government. premierse two deputy

gave an important newspaper interview that was published today. he said, he does not see any danger to the italian government coalition in the coming months. so what happens after the coming months? that is the question right now. could he be seeking early election? matt: i see that you boot to milan -- i see that you moved to milan for the new year celebrations. let's talk about campaign promises. radicalse two parties, and radically-different, cap the promises they have made -- kept the promises they have made their doubt? -- have made their? the lower retirement age has been ratcheted back in there are less resources to pay for it. now, the question is will the voters be satisfied with the reduce promises that are being kept. matt: kevin, thank you very

much. kevin costello currently in milan, normally based in rome. coming up, thanks were one of the worst -- coming up, a year to forget. in thel banks fare coming year? we will get more on that. this is bloomberg. ♪

♪ finance,nomics, politics. this is "bloomberg surveillance." i'm matt miller in london for

francine lacqua. >> the second year in a row, goldman sachs is said to be the top bank taken over by their shareholders. that is up from 26.4% last year. jpmorgan and barclays rounding out the top five after a strong start to 2018. short of alume fell record set in 2007. its nine freeze on new videogame licensing. beijing has said to have approved many titles for commercial release. financialtelling the times it could take months for officials to clear the more than 5000 games waiting for approval by sensors. japanese prosecutors extending car loans -- extending carlos ghosn's jail stay by 10 days. this is a another setback for

the former nissan executive. he stands accused of overstating his income by tens of millions of dollars. disney and verizon have reached a deal to keep sports program flowing to cable customers. the distribution agreement covering 4.6 million customers was due to expire at i'm :00 -- due to expire at 5:00 on new year's eve. that is the bloomberg business flash. matt: thank you. european banks of the worst-performing sector and the stoxx 600 this year. deutsche bank and danske bank of the biggest loser says each has grappled with legal troubles and a changing management. after a year, which saw crashing valuations and a heavy dose of realism, are banks and a better place in 2019? joining us now is our senior

e.u. banks analyst from bloomberg intelligence. jonathan, first of all, happy new year, and thank you for joining us on this holiday. run us through the biggest winners and losers of this year, if there were any winners? jonathan: to qualify a winner, you needed to be a northern bank. plenty of losers. hit by the money laundering and the potential fine. in the u.k., metro bank and clydesdale fell more than 50% as well. lining the only silver ,s we are entering 2019 discounting a lot of bad news. this year, we came in on double-digit these -- double-digit fees. matt: i see unicredit as well.

there are a lot of italian banks that had bad news to discount. successful have a been fixing their non-performing loan problems, and will that be a boost then since they have a low price to book? jonathan: we have quite a long way to go. they were looking to offload another $7 billion, so they are making good headway. millions of bad debt to offload. so, we are getting there. is this sort of environment not straightforward. the italian banks remain the wildcard among the european banking sector. matt: revenue forecast across the board for 2018 and 2019.

it has been especially a big --blem for the two, dancing for the two deutsche bank and danske bank. what are we looking in terms of revenues? growth may beo 3% a little aggressive. a flat year on year. i suspect we will see a further flattening. fees, a lot of pressure on and commissions. suspect small consensus, but not anywhere near to the degree we saw this year. matt: finally, i want to ask about the possibility of maturation, and how that will hurt the banks, and what kind of risk it poses. what is the story there? jonathan: the banks have to

think about this 12 month ahead. inhave 400 billion maturing 2019, early 2020. so, it is a headwind. we don't have liquidity issues. we are in a much better state than we were. it is something the market will recognize how much support qe and these programs have let to the bank -- have lent to the bank. matt: jonathan, thanks for joining us. he is our senior e.u. advisor. you can see a fantastic report are terminal -- you can see fantastic report that our fantastic editor has put on the terminal. this is bloomberg. ♪

♪ economics, politics, this is "bloomberg surveillance." i'm matt miller in berlin for francine lacqua. bloomberg intelligence analysts have been doing crystal ball gazing as the year draws to a close. we just spoke with jonathan about the banks. take on thee potential fallout from the u.s.-china trade war in 2018.

♪ despite the recent trade truce, there is still a fair amount of uncertainty regarding the trade war and the negative impact. >> we continue to see the shift china as theut of entire supply chain diversifies the risk on longer-term. >> our job you is that there could be -- our view is that there could be a minimum downside. i think the chinese government will step in and reinstate the tax incentive to push up auto sales. trading other two partners. [indiscernible]

>> the prices should continue to remain volatile next year and the trade war between the u.s. and china is already driving a slowdown in global demand, and that could accelerate. matt: continue to watch bloomberg television from bloomberg intelligence. it has clearly been a painful 2019 for those long equities around the world. stocks have lost 20% of global gdp. trillions have been wiped off global equity markets, and a number of indexes have fallen to bear markets. with further insight, dani burger joins us. is this all the -- fault? >> we love to blame them, don't we? it is hard to blame them because a lot of markets have taken a hit.

this is what i am starting with some of the various assets that have flirted or dropped severely into the bear market. the talk here is the peak for the year, the line falling down. the standout here, matt, is oil. oil falling nearly 40% from its peak. opec concerns. although energy has have -- has had less of a push global stocks, we have seen nasdaq and futures falling to a bear market. there is a remarkable chart with that drop we have seen. stocks losing 20% of gdp, a market valuation -- a marked valuation here on the board. globalllion wiped off stocks, taking people by surprise.

the final chart, cast is back. one to two month treasuries losing more than high-yield credit, meaning there is no alternative. thanks veryurger, much. optimistic should global investment banks be about the year to come? about theirovies year ahead -- we talked to moody 's about their year ahead preview. this is bloomberg. ♪ this is bloomberg. ♪

matt: economics, finance, politics. this is "bloomberg surveillance." i'm matt miller in berlin for francine lacqua. na: activity a chinese

factory slowing in december of the deepening slowdown in that country. estimatege economists of exactly 50, the nonmanufacturing pmi be expectations and 53.8%. u.s. equity futures rallying after president trump reported a big progress in trade talks with his chinese counterpart. is made, a deal would be very comprehensive. the government shutdown could be determined by the definition of the word wall. house says president trump's demand for a wall on the mexico border refers to seal flats and technology. democrats say they support whatced security, but not

one monitor calls a medieval border wall. italy's parliament has approved its 2019 budget law following a standoff with the european commission. partners agreed to lower a 2019 deficit target to 2.40%. was rejectedarget by brussels as rejecting eu rules. liam fox called on his fellow lawmakers to back the brexit deal. he said he would rather have an agreement that falls short than risk no brexit at all.russia and turkey have a crucial role to play in syria. they agreed to coordinate military actions after president trump u.s. donald trump ordered

the military pullout. kim jong-un once another summit to address peace talks in the free korean peninsula. the north korean letter sent a personal letter of well wishes to the south korean president. extendingrosecutors another setback for the following auto executives who is seeking bill to start mounting his defense. he stands accused of understating his income by tens of millions of dollars. 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. that.thanks very much for let's focus back in on banks. movies has put out -- moody's has put out its outlook and it

is positive. strong balance sheets and study earnings in the sector. joining us now is the associate managing director at mood y'investment services. first it banks should be celebrating. you are talking about global banks, not honing in yet on any specific regions? lori: yes. when we talk about the global investment banks, this is a particular peer group of 14 global institutions, primarily in europe and the u.s. but also in asia. when you look at -- whether thered should be time for celebration, that is really not exactly what we are saying.

we are primarily saying that the factors you have mentioned, stronger balance sheets, more stable earnings as a result of business model repositioning, very strong capital and liquidity positions and more supportive operating conditions, have helped to stabilize earnings and increase the resilience of the global investment banks to some of the risks they may be facing down the road. matt: i was going to ask about the rising rate environment. even in the u.s., does that look set to continue? is it all about what the fed does in 2019 or are you still, you still think investors are pricing in the rate increases we have seen throughout this year? : we do expect further rate rises, but we expect that the incremental benefit to the u.s. firms and europeans who have political dust material

exposure will decline relative to what the is experienced over the last three years. for the europeans, the expectation of rate rise now seems to continue to push back. the operating environment for them is more challenging. is that the worst for europe when you look at the three main regions, asia, the u.s. and europe? or are european banks still in the worst situation? : than the u.s. firms. they have made material progress as well in terms of key drivers that we were talking about before, in terms of balance sheet repositioning, reducing cost. for the europeans, the operating environment is much less supportive and continues to be the case.

they haven't had the benefit of rate rises are tax cuts, but at the same time, in many cases, they are still going through restructuring. we do see benefits for the european firms from the point of view of safety and stronger balance sheets, capital and liquidity, lower restructuring and litigation charges, and strengthening earnings. achieving positive operating leverage is still much harder for the europeans, and they are losing market share to the u.s. firms at the same time. matt: what about a negative feedback loop that typically affects the u.s. economy more seriously than a dozen european economy? stocks, obviously taken a big here in the u.s. we don't have a medieval invested in europe in stocks as we do in america.

is that going to be a problem for u.s. banks? obviously, we are usually more focused on the bondholder perspective because we are a bond rating agency. are positive outlook is very much a reflection of risk to bondholders. the heightened level of market volatility that we have seen most recently in which we expect to some extent will continue for mayous reasons into 2019, be beneficial from the point of view of capital market revenues for these groups of firms. it is clear as well that the declining share prices will put pressure on management to increase returns for their shareholders as compared to bondholders, and we watched the actions they take very closely

because what we don't want to buybacks or share increasing risk profile, which negative.edite matt: i was also thinking in terms of confidence, consumer and corporate confidence to borrow money and spend it. you see those animal spirits still stronger in the u.s. than they are here? laurie: yes. i think that business and consumer confidence is stronger in the u.s. than in europe. obviously, in terms of the u.k., we are very concerned with the impact of brexit and the uncertainty that is prevailing at the moment and may continue for some period of time. in europe as well, growth is slowing. investor confidence and consumer increasing.s not

concerns, but less so at the moment in the u.s.. matt: thanks so much for joining us. really appreciate you coming in. urie, associate managing director at moody's. face. face to white house officials are reportedly trying to set up a meeting between president trump and chairman powell. could this clam some of the tension? this is bloomberg. ♪

matt: economics, finance, politics. this is "bloomberg surveillance."

i'm matt miller in berlin for francine lacqua. let's go to the bloomberg business flash. viana: goldman sachs is there to be the topic for takeover advice for the second year in a row. morgan stanley, jpmorgan, citigroup and barclays rounding out the top five after a strong start to 2018. china has ended its nine-month freeze on used videogame chinese gaming executives told the financial times it could take months for officials to clear more the -- the more than 5000 games approving approval is awaiting approval by sensors. the disney distribution

agreement covers 6.4 million customers. are seen asions test for disney's business model of charging higher fees for espn. deutsche bank is well-positioned to whether a recession without state help. that is according to chairman powell. is that the company has a very strong capital base and record liquidity level. germany's biggest lender closing out a rough 2018. 56%top is declining around amid a sputtering turnaround. that is the bloomberg business flash. matt: they very much for that. let's talk food and drink as it is new year's eve. 2018 was a good year for consumer staples. things were tougher for packaged foods. they underperformed by 9% according to bloomberg intelligence. what is the outlook for 2019?

joining us now is the company analyst at bi. what i the main challenges for the sector in the year ahead? can: they're going to be the same as they were in 2018. price in growth is very difficult to achieve at the moment. if you can get some inflation with innovation, there's a chance companies will do well. packaged food index you mentioned is an equal weighted index. it is the small companies that have done extremely badly there. there's missed their numbers and collapsed. that is the risk of going into 2019, of the larger companies collapsed. matt: when i think about packaged foods, i think, it has got to be an issue with plastic or the way they are produced, people want more healthy,

natural foods.is up to case or am i all? duncan: you are right with the last point. people want local food as well. rather than buying packaged products, people want something that is new and fresh in the market. what the global companies have struggled with is the renovation programs have been focused on big global innovation when the market has gone local. that has really that the local companies to pick off a little bit of market share here and there. that has made organic growth extremely difficult. one other issue there with global companies, they really have a big emerging-market base. their you see organization come through. central institution from retailers has made it much more easy for the local competition to come in and pick off the market share at the bottom of the rate.

matt: as we are going into new year's eve, talk to me about spirits. one of the heaviest stocks on the ftse 100, i wonder what the impact of brexit could be there. . duncan: it shouldn't be too much of a problem. scotch is a zero terrorist f business. tarif it is an expert business so whatever happens to sterling if we get no deal, could be potentially good news on the no deal. fairly, the one problem we have tariffs,-- government can do what they like. that is going to be the big fear for scott companies, somebody decides to put some sort of local on them and make

spirits easier to buy rather than scotch. it is such a big part of the actual spirit industry. bourbon,eplace it with but then again, i am american. thank you very much. duncan fox, company intelligence bloombergt.the chief economic allianz has said the fed would benefit from a stronger yield. things,s to do two shove it is most sensitive to market and what is happening outside. this risk of bill paxton, what the president -- this risk of spillbacks. second, the fed has to realize that it cannot be an automatic

pilot. in east timor sensitive to what is happening. regain the fed can control and stop these self-inflicted wounds. matt: meanwhile, white house officials are currently trying to rearrange a meeting between president trump and jay powell. trump has been extremely critical of the central bank chief in recent months. of this face to face risk /meeting spook markets even further. paul, what do you think? typically when president trump makes people, even if they are his mortal enemies, he kind of like the master. paul: maybe that is one way of putting it. he sort of what's to come out of the meeting and say that something positive has happened. as it the story we have running on the terminal looking into this is that it is a very risky meeting for powell to go into

because how can he come out of it looking good? trump and says we are going to carry on doing independent monetary policy, we and is keep hiking, going to displace the president of we are going to get to see the same sort of a we have already seen. if there is some sort of backing away from the rate hike after the fed has been talking about, is powell has somehow succumbed to pressure from the president, neither of those is a good look for the central bank. for those of us who just graduated from business school, this is a crazy new thing, the president criticizing the fed. for people with more experience, we know this happened under bush, reagan, hard court under richard nixon. passed fed chair is

done? explicitly, carry on with the same path and same course, whether they are listening behind the scenes were not is a different matter/ i think what you're talking about is an interesting trend we saw globally as well from turkey or maybe russia weather has been exclusives pressure on the central bank. india as well. instances of bits of mention in the u.k., particularly over the brexit thing. in europe, there has been disgruntled german politicians wanting an end to qe. it is a global trend where everyone is a little bit desperate to get this growth and get beyond the kind of hangover the markets have been experiencing ever since the global financial crisis.

you want your central bank to do whatever it can to greet the economy. the question is this jobs mandate for the fed in particular. if it is to be taken on par with thistion mandate and general situation for growth, there is no reason not to carry on raising interest rates. matt: that was the famous problem under nixon with burns. he said he will take the inflation, what we can't have is unemployment. then we ran to the worst inflation in modern history. powell, think his hardest job is to show that he has a feel for the markets. makee same time, he can't it look like there is this powell plunge protection team, like he is catering to the markets everyone.

know, and he doesn't want to create panic by admitting the situation is worse than what the fed has been guiding so far. youll depends on how interpret a 20% or so drop in the s&p. is a disaster, healthy correction, which we have heard quite a lot as well? is it just par for the course? right now with market pricing is calibrated, we're looking at no fed hikes priced into the market. this time master, the fed was saying four hikes and went ahead and did exactly that. on the other hand, equities managed to find stability by the current price. you have the markets saying we don't need any more rate hikes. if we do that maybe we can find the footing in the stock market. obviously, the fed is not going to say that is it, we are done

because that would send a very negative signal. equities remain petering based on that. matt: absolutely. thanks very much for your time. we could talk fed all morning long. up next, we're going to take a look at the stocks on the move in the markets that are open. this is bloomberg. ♪

matt: economics, finance, politics. this is "bloomberg surveillance." i'm matt miller in berlin for francine lacqua. it is new year's eve, but some markets are still trading and we are still live here on bloomberg television. sydney preparing for the drop of the ball. up next, scarlet fu joins me out of new york. ♪ amazon prime video is now on xfinity x1.

so when you say words like... show me best of prime video into this... you'll see awesome stuff like this. discover prime originals like the emmy-winning the marvelous mrs. maisel... tom clancy's jack ryan... and the man in the high castle. all in the same place as your live tv. its all included with your amazon prime membership.

that's how xfinity makes tv... simple. easy. awesome. progress.

u.s. equity futures rise after president trump expresses optimism on trade talks, that will hopes for a deal actually last? the fed in focus. mohamed becomes the latest tuesday the central bank would benefit from a better feel for markets amid reports the white house is trying to organize a trump-powell paulo. -- pow wow. italy's government passes its budget at the 11th hour. this is "bloomberg surveillance."'francine lacqua and tom keene are off. happy new year, scarlet. scarlet: happy new year, matt. we are reunited. matt: reunited and it feels so good. we will see if the santa claus rally continues today. we haven't seen a bad run from the day after christmas. scarlet: exactly, we will see if

that last. they are kind of where we started off. matt: that is right. we had still the worst month in more than a decade. let's go to bloomberg first word news. a: president trump says there has been big progress in trade talks with china. the president speaking to jiping. xi new figures is showing china's manufacturing slowdown has gotten worse. the definition of the word wall could and the partial government shutdown. the white house same president trump's demand for a welcome the u.s.-mexico border refers to steal flat. democrats say they support more border security, but not what one calls in medieval border wall. liam fox warns brexit may not

happen. fox telling the sunday times the chance of the tape leaving the european union are 50-50 if parliament rejects theresa may's deal next month. italy, the government has finally passed its budget, but the populist alliance could fall apart in 2019 and prompt an early election. alvireal powers in italy, s and demaioni will battle for supremacy. they have to figure out how they can deliver on promises of welfare benefits and a lower retirement age after they cut funding for those. 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. much. asthank you so we embark on the final trading day of 2018, we're looking at futures in the u.s. indicating a higher open, building on last week's advance.

the dollar weaker gets most of the g10 currencies, including the yen. oil seems to be stabilizing in range.-$40 the bigger picture here is that oil is down 37% for this quarter. the dissent in oil is mind-boggling we swift because it entered a bear market a couple of weeks ago after setting a four-year high. and want to give you some breaking news we are getting from the singapore premier forecast for growth in 2019. 2.5%-three .5% is what we are seeing. there is the singapore headlines. here, we have a data check of what is going on in the yen, more strength. it could be dollar weakness

because that is what we are seeing in cable as well. seeing some moves there. nymex and brent both gaining today. we do as equity indexes, see some gains across the board. the ftse up a quarter percent. the markets that are open are up. really what we see is not very much trading at all. index, you with any end ande avat at the see what the average volume looks like. minus performing very much lower than it would over the 20 day average. that is the dark blue line. the white linee, is what we are actually seeing because you have german markets closed, italian markets closed. continent isthe closed now or will be closing by

this afternoon. perhaps we're not getting a true read here in reaction to some of the data that has come out, including chinese many fracturing numbers. if you come inside the bloomberg pmi, coming in below 50, indicating many fracturing in china for the first time since 2015. ordersshows new export falling lower as well. the blue line here shows services pmi has moderated lower, but it did take higher in december.that is a part of the economy that is growing fastest. that is a part that china wants to emphasize. away from manufacturing and towards services. matt: very interesting chart their. that would be a good one for a bottle if you need one for later on today. donald trump has expressed optimism for a trade deal after

a lengthy phone call with china's president xi jinping. he tweeted that they progress is being made. president xi said both sides hope to push for stable progress. the trade war has taken its toll this year. fresh data shows activity in china's factories dropped in december, underscoring concerns over the slowing domestic economy. year, it isout the worth noting that the u.s. trade gap has widened to a 10 year high amid tensions. working.s isn't joining us now from hong kong is bloomberg's china government editor, karen lee. what is the outlook for the relationship between the u.s. and china, given this phone call? people have been watching this trade war since march. we have had our hopes race before. i think people are taking the latest rhetoric with a grain of salt, but it is a lot more positive than what we have seen.

president saying on twitter that he in xi spoke in length. would consider all matters of tension between them. responded in kind saying this is a critical point for bilateral relations. i think people are optimistic, if a little bit skeptical going into talks next week. kind of have seen this thing before where we get a little bit of optimism, and then there is a letdown. we have in just one week a not senior officials, but we do have a delegation going over from washington to beijing. what is the outlook? karen: again, people are taking this with a grain of salt, but they are quite optimistic. there is some thought that maybe this is the signal that trump xi are going to follow through on covenant they made at

a dinner in argentina about a month ago. is the first time the two sides will have met in person at this level. there is a lot of optimism, but also a bit of trepidation going into this latest, very anticipated round of trade talks next week. scarlet: a lot of observers in the u.s. say president trump pressured to frame any outcome as a win for him. he will somehow make it so that he comes out ahead. does president xi jinping of china come out as the same, under pressure for a win? karen: china has had a hard year economically. it has seen a lot of slow down, its growth is stagnant. it is really at a critical moment. xi is under a lot of domestic pressure after a series of scandals within china.there is growing distrust of his government. he needs to frame as well.

china is really looking to resolve this trade war and put it behind them and move on to shoring up their economy. is expected to speak in beijing and about an hour. the newly does not use year's eve address to note any significant changes in policy, but everybody is going to be watching it a bit closer this year to see if there is any mention of trade our policy towards the u.s. scarlet: reading the tea leaves pretty carefully there. thank you so much. joining us from london is brendan brown, a senior fellow at the hudson institute. great to speak with you. good morning to you. is just hard with karen set in terms of setting up with xi jinping is going to discuss. we know that the president here in the u.s. has made clear that any kind of trade deal must be copy have the. what does that mean in his mind versus investors minds? investors, they

are concentrating on what is happening in the chinese economy. you are getting a credit bubble unwinding. alongside that is the issue of u.s.-china conflict over key issues such as technology transfers. there is thehand, pressure from wall street and big technology in the u.s. to come to a deal fairly quickly and get said pickings as a result of some overall compromise. i think that is where we are now. i was never have seen the so-called china trade conflict as a main determinant of what is going to happen in the global economy or in global markets. i don't believe that is the view in the markets either. it is very much a day-to-day concern and something that will move markets a significant news. we saw a chart earlier

that showed the trade deficit still at a high. is this gamut by president trump point to reduce that deficit? it seems to be one of his main goals. ndan: china itself has zero account surface at the moment. that may be due in part to consumer spending. the real babylon trade is going to be -- battle on trade is going to be europe, particularly germany and japan, to have fantastic size trade surpluses. does it show up and directly because the china bilateral trade surplus with the united states is very much a reflection of germany and japan exporting into china goods which get finished and then reexported to the united states. the real babylon trade is what to do -- battle on trade is what

to do about these large surpluses in china and japan. cap battle has yet to come. it is getting mixed up in some degree in the overall strategy, unfortunately. my forecast for 2019 would be in the context of a slowing global economy, and maybe continuing weak financial markets. this second trade issue is going to come up much more physically. brendan is staying with us. coming up, we have the global chair of m&a. take a look at what the market turmoil of the final days of 2018 means for how companies pursue their acquisitions. this is bloomberg. ♪

viviana: this is "bloomberg surveillance." in japan, another setback for the nissan founder. prosecutors have extended his days in jail. he is accused of understating his income by tens of millions of dollars. he is taking pills so you can begin working on his defense. regulators in china have videogame titles after the videogame titles after the end of a nine-month phrase. the videogame industry was hammered this year. china imposter freeze on new videogame titles as part of a campaign to fight gaming addiction. that is the bloomberg business flash. scarlet: thank you so much.

this in a special new year's eve edition of "bloomberg surveillance." 2018, our senior markets editor here at bloomberg has taken a look at the top traits of the year. he suggest going long u.s. utilities. the hit equities overall was immense. this year, the value of global equities plummeted in late january two today. we are back with brendan brown, senior fellow at the hudson institute. when you look at the different trades, especially the ones jonathan mentioned. in hindsight, they look like they make all the sense in the world. which traced do you think are likely to make a comeback in 2019?

brendan: i was a short u.s. treasuries and short long-term u.s. interest rates. 2019 isll assessment of that there is a speculative unwind continuing. the two great features of asset inflation, such as we have seen, a speculative narratives being told and the build up of leverage. i think the speculative narrat ives are becoming growingly tired. there is not many people out thee anymore who believe things of a rising profits. in terms of camelot -- camouflaged leverage, we are seeing investors being underneath the credit markets. a lot of question mark about collateral valuess. camouflagede themes

leverage being unmasked are going to domin 2019ate. scarlet: with the onset of what many are calling qualitative tightening, do you see traders being risk on, risk off anymore? is that a delineation that will continue to make? that is -- brendan: always a delineation that will be made. there are a lot of correlations based on the, such as yet going up when risk is off. that will generally continue to be the case. i would stress not to get too shortsighted on monetary policy. we have a lot of theater going on about president trump criticizing chief powell for the latest 25 point rate rise. to much bigger issue in the trump administration, monetary

policy has been the way the administration allowed the 11th fed to continue with very easy policy for a whole year after it took off its fanning asset inflation. we know the president is seeking some kind of meeting with jay powell. we will see how that allstate sell. brendan donnelly staying with us. year in which we saw a heavy dose of realism, are financials in a better place? we talked banks next. this is "bloomberg surveillance." ♪

matt: happy new year. climbs matt miller in berlin with scarlet fu in new york. francine lacqua and tom keene are off today. european banks are one of the worst-performing sectors in the stoxx 600 this year. deutsche bank and danske bank arm of the biggest losers. boutique bankst, climbed the ranks of the world's leading merger advisors while deutsche dropped out of the top 10. after a year which saw crashing valuations and a heavy dose of pessimism,ybe even are the days in a better place for 2019?

joining us now from london to discuss is jonathan. because we are focused on going with thend dance go scandal, let's start with european banks. are they better off now that new lows this year of in legal fees and turning revenues? jonathan: in terms of our starting point for 2019, we are trading less than eight times one your forward. ear forward. --ske and the entertainmen anti-money-laundering. i would much better be where we are.

somewhere where catalyst are more difficult identify. matt: are they european banks in a worse position than u.s. banks? positive still more expectations for the u.s. economy next year, plus, you have a higher interest rate environment. animal spirit just seem stronger. jonathan: yes. the biggest problem is interest income. across europe, you look at things like mortgages in the u.k. it is a horrible place to the. massively competitive. you look at deleveraging still going on. the banks have to continue to shed. and is not a positive momentum story. at best, we're talking 2%-3% topline growth. i suspect that may be too high,

which means it is all about cost. we provision charges to stay low. we will get a sense of how u.s. banks are faring come january 15 when jpmorgan begins reporting earnings. tycehanks to jonathan joining us. coming up, we will be speaking with deutsche bank's a senior economist. with will discuss the fact and what jerome powell will likely discuss if he does hold his meeting with president trump. that is at 6:00 a.m. in new york. this is "bloomberg surveillance." ♪

scarlet: good morning. i'm scarlet fu in new york with matt miller in berlin. tom and francine are taking the day off. any plans? matt: i am going to have a party

tonight. you are invited. scarlet: i will make it there and back. let's get to the first word news. viviana: an optimistic start to breakould be a make or year for ties between the biggest economies. -- aents from reported u.s. trade delegation heads to beijing for talks set to begin next week. president trump may be open to changing his strategy of pulling u.s. forces out of syria according to lindsey graham. graham has criticized the decision. he told reporters president trump is reconsidering a pullout. north korea's kim jong-un wants more meetings with the south korean leader to resolve the impasse with the u.s.. that is according to a spokesman. kime's increased criticism

is willing to dismantle his nuclear arsenal months after he met with president trump aired -- trump. goldman reduces expectations for federal reserve interest rate hikes. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is "bloomberg." scarlet: thank you. if you look at commodities, they had a poor year, a 12% drop. bucking the trend was natural gas. if you look at copper, it tumbled. a casualty of the ongoing u.s.-china trade war. crude oil is set for the biggest decline since 2014 and this marks the end of a turbulent year in which prices tumbled into a bear market.

isning us now from london stuart wallace and still with us is brendan brown at the hudson institute. let me start with you. we were showing you earlier how wti is that about $46 a barrel. we talked about the quick dissent. have we found a bottom? >> no and that is because we have a lock of visibility over stockpiles. the situation is that saudi arabia is trying to get the u.s. stockpilee down -- down. that has not materialized yet. we do get a small drop. i think it will be a month or two before people figured out and you will have variables like the trade war and economic growth. tweet every 24to

hours about lower oil prices. scarlet: lots of variables. what about the positioning by investors? how do investors position with oil seemingly having found stability. stuart: those questions playoff each other. we have seenoney, people come back on the long side for brent and cut their shorts. it over ak at one-year basis, we are at the lows. has broadly, more money been coming out of these markets and it is because volatility is so unbearable. we are down to one big fund left in this market. it is soause

unpredictable, it is not operating on the basis it was before where you could think in terms of years. we are down two months and quarters. -- thomas and quarters. and quarters. matt: what do you make of brent and wti? to't these prices have bounce back if the russians and saudis are determined to bring them higher? given the reality of thei having to respect amount of the united states and cling onto that. generally, i see oil markets, commodity markets continuing to narrow the global economic slowdown and risks connected with that. this is a new element. it is the supply side on shale oil. if we got a crash of the

high-yield credit market on oil gas sector is dependent for finance, what you could see in this downturn is supply coming back, in terms of it being reduced because of -- it restraints which doubt that sort of influences going to predominate. matt: how is the u.s.-saudi relationship? like from the behavior in the white house, the u.s. needs the u.s. -- the u.s. needs the saudi's more than the saudi's needs the u.s. since the murder has been all but swept under the rug. true for theis white house. i would not say that is true for the house of representatives. i do not think it has gone away. if nothing else, you have this

recording kicking around. in terms of that relationship, i would say the saudi's are more dependent on the u.s. than the other way around. is interested in saudi arabia as a geopolitical power and needs saudi arabia onside if it is going to deal with wider issues in the middle east. i do think trump has decided to pull out of the middle east ye t. it is not going away soon when you have russia interested in securing a stronger presence in the middle east. gotlet: you have geopolitics, the supply situation. this murky outlook with what it means for inflation outlook expectations. ratese seen breakeven come down with the commodity price decline although there are

other factors at work. what does it mean for where people see inflation? brendan: expectations are coming down and i believe it will come down further in 2019. the underlying story of inflation in this cycle back to 2011 is that inflation has been by the progress of digitalization and globalization. we have not seen inflation in the goods and services markets even in the boom and it has been concentrated in asset markets. we are coming down -- we're coming into the cyclical downturn and we will see inflation below the target rate. we talked about the lack of conviction when it comes to oil prices.

some people say, including goldman sachs that commodity should do well at the late cycle. what is the argument goldman makes? stuart: thinking longer-term, if you have a couple of years of , this year has been awful, that stops companies capex and their prices are back up again. the best cure for high prices is high prices and that is where the speculative end of the market is getting more nervous. it is not just in energy, you are seeing it in metals as well, you look at the base metal markets have been dismal. you have the second camp that is thinking two years out, copper in particular, nickel. of ways in which to

play the cobalt story. -- people areh looking at individual commodities within that sector and saying, where is supply the tightest and where is demand about to take off. matt: stuart wallace, bloomberg's executive editor for energy and commodities. a fascinating position to be in. brendan brown is going to stay with us. we have more to talk about with him. coming up, italy's government survived its budget battle in 2018. a war is brewing for 2019. the drama will continue in the boot. it is new year's eve in new zealand where they are preparing celebrations and launching fireworks.

this is bloomberg. ♪

matt: i am matt miller here in berlin with scarlet fu in new york. francine lacqua and tom keene are off. what do you have planned? scarlet: i think i'm going to take a nap and see how it goes from there. i am hoping for a better 2019. matt: i am sure you will. 2019 and past its

budget at the 11th hour. a big question is whether matteo grabni will seek a power by forcing a government collapse cashing in on his popularity. giovanni tria has rejected media reports he could step down. joining us to discuss all of this is dan. it would be odd if there were not any. do things seem? dan: today, much, or than the last 10 days when they were than the- much calmer

last 10 days when they were rushing to pass the budget package. it seems like salvini has been in campaign mode since the march elections. on the calendar in may are european elections. it ishe next few months, more of the same, both he and his partner who he has been squabbling with, our social .edia pros fundamental differences remain on issues, environmental issues, you have this controversial high-speed rail project and that has to be resolved in the first couple of months. i think more of the same. january, people are looking at what is happening with the economy. is it going to fall into another recession? powerwho has the most from the people right now? who is the most popular and how

has that changed? salvini is the most popular politician in italy. conservative side, the most popular politician in europe. to the question about early elections, one has to ask, is it to his advantage to throw italy back into political chaos with an election already programmed for next may? is that going to bring him an advantage. i have doubts about that. the italians voted last march. do they want to go back to the polls? i am not sure. scarlet: both these leaders need to compete against each other in the parliamentary elections in may. explain how that sets the scene. how will the outcome determine what is next for each of them? in: they are going to remain

campaign mode through may. to throw into that equation the position of the who'll beesident speaking tonight in his annual address. he wants isng another political crisis between now and next may. he will be trying to avoid that. the idea ofraging negotiating with the european union. he is going to be playing a fundamental role trying to mediate between the pillars of this coalition. the malan bureau chief joining us, thanks for giving us the latest. brownbring back red and -- brendan brown. how worrisomeut

the italian political situation was. not so long ago, we were staring at the spread of the bond yields to the german bund. is this going to be something that could catalyze a bigger decline? brendan: italy is dependent on the happens in germany and wider issue of european monetary policy. there is a risk scenario there. you were talking about elections. if the merkel government falls in the middle of the year as the social democrats pull out of her coalition, if that happens, the big question will be, does a post merkel weak minority government in germany have the backing tech continue to support italy or doesort a sensual money from

germany into question. -- does that essential money from germany come into question. if it does, you could get a decline in markets. i think the elections are going to be a fairly crucial date for that. matt: how solid do you think the german chancellor is? brendan: she had the successful coup of winning the chairmanship of the cdu. when you look at the opinion polls still showing the cdu under 30% and the greens under at 15%, you have to ask how tenable her coalition is. , not tothe question

mention the other question on the other side of the atlantic, if there is pressure on germany to do something about the trade surplus and the ecb pressurize to abandon interest rates. that could be problematic for italy. scarlet: there is italy, we have not discussed france yet. brendan brown sticking with us as we discuss more issues. radio, meredith sumter will be joining us in new york with lisa abramowicz and pimm fox. this is bloomberg. ♪

viviana: this is bloomberg surveillance. let's get a business flash. a deal between disney and despite growing pressure on cable. the two companies averted a blackout of college bowl football games. disney wanted a price hike for its programming. verizon agreed to carry a new sports channel.

the price of natural gas is headed for its worst price since 1941. the big reasons, warm weather and a smaller than average drop in the natural gas stockpile. elon musk planning to visit china soon for the groundbreaking of the factory. the first outside the u.s. it would be the biggest foreign own manufacturing project in the city. scarlet: thank you. it has been a year of twists and turns. the number of households in japan almost doubling to a record high thanks to a lengthy economic expansion. it entered a bear market, dropping more than 22%. china slowing growth has put a damper on demand for chinese goods. what lies ahead for japan?

let's get back to brendan brown. how vulnerable is japan to external forces? china'ssic seed if economy continues to -- can abe six seed if economy continues to slow down? thedan: i think china is in front line and it has its own issues with the united states in the free trade agreement being discussed between the countries. the japanese trade surplus and the undervalued yen are going to be irritants in that relationship. that theres me is has been a financial repression, a taxation on japanese households who have been suffering 0% negative rates of return on japanese government debt despite the crushing

deficit. that situation has been masked by the fact that global equity areets the japanese savers getting something else were to make up for that. if we go into an environment of markets falling, japanese savers find out they got nothing. you could get political volatility growing and becoming problematic for japan, even though it's a moment it looks like a one-party country. will the strength of the yen be a problem? the yen being on the front line of the discussions with the united states. thea is a master of using yen as leverage. it goes to the united states and says how can we get the yuan

higher if the japanese are keeping the end high. it is the trump administration. they have to put pressure on japan. matt: thanks for your time. happy new year. brendan brown, a senior fellow with the hudson institute. profusek, joanrt stay global. global at -- jones day at 6:30 a.m. this is "bloomberg." ♪

? progress. u.s. equities futures on the

rise after president expresses optimism over trade talks. will hopes last? themed el-erian becomes latest to say the central bank would benefit from a better feel for markets as the white house is trying to organize a trump summit. italy's government passes its budget. could 2019 see the uneasy alliance collapse? morning. this is bloomberg surveillance, live from new york, i'm scarlet fu. miller, francine lacqua and tom keene are all. happy new year to all of our viewers in new zealand. it is 2019 there. you're looking at the sky tower it will be accompanied for the first time by a complementary light show on the bridge. where do people celebrate in berlin? ift: you can see behind me

you look at the gate, you can , the peoplees starting to gather. maybe you cannot see it well. if you were to pull back and look at the gate, you would see the germans getting ready to party. it will be as exciting as new zealand. scarlet: they have nice weather in new zealand now. it is summertime there. in new york, the forecast is for rain. here is they be on a. viviana: president trump says there has been progress in trade talks with china. the present speaking with xi jinping over the weekend. both sides expressing satisfaction with negotiations initiated earlier this month. new figures show china's manufacturing slowdown has gotten worse. the definition of the word wall could end the government shutdown, what kind of physical

barriers are acceptable to both sides of the aisle. the white house says president trump's demands for a wall refers to steel slats. democrats say they support more border security but not what one calls a medieval border wall. in russia, there are reports the government has detained a u.s. citizen suspected of spying. they identified the suspect as paul wheatland, caught during an operation in moscow last friday. the u.s. embassy is not commenting. in italy, the government has passed its budget but the alliance could fall apart in 2019 and prompt an early election. the real powers, salvini and dimaio, will battle for supremacy. they have to figure out how they can deliver on promises of welfare benefits and the lower retirement age after they cut funding. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is "bloomberg."

thank you. it is the new year in new zealand. we have not yet begun the trading day. it does look like we are set with futures indicating a builds on last week's advance. on thewere to keep track vix, it is elevated at a 27 handle. againstar is weaker most currencies. nd somems to have fou kind of port for now, stabilizing. a move over the last couple of weeks, entering a bear market after setting a high. matt: we are seeing gains here in europe across the board as far as equity indexes are concerned. volume is light.

you and i chose to look at the yen and oil. those are interesting stories not just for today. the same can be said of the pound, the cable rate at 127.45. we continue to face uncertainty on brexit. scarlet: we would be remiss if we did not mention what happened in china. manufacturing is contracting for the first time since 2016, coming in below 50. the line you want to pay attention to is the white line which shows below 50. the yellow line, new orders dipping as well. this reflects the threat of a prolonged trade war and confirm status on the slowdown in industrial production and profits declining. it shows the limits of china stimulus.

what would this look like if there was not stimulus? matt: and what would it look like if we had stimulus and a , is a question investors are asking. i have got a screen that shows currencies and one of the stories is the strength of the japanese yen. this is a screen i pulled up and the expandedgst majors, the japanese yen is the only gainer against the u.s. dollar. if you click into the drop down and check out all countries, you are going to get interesting currencies that are doing better than the yen, out for example, seychelles. a, seychelles.

we look at gold and palladium and it has done so well that you have to ask what story this tells about automakers. great point as you look for any kind of positive return for 2018. in the u.s., president trump has expressed optimism for a trade deal after a phone call with xi jinping. the present tweeted that -- thes was being made present tweeted that progress was being made. the trade war has taken its toll. that underscores concerns about china's slowing economy. the tradek at deficit, that is something the president has kept a close eye on. widened to a 10 year high amid discussions. joining us now is kevin cirilli. happy new year.

about what is the state of play when it comes to trade negotiations. there is a delegation heading to china. my understanding is robert lighthizer is not part of it? kevin: that is sending shockwaves, a lot of questions about who has the president's ear negotiating trade. we should also note that march 1 hasline when the president threatened should there not be any breakthroughs, he would go ahead with additional tariffs. the point i would make is that is saying they are not going to need any congressional approval for the trade negotiations between the largest economies. ask about thee to

shutdown because it looks like it will last into the new year. any progress? what is likely to happen? kevin: no major progress. a budgetosi will pass if not thursday, friday, with no money for a wall. this is seen as a marketing in terms of where both sides are on. the president's rhetoric has tweaked. he is starting to say things like steel slats. it does have an impact in terms of trade negotiations. 22, if this government shutdown goes until tender a second, it becomes the longest ,n history -- until january 22 it becomes the longest in history. matt: most of the wall is in the

form of steel slats. it does effective but not look like a $25 billion project. regardless of the price, the president promised that mexico was going to pay for that and now, he has shut down the government because he wants the taxpayer to pay for that. how does he explain the discrepancy and breaking promises that are so important to this president? the conservative pundits have criticized the president for that point. that was one of the reasons leading up to the shutdown, why you saw the president dig in. the second point is that rhetoric has increased on one hand because over the past couple of days, he is threatened to shut down the border.

the government cannot stay shut down forever. beltway,t inside the where so many shops and restaurants are dependent upon to work,ng able to get that will have a negative impact inside the beltway. it is going to get more fiery on the rhetorical front before gets better. matt: thanks very much. kevin cirilli there, out of washington. happy new year. joining us now is brett ryan, deutsche bank senior economist to talk to us about what is going on as a result of the actions in the white house. moret to focus in on trade than the government shutdown. it does not seem to have hit markets hard. expectations for this situation since president trump and president xi spoke? having mid-level

talks at this point without lighthizer. it will be a key sign when light heiser gets involved. he is the dealmaker. he has experience in drawing up international agreements. this is the beginning of the process. it is a step forward. on march 1, if we are going to go to tariffs on $250 billion worth of goods, it is a $70 billion tax on the u.s. consumer. we went with the 2017 import numbers. if that stays in place for more out aboutr, you wipe half of the tax benefits from the corporate tax cuts.

it $170 billion from your tax cut two years ago. you take half of it away in the form of tariffs and it causes supply chain issues. subtract .1-.2ld on growth. if things get resolved within six months. if it is more protracted, it could weigh on economic performance. matt: when you look at the impact, it seems to have hit china harder than the u.s. dozen president xi have a stronger incentive to make a deal? brett: all sides have a strong incentive. china will have to make some concessions here. what type of deal do we want to look at here, a bilateral

cooperation,re wto what type of deal take shape -- takes shape and are there changes that occur? we have been down this road with china before. they have made concessions and behavior has continued. we have seen with the nafta renegotiations, there was not that much that changed. what kind of deal take shape will be important. the key thing is they are talking and that is the first step. that would remove a key overhang for markets. matt: you're going to stick with us. we have more to talk about with you. brett ryan of deutsche bank sticks with us. up, we break down the

outlook for the federal reserve rate hike path in 2019. will the central bank changes communications strategy going forward? this is "bloomberg." ♪

viviana: this is bloomberg surveillance. i'm viviana hurtado. japan, a setback for carlos ghosn, prosecutors have extended his stay in jail for 10 days. he has been locked up since november 19, accused of understating his income. he is seeking bail so he can begin working on his defense. the worst quarter for oil since 2014 comes to a close today.

futures to their first annual loss in three years. investors are not sure if those output cuts by opec will be able to counter production in the u.s. haveators in china approved 80 new video game at the end of a freeze. the giant gaming industry was hammered by the decision to help the approval process. saw its market value fall by $200 billion. china imposed a freeze as part of a campaign to fight gaming addiction. scarlet: thank you. has echoederian president trump's opinion that the federal from a better feel of markets. even the fed's understanding it needs to communicate better. it needs to do those go things, show it is more sensitive to things,-- to do two

show it is more sensitive to markets. the fed has to realize they cannot keep an important policy tool on autopilot, it needs to be more sensitive to what is happening. fed can regain control and we can stop these self-inflicted wounds. scarlet: white house officials are trying to arrange a meeting between president trump and jay powell. trump has been critical of the chief in recent months. could this face to face be spooking markets even further? brett ryan is still with us. you are jay powell. what would be your message to the president? job,: the fed is doing its as is mandated by congress. policy rules, it has

a plan, a well-developed plan. they are also flexible within that. communicationthe misstep came is that if the fed ,erm was near-term hawkish long-term dovish. they said we want to get the rate term up. they had to hike. the stock market was never going to like it. the fed thought they were being more dovish by taking down the and the long dots run came down. that has the effect of flattening the yield curve. that is what exacerbated the risk off. of thehe flattening yield curve, they did not want

to send that much of a signal. john williams came back and worked it out. scarlet: he did. was there a communication misstep when it comes to balance sheet reduction? the balance sheet does not have a direct impact on the equity market. 2014 and this, last september, reserves came down $1 trillion and the stock market rallied 45%. -- there is an issue in terms of the adjusted monetary base and how that impacts growth. there are questions about that. most people expect the balance sheet to end well by the end of next year. another $500 billion rolling off the sheet is not that big of a deal in the grand scheme of

things. scarlet: brett ryan sticking with us for the hour. one thing 2018 might be remembered for is the fall of europe's once dominant socialist. this is "bloomberg." ♪

matt: welcome back.

tomorrow is not just the first day of 2019. it is the anniversary of the euro and as we have the italian budget solution, brexit getting closer and germany's government more stabilize, does it look good for the currency? joining us to talk more about this out of new york is deutsche dan.senior economist and audio] down after thed activity we have seen as the italian coalition struggled to meet is deadline to get through the budget package -- meet its deadline to get through the budget package. matt: what does it mean for the italian government in 2019?

can we expect more fireworks? dan: without a doubt. we have got european parliamentary elections in may. side,leaders on the one dimaio and salvini are likely to keep jockeying for the leadership role. salvini seems to be winning. matt: thanks very much. to robertng to talk profusek. this is "bloomberg." ♪

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"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. scarlet: good morning. i'm scarlet fu in new york with matt miller in berlin. happy new year. matt: happy new year as well.

i hope you have a fantastic 2019. scarlet: as i hope for you. let's get to first word news. an optimistic start to what could be a make or break year between the largest economies. president trump reported progress in trade talks with president xi, speaking by phone. a u.s. trade delegation heads to beijing for talks the begin next week. president trump may be open to changing his strategy for pulling u.s. forces out of syria according to lindsey graham. graham has criticized the decision. he told reporters president trump is reconsidering a pullout from syria. north korea's kim jong-un wants more meetings with the south korean leader to resolve the nuclear weapon impasse with the u.s. that is according to a spokesman. there is increased skepticism kim is willing to dismantle the

nuclear arsenal months after he met with president trump. has cut itss forecast on u.s. growth for the first half of 2019, lowering its outlook for the american economy to 2%. goldman reduced expectations for federal reserve interest rate hikes. global news 24 hours a day and at tic toc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is "bloomberg." scarlet: thank you. 2018 has been a victim for m&a. m&a was onusek says fire for the first half of 2018, the hallmark megadeals over $20 million. seemingly unlimited capital the pressure and of technology. he joins us now. still with us is brett ryan of deutsche bank.

great to see you. of 2018 the first half with what we have seen in the fourth quarter after the turmoil in equity markets in october. robert: things started to slow in the third quarter. is not as lumpy as it used to be. it is consistent. we had almost $4 trillion of deals last year. that is a lot. things got less erratic. everybody is busy. everybody is working today. scarlet: how much of a rush is there to get deals done before ofre could be another onset a deeper slowdown in global economies? robert: if you are a seller, you are anxious. volatility creates uncertainty.

when we think about energy, oil is down 40%, the last time that was a blizzard of activity, mostly among these smaller frackers. there is no sense of that now. what is going on now continues to be strategic. it is the pressure of technology. if you are not keeping up with it, you are dying. it is easier to buy it then build it. , theye credit markets have been choppy as well. they are peripheral factors. the politicalee ,ituation playing a part in m&a putting a hold on international m&a as we worry about things

like the trade war, brexit? robert: there is no question the political environment has gotten choppy. what contributed to the slowdown in the third quarter. the u.s.-china issue is no question an issue. in 2017, there is $300 billion of m&a involving chinese buyers in north america. the number this year is a fraction of that. the u.s.-china issue is an issue. i am assuming the president is going to declare victory in the not-too-distant future. things, notimulate a strategic factor. brexit is a problem. thes an issue in terms of u.k. and where things are going. when you have uncertainty, it is hard to make capital decisions with uncertainty of that nature.

again, i think we are going to in u.s.-asian m&a this year. past if you look over the five years, the deal count has seemed to come down a bit, although the total amount of deals in dollar terms has continued to climb. i am looking on the bloomberg. why do you think people are paying more for fewer deals? robert: equity prices have been so high. own and got to pay to with capital markets being the , the arithmetic still works. prices, bigger m&a

prices. it is an issue about the decline in the total number because while your average deal does not get on the front page of anybody's paper, it pays the rent for guys like me. we are trying to figure out, what does that mean? if you assume that the creation youusiness was static, would have a decline in the number of companies. that is not right. if that were true, we would have had eight lakh coal about -- a black hole about 20 years ago. they're expecting 2019 to be a great ipo year despite volatility. , it is not something people do once in a blue moon anymore. it is part of basic strategy. not so a function of

much about market volatility. it is globalization and technology, mostly technology. we cannot just make it and sell it forever. newlet: it is adapting to circumstances. equity market volatility plays a role in that and so does the backdrop of the economy. brett ryan, viviana was telling us earlier that goldman sachs was cutting his first half gdp forecast to 2%. do you see grounds for a slowdown in the u.s. ? brett: we are looking at 2.4% for next year. i am sure the model he was looking at was looking at financial conditions, credit spreads. you can get to the numbers. i think this feels more like

1987 versus 2008. the 60 day move of the s&p 500 was down 19.6%. incidents been 125 where that has been the case. 1987.them were in i think it is more of that type of technical issue that causes the slowdown. i think the parallels hold. first half growth, i do not think we will be that soft. consumer spending is tracking at 3.6%. while we have these issues with the picture, the housing market is going to remain soft because rates are rising. it is a small portion of the economy. the u.s. consumer continues to spend. scarlet: a softer economy but a

strong consumer. consumer a stronger and a softer economy look like? in 1987, there was a spurt of m&a and hostile takeover right after that drop. backnies started to buy their stock in quantities. there was a lot of activity. it depends on what you think. down,ity prices go up or m&a is part of the equation for most companies. it is something they have got to look at. what are you going to do? are you going to build this alternative product or technology yourself and take all those chances? probably not. you're going to pay the premium

but you have got a more certain result. otherwise, some of the else is going to do it. scarlet: both of you staying with us. on your commute, tune into radio, bloomberg daybreak can be heard in new york, washington, d.c., and across the u.s. on sirius xm. this is "bloomberg." ♪

viviana: this is bloomberg surveillance. i'm viviana hurtado. a deal between disney and verizon shows there is support for sports network despite

growing pressure on cable. the two companies averted a blackout of college bowl football games tomorrow by striking a distribution agreement. disney wanted a price hike for its programming. verizon agreed to carry a new sports channel. tesla motors ceo elon musk plans to visit china soon for the groundbreaking of the factory. the plant in shanghai would be tesla's first outside the u.s. it would be the biggest foreign owned manufacturing project in the city. an matt: thanks. happy new year to you. banks climbed the ranks of the leading merger advisors this year. deutsche bank dropped out of the top 10. is reported to be the top bank for takeover advice for the second year in a row. joining us now is alisa martinuzzi. talk us through the changes you

have seen in the tables this year. alissa: you are seeing the industry trend and that is pointing toward banks gaining more, seeking independent advice to their deals in addition having to turn to the large banks for advice and help in financing takeovers. in the middle, the banks that are not the boutique or large banks are struggling to attain that market share and we have seen banks lose market share. we have had the bank of america acknowledgee -- they were too cautious in growing their markets are. with itsdeutsche bank own struggle to retain market

up losingends business it would like to hang onto. matt: what is deutsche bank's aim? they are trying to cut costs and they want to keep revenue from falling. it is important to be in the top 10? elisa: i do think any bank would wledge the primary target is a table position. clients and one key figure -- they are losing talents and one key figure that the parted was the person who lead their device for the finances industry. it is keeping that pipeline going in terms of the business it wants. so much fornk you joining us, giving us a roundup

of how the banks bear. is the top bank for takeover advice. and brett ryan are with us. as we see the rise of these boutique banks playing a bigger role in takeovers, what does that mean in terms of how they recommend the companies finance their deals or how they come up with creative solutions? turmoil around the high space, financing options are different in 2019. robert: the volatility has been a factor. an't forget, we are in environment where debt capital, there are oceans of capital. step back from this. there is capital from almost anything.

it comes at a price. there is no liquidity issue, nothing like what we had in 2008. it is a function of price. have financial capacity. know, you probably have a sense of this, how much equity has been bought back, $1 trillion this year is the pace for this year. capital is not an issue. that may in a general way have something to do with this reconfiguration of the tables in the middle. it used to be you went to an advisor and it was a one-stop shop. decades ago, the concept of citibank, everything under one roof. that is not the deal now. companies have their own capacity and it is so varied,

like everything in the financial markets, there is not just one thing you can do. that explains it. the fact there is a lot more of and theseks are banks boutiques have a lot of talented people. they sell that. we will also help you with your financing. we will not provide it. scarlet: i want to get your take on activist investors. the market turmoil has put hedge funds in the spotlight. how does that hamstring activist investors and their ability to go in there and get what they want? stayed if the markets down compared to where they were , the market is the market but everybody thinks it used to be worth that. that is not right but that is the way people think. we have a lot of activism.

right this period moment, companies have this time where a shareholder can nominate a director. we are just starting that. you are going to see a spurt of that in february. youris the way you put boot on the neck of the company. and the decline, that is opening the door for activism. icahns and the rest of it. drawing a line between the far right activists and institutional activists is hard these days. activism in itself is blurring. people, including

institutions, are willing to do it. matt: appreciate your time. robert profusek and brett ryan. this is "bloomberg." ♪

scarlet: you are looking at a live shot of sydney. it is 2019 in new zealand. in just over one hour from now, it will be 2019 in sydney. i am scarlet fu in new york and with matt miller in berlin. end of to get you to the the year by talking food and drink. or europeand year staples which outperformed the broader market by 4 percentage points. things were tougher for packaged foods, they underperform. how does that set us off for 2019? brett ryan is still with us.

pricing power do the consumer staple companies have in europe? duncan: not very much. the food index is a weighted they have been hammered and that is why performances down. may --nstructive for what may happen for the broader index. .hey have to deliver the fed is barely meeting its inflation target. ,ou are hearing more anecdotes

companies being able to pass on customers ineir larger businesses. that is one of the reasons it has been a tight labor market and it will be labor costs pushing up against forcing companies to raise prices to protect margins. and the fact that overall inflation is low because prices are solid, that is a benefit for the consumer and it is good for company margins. in general, it has been a gradual pickup in inflation. the core goods prices are set to be positive for the first time year-over-year in five years. ask, how ourto liquor sales doing? beer has had a good year.

in most countries, you have the world cup which is helpful. the only struggles have been the emerging markets, latin america has had a tough time. consumers want to experiences and they are prepared to pay for it. the spirits companies tapped into that. i think spirits are doing well. duncan fox and brett ryan, thank you. radio, margaret sumpter. this is "bloomberg." ♪

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the president pledges a tax cut and china faces changes unseen in 100 years. plus, the greatest showman, president trump reports big progress he and china's president talk over the phone saturday. trump says a trade deal is moving well. ain management, after severe whiplash, -- volatility spikes, oil sinks. david: welcome to bloomberg daybreak. monday, december 31, last day of 2018. i'm david westin. it's been two weeks. alix: time's square at midnight? right there for you. david: i guess getting ready for it. we already had the dawn of 2019 already in auckland, new zealand. we're waiting for it in sydney as well.