♪ >> manufacturing pmi data unexpectedly falls below 50 for the first time in a year and a half. global equities catch a cold. a meetingtrump calls of top congressional leaders after stressing he is open to a deal to end the shutdown. democrats take control of the house this week. italy's manufacturing pmi stays in contraction territory, but beats expectations. good morning and welcome to "bloomberg surveillance." i'm guy johnson in for francine lacqua. we have eurozone pmi data just

kidding the tape as we speak, as expected at 51.4. the prior number 51.4 as well. that is the eurozone reaction, the euro reaction versus the u.s. dollar. the euro has been falling over the last hour or so. what you have seen is significant strength in the yen crosses. the yen is up quite sharply, but so is the u.s. dollar against the euro as well. let's show you what is happening with equities. earlier we anticipated that we would see a positive session coming through. that was the anticipation after president trump called his congressional meeting to brief on security -- or border security. the chinese data really turning things around, as you can see the european markets are down. brent also trading lower. dollar-yen trading lower bite

0.7%. you can see the impact that came through into the chinese equity markets. let's get a bloomberg first word news update. trump invited top congressional leaders from both parties to a white house briefing on border security. this follows the president suggesting he wants to make a deal to end the government shutdown. this is the first sign of a possible opening of negotiations to break the stalemate. the partial shutdown of the u.s. government enters its 12th the 12th day. in an earlier tweet, trump hinting he is offering an olive branch to nancy pelosi. elizabeth warren focusing on an economy she says will be fair to all americans. the massachusetts progressive said she is launching an

exploratory committee for a 2020 run at president. assonaro was sworn in argentina.f two months after his -- brazil. two months after his victory, 75% of brazilians think the new leader is on the right track. >> we have a unique opportunity to rebuild our country and rescue the hope of our compatriots. we have the wisdom to hear the voice of the people. we will achieve our goals. tappedy's president has -- has criticized the coalition government. he used his year and addressed to warn the countries growing citizenslizes ordinary and also criticized the government for curtailing parliamentary debate on the budget. >> i strongly hope that the parliament, government, and

political parties can find a way to hold a constructive discussion on what happened and ensure adequate debate in the future. >> global news 24 hours a day and on tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. guy? >> thank you very much indeed. quite a big move in the german ten-year in the last few minutes. it's been going on a little bit more than that but we are going to key levels now. we just had over the last couple s goingtes the bund below for the first time since 2017 -- below 0.18% for the first time since 2017. the german data came in line with expectations on the manufacturing front. what we are seeing this morning is a risk off move. it is cry and aggressive move. i'm going to have -- it is quite

an aggressive move. certainly people seem to be coming in in the first day of the year and seeking out safety. it coincided with quite an aggressive move to bid the yen as well on the major yen crosses. this risk off sentiment creeping into the markets. stocks also falling across the globe on the first trading day of 2019. u.s. futures extending declines. they were higher earlier. gauge of chinese factory activity showing a construction for the first time -- contraction for the first time since may of 2017. bloomberg's chief asia economics correspondent joins us now from hong kong. how big a surprise is the data? we saw the official data a few days back and that was negative as well?

this data reinforces the idea that the chinese economy is slowing down. >> yes, i think that's the key point indeed. we now have the official pmi and the private pmi both and contractionary territory. together they both capture reachable slapdash reasonable slides on the manufacture -- manufacturing -- capture reasonable slides on the manufacturing side. we are seeing the trade war starting to bite out at sentiment remains -- now as sentiment remains sour. year, early part of this commissions are expected to remain somewhat choppy for china's manufacturing sector. ons why so much depends now whether or not a deal can be reached between the u.s. and china. a pretty soggy start to 2019 by all accounts. guy: the rest of the asian region was not great either this

morning. >> that's absolutely right. we are seeing a bit of a spillover effect. we had soft gdp numbers out of singapore, a classically trained oriented economy. we had week pmi readings for taiwan, asia, well into contractionary territory. korean exports were down for december. south korean normally reports trade numbers ahead of other big economies. we saw exports in south korea to china alone fall 14%. by all accounts it looks like the many fracturing side of things in asia has ended the year on a soft note, and is expected to continue early 2019 under pressure too. guy: just kind of the big question that hangs over all of this is wonder the chinese authorities step up and deliver this stimulus package the everybody has been anticipating? we got to the big economic meeting with nothing. when does it come? >> you are very right.

is a question of how long they can hold on for. the stimulus measures have been quite targeted, nuanced, tax-cut measures. the question is though, how these trade talks go. if the trade talks go well that would take pressure off of china's economy and they would not have to respond in as big confession. if those talks don't go well, then they will have to respond in style. i think that is why so much is hanging on the way the trade talks go. if we get some mood music in my set the tone for a first quarter play. guy: great stuff as ever. bloomberg's chief asia economics correspondent joining us. joining us now in the studio is julian chillingworth, chief investment officer at rathbone.

not a very happy start to the new year, is it? no, but with the volatility we had last year it's not surprising. i think with markets probably not fully participating yet with quite a lot of people away, we were bound to see a slow start. guy: what are you advising clients for 2019? julian: we are advising them to remain in the equity markets, that is probably going to be a degree more of the same, in terms of we are returning to levels of volatility that we were more used to before the financial crisis. for those low levels of volatility that we saw in the last few years i think are a thing of the past. we are. back to more normal levels, so this year could be another year where you see quite a lot of volatility. i think politics will undoubtedly be another key determinant for markets. guy: given the fact that the chinese dated is looking fairly mixed -- data is still looking fairly mixed, negative if we are

being realistic. do i put more money to work in the em trade? and a lot of people have sat on the set before christmas and that was the trade there were talking. julian: i think i might have sat on this set and talked about that as well. i think i would agree with your correspondent in hong kong, but i think the chinese will be watching very closely how the trade talks go, the level to which they will put stimulus in the economy. i think they will possibly consider doing both if they can strike a reasonable trade agreement with the u.s., and puts them stimulus into the 80's and outcome for the economy in 2019. a bit ofpickup -- -- and outcome for the economy in 2019.

i think talking to you on this that we mightis get a trade agreement in the short-term, but long-term frictions between the u.s. and china are going to continue for the next number of years. this is not a short-term game. guy: the bull market has done very well. why? would have clearly seen running session the bond market has done very well -- the bond market has done very well. why? why stick with equities? julian: we have got obviously quite a large participation in the index linked market. in terms of the other bond markets, i think the u.s. now is probably looking fair value to slightly expensive. i think european bond markets look not particularly attractive. we talked about low yields in germany. i cannot see any of reason for

investing much money other than very short-term as a safe haven for cash. guy: julian, thank you very much. coming up, president trump signals a possible opening for negotiations to break the stalemate, as the u.s. government partial shutdown enters its 12th day. that's next. this is bloomberg. ♪

♪ guy: economics, finance, politics, this is "bloomberg surveillance." i am guy johnson in london sitting in for francine lacqua. president trump is suggesting he wants to make a deal to end the government shutdown. he has invited top congressional leaders from both parties to meet at the white house today on border security.

the president has been insisting that will be no end to the shutdown unless congress gives him the money. he is talking around 5 billion to start building the wall on the mexican border. democrats take control of the house of representatives this week. what happens now? mark champion joins us on set. julian chillingworth is still with us from rathbone. the president says he wants to make a deal. why? >> he's got a problem. the government has been shut down 11 days. he started the process by saying to jeff schumer and nancy pelosi, i'm going to shut down the government. i will blame you. of course -- won't blame you. of course in the last 10 days he has been trying to shift the blame to the democrats. there is a pool suggesting most people blame trump. is not a good idea to shut down the government. he needs to find a way out of

it. he also needs a win. this is primarily about politics. this is primarily about, who sets the agenda going forward? is it about immigration and the war? isn't about other stuff like infrastructure, and for drugs -- is it about other stuff like infrastructure, and for drugs? it is a political issue ultimately. guy: ok, so it's not about the number? he's talking about $5 billion. the democrats have got their own plan, which kind of strips out the funding for the wall to get the government going again. this isn't about dollars? this is about kind of the agenda which underlies the whole thing? >> when you think about it, in fact we were talking about $5 billion. the democrats have already suggested they are willing to million or so --

billion or so. clearly it's not about the money , but it's about the significance of who wins on the wall. to wall is this huge, symbolic issue that trump has been pushing, campaigning on. when you think about it and what's going on in the world today, for the united states to put a wall on its border, it's a very politically symbolic issue as to which direction the united states is going to go in. the democrats just taking over the house. they have offered this rather clever deal to trump, which is clever from their point of view, because it really removes his leverage if he agrees. it will just be about the money from on security, and everything -- homeland security, and everything else we can negotiate. tom: earlier u.s. -- guy: earlier u.s. futures rose on the news of this meeting.

from an investor point of view this feels like noise. is that how you would perceive it? julian: yes. undoubtedly the market has not been penned a lot of attention in terms of market moves to this. a lot of noise and posturing by both sides. i think the markets view is that a deal will be struck within the next few days. guy: nevertheless, this sets up the kind of topography, the landscape in front of us in terms of what the next year is going to look like with this democratic house in front of us? julian: yes and i think politics will be extremely important. andstic politics international politics for the market more generally. thank you very much indeed. fromchampion joining us

bloomberg news. julian chillingworth is going to stay with us. assonaro has been sworn in brazil's president, but can his tough economic reforms get through a divided congress? we're going to be talking em next. we will talk about this next. this is bloomberg. ♪

♪ guy: good morning.

you are watching "bloomberg surveillance." i'm guy johnson in for francine lacqua in london. bolsonaro has been sworn in as brazil's president. he has promised to tackle crime corruption and economic turmoil. -- ae wave of nationalism wave of nationalism is sweeping the country. >> we have in front of us a unique opportunity to rebuild our country and rescue the hope of our compatriots. i'm sure we will face huge challenges, but we have the wisdom to hear the voice of the people. we will achieve our goals. . guy: if you want to invest, it will be an interesting ride, i suspect, for brazil. still with us is julian chillingworth from rathbone. you believe asia is the better em story. why? julian: you have china driving the regional growth there as well over the medium-term. we just think that the overall

potential for returns for equity investors look better with less volatility. guy: is em just a i don't want to put the money to work in europe trade? it really feels like that at the moment. and a lot of those who are talk to say they don't like the prospects for europe. they are worried about a u.s. slowdown, therefore i probably want to reduce my waiting there. the only other option is to place money in the end if i am -- in em if i am equity-based. -- withi was slightly slightly disagree with the other ould slightly disagree with the other option. a lot of investors have struggled to get a decent return from japan. you have a volatility in the stock market and currency in the last three years, but overall we

have a reasonable return there. i think you are right that a lot of managers, particularly in the last 6-9 months, have been seeing economic fundamentals in europe deteriorating, and send it do i want to be here -- saying, do i want to be here come on what do i go -- do i want to be here, where else do i go? guy: is china cheap enough now? julian: i would have said yes three months ago, but it's cheaper now, isn't it? consequently, i believe that the chinese authorities will, as we were talking about, but some stimulus to work in the economy, which will give you a better return as an equity investor this year. guy: do i need to worry about the currency story? again, the chinese currency, there is a trade story to that, but there is a number of economic aspects as well. julian: absolutely.

i think medium-term the view has got to be that the chinese currency will remain reasonably weak. guy: julian will stay with us. up next, we will be talking about the turbulence of oil extending into 2019 on economic supply risks. we will talk crude next. this is bloomberg. ♪

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the stoxx 600 is down by a percent this morning. 1%.ftse is down the mining stocks are the worst performing sector. the bund yield, a very aggressive bid being applied to german bunds this morning. yields have come down quite sharply. yen stronglyg the bit as well this morning. pmi data is out. it looks ok. relative to most of your. 55.2. -- relative to most of europe. 55.2. level above the survey. not much reaction in the pound.

the u.k. data certainly relative to the rest of the european continent, looking quite strong at the moment. the rest of the constant dealing with this positive territory on the ftse. viana: china's manufacturing pmi has fallen into contraction for the first time since may 2017 to 49.7. amid a trade work with the u.s. and wider economic slowdown in the world's second-biggest economy. using his new year's address to urge china to become more self-reliant as it faces changes unseen in 100 years. donald trump has invited top democrats to the white house on the agenda of border security. to suggest he wants to make a deal to end the partial government shutdown. tweet, he said

he is offering an olive branch to nancy pelosi. elizabeth warren is focusing on an economy she says is fair for all americans. she says it she is launching unexplored try committee for a 2020 run for president. global news 24 hours a day, on air and at tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. bloomberg. guy: thank you very much. oil has been on a wild ride in 2018. just three months ago, top of $100 a barrel was right. wti had climbed to a four-year high. a few years later, crude has plunged. prices are now down 40% since early october. what does it look like going into 2019? -- joinings will us now is will and julian.

how does opec play the story in 2019? there is this growing expectation they are going to cups.isdeliver more that with the market is waiting for ? will: we have the original cuts of 1.2 million barrels a day their signals already. where they have brought forward to meeting into april. this signals that would be willing to adjust that policy as they see fit based on what is happening in the oil market. would see this as cautiously optimistic for the oil price moving into the first half. we see the oil market to gradually rebalance in 2019. we expect the oil price to exit the year higher than it entered. these should be seen as positives, particularly for the european big oil space and less so for independent european ep,

which is more exposed to a sustained lower price environment. guy: the data don't look great. seeing 1-1.2 million barrels a day -- billion barrels a day demand next year. is important to keep in mind there are supply issues at stake here. , which has lost one million barrels per day over the last two years. we don't know what is going to happen next. you also look at libya and nigeria. these are two countries that can be considered to have more risky political profiles and risky production profiles as well. you just seen in libya, the largest oilfield has gone off-line due to security risks in december. nigeria has a risk of production volatility. both of these countries have elections scheduled for 2019 as

well. with the oil market to be watching this closely. guy: a lot of income funds have oil in them. how important is it going to be that that price continues to rise or come off the floor? julian: from an investment point of view, stability would be great. it is unlikely in the oil market. i think the point you let in with is that the market has been very concerned. that has been reflected in the volatile rise we have seen in the oil price. feel more arket can short about where it sees global growth in 2019, i suspect prices are going to continue to be volatile. number,ith a weak pmi with the metals prices often china. guy: the president has been remarkably quite in united states about the price of crude.

it came down.he said he pushed it down the tweets he was generating in terms of his demand for opec. 's latest tweet us about gasoline prices in the fact that they are going to continue to fall in 2019. is this a warning shot across opec's bowels? how should we see his renewed interest? president has been very interested for several months. we think it is largely a reflection of his political ambitions, which is to keep crude prices as low as possible, which he describes as a tax cut for working americans. too much into a broader geopolitical strategy. i think this is something president trump -- guy: but this has huge influence. will: and we don't know exactly what went on in the back rooms

between saudi arabia and the u.s., but one could surmise there was some communication about coordination of policy there. this is exactly what trump would want. for ats this tax cut campaign banner issue, for his political base. he is using his twitter as a means of achieving the. -- that. guy: thank you for joining us. italy's president issues a warning on their countries debt and criticizes the government for rallying its budget. we talk politics and productivity next. this is bloomberg. ♪

guy: good morning. you are watching "bloomberg surveillance." you want to talk a little bit about the risk off move we are seeing right now in european hours. bun ind in particular -- particular is attracting substantial number this morningd. lower andre trading we are seeing brent trading lower as well. it is quite a decent size move in the german ten-year, which is not trading at 70 basis points. it is a decent size. let's turn to another eurozone country. pmi for december in italy came in at 49.2. that was better than forecasted by economists. it is a sign that they are on the brink of another recession.

today is also the first trading day since the country's populist party passed a budget. uses the address to criticize the government for ramming it spending plans through with a lack of debate. i strongly hope that the parliament, the government and political parties can find a way constructive a decision on what happened and a short adequately they in the future. guy: joining us now on set, markus and julian. happy new year. not a very happy new year. us: that move in the bond is quite aggressive this morning. better quality bund giltss,, france, holland. they are all moving in. slightly different countries are moving less.

a chinese equities starting the year badly, italian pmi not , the ecb stepping in for the first time ever, does nothing to be happy about. that is the risk off move. is today a decent trading day? can i read too much into today? be honest, was sort of came to the end of everybody shuts their shoulders. seeus: you really have to how this plays out. next monday is probably when it starts really. everybody is back and involved and what have you. people are perhaps a little too short bund going into the start of the years. it seems you need even more risk of protection. bonds, generally are very expensive. guy: yes.

it is idiosyncratic? ulian: it has been coming for a long while. this is family refusing to step up, the ecb stepping up to do the right thing. been coming for quite a few months and probably the rest of the italian banking system is in better shape than it has been for quite a while. guy: other news this morning about lpl's coming from -- you have britain a nice piece on the ecb in the credit markets. and the central line is but noty they are down, out in terms of their involvement in the credit markets going forward. how much stability in the ecb point to provide for european credit? better about 1/6 as much as it has been doing. they kept the corporate bond

very constant. while he were tapering on the government bond side, they kept the credit bond buying pretty much constant threat the last two years, at to the last three months when they had to taper off. they became very much liquidity driven. have about $1 billion a month -- one billion a month. taken spread them out how they want to. there is somebody power there. you can see already credit spreads having widened specifically. 93% of all credit bonds issued last year are wider. there is no doubt about it. credit spreads are widening and ecb are no longer able to keep the lid pressed down. guy: what does that mean for your portfolios? lian: think we have been worried about corporate credit across europe for quite some oil. -- while. you will continue to focus on

the quality end.i would suggest to keep away from high-yield in the states as well. guy: in terms of the waiving you would have going into next year for credit, where are you? for the average investor, how much money? lian: i would say roughly weighting.inst lower quality credit, under weight. guy: what is the relationship between your view on credits and what kind of other signals we are getting in terms of growth? juilan: we talked quite a lot about growth. global growth next year is that we are going to see global growth probably below trend, but not dramatically below trend. realm of say the 2.5%-3% growth in the states will slow, the probably slightly

below trend. vecto theris the momentum of growth the market is worrying about,, not the number. of think of the market worries that growth will slow through 2019, that is what it is going to be more concerned about them whether it hits the trend number or not. guy: what are you watching for the rest of the month? is that going to provide us any clarity? marcus: patience and modest. did they come and spills from the mouth of jay powell, we are pretty much certain in the market is pricing in only 10% of a chance the march hike. pretty certain they will pause in march. however, growth is superstrong in the states as well. make it a shot this year is that

u.s. growth continues to power ahead. the yield curve is inverting back and forth again. a report was produced saying that inverted curves predict five out of every one recession. nonetheless, it may also have caused them. the fed has obviously done some research. the first chance out of the doors to see if will reflect and see where we are in june before another hike. marcus, thank you very much, indeed. juliano jui -- thanks to as well. up next, we take a look at some of the biggest movers. risk off.

this is bloomberg. ♪

guy: economics, finance,

politics. this is "bloomberg surveillance." let's get a bloomberg business flash. a: the green light capital extending its annual decline to 34%. and investor closing at 2018 what the biggest loss for the 22-year-old fund. it has stumbled since losing more than 20% in 2015. cathay pacific airfares will honor previous airfares sold at a discount. according to travel bloggers, return fares in the premium $375.started only expected to announce a new cfo after its current employer set on new year's eve it plans to fire him.

the company says newman is on paid leave and his employment will be ended for causes unrelated to activision's financial performance. because largest lender is coming into force yesterday. new regulations mandate big partate -- se separate -- some bank of england officials warned it could be made more expensive for banks to find everyday activities such as wanting to companies. the number of chinese peer-to-peer lenders may drop by 70% this year according to a research firm that tracks the industry. the shanghai-based group says 300 companies could remain by the end of the year. appeared to hear lender announcing its exit from the industry. authorities reportedly want to wind medium-sized platforms nationwide. much.hank you very

let's get a check on the biggest stock movers in europe. some people are returning to work here are the details. . sebastian: let's start with a big macro story of the day. the slowdown in china. indicating a contraction for the first time in 1.5 years. it hits the miner and steelmakerss. this is taking to more than a two-year low. november 2016 was the last time we saw a price like this. this.tting airlines face for voting omens. voting --lso -- for omens.ing you are seeing that stock hit by some 2.6%. we will finish on good news. vetas snuck in a few orders at

the end of 2018. they are set for a record intake in the fourth quarter. this is a real recovery for this stock. up by some 30% since its low last july. turbines. not looking so good for everybody else. guy: let's take a look at some of the wider moves. very much a risk off kind of sentiment any relating for these markets this morning. down.yen trading yen crosses are quite well. euroyen trading down. this is the fifth day down for index,omberg dollar which we haven't seen for quite some time's in terms of the longevity of the moved to the downside. we are also seeking brent trading up. crudejor benchmarks on

today.ng up you can understand this on the back of the fact that there is a demand element to what is happening here and the fact that we are continuing to see week data emanating out of one of the world's biggest users. where is money flowing into? treasuries, which had a late start today because of the japanese closure. now, we're seeing money flowing into the core on secure in europe. here in europe. a lot of people had to relate their portfolios going into the new year. that probably meant they had to sell core bonds and pick up a few equities as the re-waiting -- re-weighti came throughng.

as a result of what's, we are seeing that strong bid coming back through this morning. in terms of the sector story, it tells a similar one. , banks arerces trading lower, the insurance sector is lower.that kind of risk off move you can see in terms of the sector story, very much being generated. we are to continue for the next couple of hours. and edwards here in london, tom keene is going to join her from new york. later today, the ceo of brexit going to be joining us -- barracks is going to be joining us. that is coming up. this is bloomberg. ♪

tom: good morning this new year. markets are correlated in search of a big.equity futures lower .

the end stronger. discontinuities. there is a trade war and economic slowdown,. we see it in china. italy as well. washington is simply in shutdown. president trump and speaker pelosi will attempt to meet. no word if they are on speak in terms that speaking terms. -- speaking terms. anna edwards with us in london. give us a brexit update. what is really going on with brexit? anna: i'm happy to step in and mediate between you and francine. on brexit, it has been a blissful silence over the festive period. we look forward to much more news flow on that subject in the days ahead.all of the options that remained on the table at the end of last year , still on the table. tom: the markets front and center.

county will join us in the next hour on the short-term paper market. right now, your 2019 first word news. viviana: president trump is suggesting he wants to make a deal to end a partial government shutdown. has invited top congressional leaders from both sides to meet today. he has suggested that will be end to the shutdown unless congress gives them the money for a wall on a quarter. democrats take control of the house of representatives this week. kim jong-un has issued a warning, saying he will take a new pack if the u.s. doesn't relax economic sanctions. he also signaled any deal might also require weakening the military alliance between the u.s. and south korea. kim affirms he wants a second meeting with president trump. and the u.k., the prime minister is urging britons to put aside differences of her brexit. thehas used a new readers message to say the country has a

need to thrive after leaving the european union. she's not trying to persuade parliament to pass her brexit deal. for thecheduled to vote fourth week of january after delaying it last month. the italian manufacturing sector shrinking for the third month in a row. the ihs market report showing business sentiment at the weakest in six years. meanwhile, new orders falling for a fifth straight month. 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. all of the upset we saw in the final trading days of last year. down futures at -340. they improve from 60 minutes ago. curve flattening. i will let in a do euro yen.

28.06 for the next. vix. -0.63.r yield in germany that is a big deal. i did dollar-yen, 10896 through 110, 109. i know you will continue from here. anna: i have got euroyen on my data check. i always know that you keep an eye on it. big moves out of the euro into the yen. it is yen positive the that seems to be coming through. suggesting the yen strength will continue. and also put brent and because the weakness is such a feature for oil prices. such a feature of the latter part of last year. i'm fascinated by the way the chinese data has really been jumping into the stocks in this year. on the receipt, we have week data and markets higher.

tom: an interesting final day of 2018. this is a chart we have shown over the last three years. germany 10 year, three here, states negative throughout 2014. what is interesting is a gloom here throughout the tenure and two-year, and then things get better. with you the 10 year coming down here. right nowore narrow showing relative tension in the great european indicators. anna: low borrowing costs for the eurozone. if you take a longer view i'm fascinated by this chart. costs soaringng for emerging-market governments, near a nine-year high. you wonder how global growth stands up to that kind of increase in borrowing costs. stocks have fallen across the globe. day,19's first trading

u.s. futures suggested clients will continue. this as the ihs reported another week reading for chinese factory activity. and drop to 49.4 in december. we got week data on monday and equity markets went higher. investors chose to focus on trump tweeting around the possibility of trade tension resolutions. today is different. markets really jumping on this week story. enda: what we are getting now is a compounding story. capture a broad cross-section of china's manufacturing sector. the interesting thing is that last year, the trade war didn't have much of an impact due to orders and the like. these pmi's really drive home

getting a deal with the u.s. on a trade side of things. if they don't, this negative sentiment will continue to linger and is expected to worsen. anna: how much is being attributed to trade tensions and how much is basically the chinese self-help measures of measures designed to stop that being too much leverage in the chinese economy? right.ou are quite it is not all about the trade war. there are domestic issues. particularly, the deleveraging campaign. drag, but i think the bigger focus is the trade side of things. we are seeing something in expert orders. the question remains whether or not the trade side of things can be resolved. if it can, that lifts a huge cloud of the economy. if they can reach a breakthrough, there will likely be more pressure to ensure china's economy remains on track.

tom: had is president xi enter the new year? enda: this talk about changes the economy hasn't seen, by all accounts, he has to manage a fine line. president xi has identified the need to curb debt and puts the economy into a more sustainable path. on the other hand, slowing growth only has problems associated with this trade war with the u.s..i think we're in a complicated first quarter . . i think china will push for a trade deal if we don't get a trade deal, that was of a pretty negative tone for the entire year for china. tom: thank you so much for the report. tow, we're thrilled show you a great set of guests.

we begin withjerry. how correlated are the markets this morning and is the correlation carryover from the end of last year or is it new? we have got some technical difficulties. a want to go here as we try to sort out our linkages with edinburgh. what i am really watching are the correlations. want to sell forward to tony joining us in the next hour with pimco. he is the perfect guest for global wall street on this interesting first-day of the year. anna: lots of fascinating guests coming up in this program. to look at an analysis on a number of asset classes. the managing director of g10 fx features joins us.how

strong is the yen get in 2019? this is bloomberg. ♪

viviana: this is "bloomberg surveillance." there will be a change of a british broadcaster itv. ian griffith will leave at the end of march. it is ending 20 that beginning 2019 with its share of a five-year low. netflix is expected to announce -- a hiring an its new chief financial officer. newman is on leave.

lastix's current ceo says summer you plan to step down. 2een light capital ended 018 with its biggest annual loss ever. green light posting some of the industry's best returns in its early years, but it's doubled since losing more than 20% in 2015.that is the bloomberg business flash . tom: thank you so much. too much to talk about. we take you across a multi-asset view with jerry and at borough. valancine.g us is the idea of correlation right now, are we seeing a normal lockup of correlation or is there an oddity to this end of your market? jerry: there certainly was a lot of capitulation in december. i remember around the time of the g20, there was quite a lot

of hope that the trough was in. there was this concerned that the market haven't really turned as pessimistic as it needed to. since then, equities have fallen, mostly in the u.s. do have a big rally in bonds. tom: is seen to be at the end of the year a dynamic of the search for cash, maybe a readjustment by corporations in the short term paper market. what did you see in foreign-exchange that indicates a permanence to those discontinuities? valentin: the demand for cash we used to see during previous bouts of risk aversion have clearly favor the high-yielding dollar to the point that the dollar has emerged with i high-yielding safe haven. riskems the latest bout of aversion may be indicating the end of that. the fact that dollar-yen has sold off.

it is suggesting the dollar cash, which has been so appealing during previous bouts is not attracting as much interest. this may start the loss of rate in yields to give the dollar and upper hand. it may actually begin to suffer against other safe havens. anna: good morning to you. let's continue this theme on currencies. i have wcrs page on the bloomberg.it shows the dominant ollar has been dominant. the end remains the safe haven of choice.this typical risk off , the that mean, are we setting a tone for what we see in 2019, yen?trong our goal is partly

driven by the market uncertainty. another reason is the evaluation. the yen is still the cheapest g10 currencies out there. we're seeing that the in-line, dollar-yen has to be as low as 100.still is a lot of scope and downward correction there . . would remain quite bearish on dollar-yen anna: you expect to be looking for a bit more money into equities in the weeks ahead, i believe. where are you looking? of lowhave had a lot risk portfolios for quite a while now. we are starting to see momentum turn in the sentiment. one of the key issues is that we have had two rate hikes being pressed in when we only had one rate hike in reality. a lot of the entry sensitive

sectors and regions we think was a little bit better. we have positions in the u.s. and chinese equities. we will be looking to add more into the u.s. equity space given the value. tom: to questions. before i get to your pessimism idea, let me talk about what you just said, which is that we have a rate cut going on. is the market right now doing the work for chairman powell? yet.: not just what has happened is we have a december rate hike in the market has taken out the next rate hike. basically zero expectations for a march rate hike.what is probably more important december fourth quarter squeeze in dollar liquidity. it has meant the libel spread widened out by next rate hike. i think over the next three months,'s a lot of as expectations of numbers hikes in marks persist, you will see libel coming down 25 basis points. edwards got destroyed

over december, like everybody else in her 201 k. should she be buying apple shares this morning? you talk about peaking pessimism, was means you want to acquire shares. do you apply multinationals in u.s. dominant equities? gerry: it depends what you are looking at. i wouldn't necessarily stick to one particular company, but what i would say is the reason we are still on u.s. equities is because they are still highly profitable and general high-quality. short 2000 positions and long s&p positions. tom: are you writing this down, anna? gerry: we are short the index still. there is a huge amount of quality. quality has been dramatically outperforming all other factors

and likely will for the rest of this site will. cycle. there are many other companies in the tech space that we figure much more vulnerable to weakness in growth expectation in excess growth leverage. anna: i am writing it all down. let's get to valentin. your top pick for 2019? bearish dollar, with a 2019 is the year when the reign of king dollar is going to come to an end. giving way to a convergence rate where the fed will be converging back to a dovish, the likes of the boj and ecb. on the back of that, we are bullish calls against the dollar. we like gold at the moment. we also like cable.

presenting that it will prevail so that on january 14, we will voting in favor of theresa may's deal. anna: we will return to that seen it theresa may prevails. thank you very much. valentin stays with us. very timely, the pay foreign secretary is delivering a speech in singapore called britain in a post-brexit world. headlines coming in from it right now. the pound down against the dollar this hour. stay up-to-date with us online go. this is bloomberg. ♪

anna: good morning, everybody. today.e lacqua is off oil has begun 2019 with the same volatility that marked the end of last year. andits 2019 outlook, outperformance oil commodity currencies, suggesting short in dollar cap should dollar become attractive. as we see oil prices continue to retreat, this is going to have an impact on the oil currencies, but also central banks because of the inflation link. balance in: -- valen indietin:.

: indeed.in the second condition is how investor and commodity exporting economies will respond to that. that would include the u.s. economy as well. they're highlighting that a lot of the business investment we have seen in the u.s., came from shale producers in recent months. and will be interesting to see the extent to which they respond by ratingdevelopments some of the spending and what it will mean for the economic outlook. anna: i'm interested to see how this drop in oil prices relates to the u.s. economy. the relationship with oil is very different compared to the last time we saw oil prices at these levels. : what we are dealing with in the u.s. is a cyclical upturn that makey soon run out of steam.

clearly against this backdrop, the commodity currencies will continue to bear the brunt of any adjustment in risk. they will remain quite sensitive to risk aversion.in their case , both growth and inflation risks compounded a weak outlook from here. they may see some rebounds against the dollar. tom: a want to introduce this chart. i thought this was great. eia american oil production. that is a long chart. float matters and it is a moonshot. is american now an opec member? thattin: you could argue americans input to the global oil supply has increased considerably.

if you just look at theif you j, about 11 million barrels a day coming out of the u.s. that compares with 10 or so coming out of saudi arabia and russia, three 3 million coming out of opec as a whole. produceris the biggest and likely to remain one down the road. the correlation between dollar and oil could be changing. tom: really interesting. let's come back and talk about this. market on the move today. an me tell you about important interview. james, chief investment strategist. stay with us worldwide. this is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?"

"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. anna: that was the u.k. foreign secretary jeremy hunt delivering a speech in singapore.

ago.ft seconds he has said a second brexit vote would be incredibly damaging, echoing the party line. says he thinks theresa may can find a way to make her brexit deal get through parliament, despite the numbers looking to go against her before the holiday break. still, the government is sticking to that for the start of 2019. with top -- anna edwards with tom king. francine lacqua is off. discussion on great work on a huge constitutional debate in the united kingdom. first, first word news. >> president trump has invited leaders to a briefing on border security. he insists he won't sign spending bills without money for a wall on the border with mexico. on twitter, he suggested he wants a deal to and the

stalemate over the partial government shutdown. republican senator mitt romney has blasted president trump. he used an opinion on article in the washington post to call his character shortfalls "glaring." he says his words have caused dismay around the world. the american arrested in russia is a former u.s. marine. the family says he was in moscow to attend a wedding. key is the director of global security for the auto parts maker borg warner. u.s. officials are asked to allow -- meet with him. the president of brazil is promising to tackle crime, corruption, and economic malaise. his economic goal is to free itself from socialism. investors are looking for more signs of the proposals being implemented. global news 24 hours a day, on-air and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries.

this is bloomberg. tom: thank you so much. we will lead our next hour with kevin cirilli in washington. it is an extraordinary moment in american history. our senior reporter for international affairs. let me begin with how you sense ,urope and asia are reacting adjusting, or thinking about what we saw in washington over the last week. think -- look, you have to remember simply people are getting used to trump by now. foreign leaders are used to seeing a lot of turmoil in washington, a lot of mixed messages as to with whom they can do business, so seeing the government shutdown will -- a year or so ago, it would have been a more shocking event.

the kind ofirms washington they deal with. tom: where will populism be in america over this year? the great theme of my trip to europe in the last two weeks has been the new populism of europe. does the rest of the world perceive a new american populism? is there a permanence to what we are seeing in washington? nejra: -- marc: yes, i think there is and the interesting thing about this debate over the shuts down, at issue is the wall and who will pay. will it get constructed? if you think about it, it can't be about the money primarily. more toon, it costs shut down the government and to build the wall. there is the symbolism of would bethe wall really big.

if you think about the populist movement going on across the world, it is not just in the populists in europe, populists in latin america, to have trump winning, if you like, and the wall would be a symbol of that, that would be really quite big. anna: how much does it serve trump well and suit his base and play well for him in the polls every time he faces any domestic challenge to return to this theme of the wall, to keep ringing it back up and talk about immigration? how much is that still issue number one for his support? marc: i think it is very strong for him. to focus on the wall. it is not just about that being a good issue for him, immigration is a good issue for him. that is how he played the november elections, if you remember, to the congress.

it is also about controlling the agenda. it is about preventing the democrats from pushing their fore and as we get into the campaigning season the next couple of years, allowing the democrats to control that debate. that is really why this is going to be a tough negotiation. presumably, the government will at some point in the near future be working again and they will come to some sort of deal, but it is going to be tough because it is about politics, control, you have a new democratic charging house and they will want to establish themselves. anna: how does the change in the house -- how does that change the agenda for trump? to seen we expect differently in washington in 2019? well, i think his big concern -- again, apart from the issue of setting the agenda for

the election, but the big issue for him is what will the house beginning new investigations, issuing subpoenas in order to undermine him and his presidency as he runs toward this second term. if he can keep the debate on things like the wall and distract from that, that is very important for him politically. tom: this track from that i guess is what american politics is looks at by europe and asia. what is your simple observation? what you would write about next about the united states of america? you know, at the moment, one is driven by the news agenda. it is about the wall at the moment. i think that symbol that trump is pushing for at a time when you have a new populist

president arriving in brazil, you have populist pressures in europe. i think it is really quite important to see how he manages in order to direct that symbol that symbol erect which feeds and other issues like protectionism, trade protectionism. aboutis a wide to debate nationalism on one side, closing borders and open trade and open borders on the other. tom: in the first show of 2019, we have marc champion with his perspective and anna, you have lived this in 2018. these political wars of europe. what is your estimation, anna edwards, of the populism that exists within europe and the united kingdom clashed up against what we see in the united states? anna: the immigration debate is the same but different, isn't it in both places? wall, has a very u.s.

dimension, very u.s. character. it is not the same in europe, flow of migrants across the mediterranean and importantly domestically in the u.k., the conversation about migrants trying to get from france into the u.k. in boats. this is a new angle on this. i wanted to come to you on the specifics around this shutdown. who is going to pay the political price? who are the american people going to blame, if that is the right word, for the shutdown? right, will that is the key question given this is a political issue. himself aump said harder task then he perhaps needed to. if you remember the meeting he had with nancy pelosi and chuck schumer in the white house before the shutdown where he basically said, i'm happy to own this. i'm not going to blame you. if that's what it is going to

take, i am going to shut down the government and i'll own it. the last 10 or 11 days during the shutdown, he spent the time trying to shift the blame because ultimately, it is not a good look. he has made it a little harder than he needed to. it is important for him politically, and there had been a poll recently that suggested he was not succeeding too well. most people blame him. tom: marc champion, greatly appreciate it with bloomberg news. we will drive forward this conversation. kevin cirilli in 20 minutes. don't forget david westin at 12:00 noon wall street time. we will continue forward in our next hour with charles gabriel. he is expert at linking all of this news flow into what it really means for policy. we'll do that with chuck gabriel coming up. stay with us. this is bloomberg. ♪

anna: this is "bloomberg surveillance." i am an edwards with tom keene. sector manufacturing track for a third straight month. 49.2, better than forecast but still below 50, so in contraction territory. the latest sign europe's third-largest economy is on the brink of another recession. today's also the first trading day as the populists passed a budget. the president used his new your address to criticize the government for ramming its

spending plan through with a lack of debate. hoped thegly parliament, the government, and political parties can find a way to hold a constructive discussion on what happened and insure adequate debate in the future. anna: critical there. joining us from rome, bloomberg's rome bureau chief. great to have you with us. is it all over, the tension between rome and brussels? one suspects not. how long do we see peace on this front? alessandra: rings are certainly better and the populists did passed acause they budget that comes closer to what the european commission wanted but things are not not that common -- calm. risks a recession, the populists have huge spending plans.

there is the risk of early elections next year because it is a compliment -- complicated government made up of two parties and there is a chance they might breakup and one might make a run for it and when all the votes and will more effectively. makehese things together for a complicated situation where there is a lot of infighting and you never know what is going on and the eu might not like that going forward. tom: it might be like an italian opera. from germanyneed and the dominant european nations now? alessandra: i think the populists don't care. the president has been critical because he is the adult in the room. the italian president is a figurehead in normal times, but when things go wrong, he says this is what we need to do. the populists just want to get more votes, more consensus, salvini right after the speech,

saying he thinks the big thing will be european elections in may and he wants all the populists of europe to unite and women. he might -- win them. he might even want to be the leader of the european populists. he says we need to take europe and change it from the inside. 2019 is looking like an exciting year for europe and for italy. anna: 2019, the rise of the populists. links in nicely with the conversation we had on the u.s. perspective. thank you, alessandra migliaccio from rome. market.lk about the fx we have seen this resolution in the short term between brussels and rome but with the weak data picture presented at the moment from italy, does the ecb ever hike rates in this time? valentin: rates might be

difficult to hike given the downside risk to their growth and inflation projections at the moment. the current setup is also highlighting the ecb's toolbox when it comes to fighting the next downturn is very empty. there is not much left after the so the only thing we can think of and the ecb confirmed that they could come up with more credit easing measures to respond to any further deterioration in the outlook. what it means for the fx market is there is little the ecb could do to weaken the euro further from here. rates are not going to turn more negative from here. they will hurt the banking sector more. we could see -- anna: does the euro not weaken on the weakness in the eurozone data we are seeing? valentin: the irony of the current situation is the fed was

so steadily normalizing policy, amassing its power to fight the next downturn, has put us in the position of being the only central bank able to easing a meaningful way to fight any disruptions or any spike in risk aversion or global growth slowdown. the irony of that is the dollar may again be the old funding currency of choice whereas the euro and japanese yen may be playing a secondary role. that is behind our call for euro-dollar down the road. todon't expect the ecb change very much in coming quarters. may indeed the fed start converging back to a more dovish stance before long. which means we, have gone on and on 10 years, 2009 after the crisis, etc. bring back the chart. the idea of two's, tends --

two-year, tenure in germany. i notice -- 10 year in germany. the beginning of four years, make it five years out, of these artificially low rates in europe. what is different about 2019 for mr. draghi and his successor versus 2015 or 2016? valentin: i think in terms of really negative rates, overall very low rates, it is being seen in a different context, the context of an empty toolbox. if the beast -- ecb embarks on a current easing of policy when it introduces measures to support the banking met -- sector, negative rates could hurt stability. a policy measure would be less desirable. i wouldn't be surprised to see deposit rakes hike in the year, will not sell

as monetary tightening, but measure to boost stability. i think this also means that any tltroltural measure -- measure will have to stay close to zero for the foreseeable future. the days of super negative rates in the eurozone may be well behind us. going back to the currency space, it may mean that the recent widening in the rate differential between the euro 3.2 negative is a massive rate differential. i like the phrase, for the foreseeable future. great commentsv, here today given the market turmoil. we will continue this discussion. "bloomberg surveillance" on radio.

we will talk to a guest about the turmoil in the markets. right now, futures -- dow futures -369. this is bloomberg. s&p futures -31.

>> this is bloomberg surveillance. let's get the bloomberg business flash. apple stays a core large-cap tech holding in a risk off environment. outperformed. it reiterated its price target of $220, 40% higher than where apple ended the year. rio tinto plans to delay paying bonuses to its former ceo over an investigation into an iron ore project. he retired in july of 2015 before rio said it informed authorities about payments to a

consultant on a project in guinea. the emails show he discussed the payment. he says he acted lawfully. that is the bloomberg flash. -- business flash. anna: still with us in london in in marinov. valent theresa mayt say can get her deal through. is it possible to have a base case on the outcome now? >> it is a base case in the is a what mps will face choice between no deal brexit, may's deal and indeed, no brexit at all. by my count, two out of three outcomes are positive for the pound, so long as no deal brexit is avoided one way or another. i think the pound, the outlook for the pound could be -- noa: do you feel confident

deal does not have that much support in the house and we can rule it off entirely or give it a low probability? freya: in our portfolio -- valentin: in our portfolio, a cable orn long sterling versus dollar. . we have a six months option structure which should see the cable close at 140 by the summer of this year. ourrlining that is expectation by that time it will be clear no deal brexit isn't happening. dangerouse could be data shifting -- date shifting. valentin: the technicalities related to precisely that, the noise levels very near term could increase considerably. case in point, if the mps turned down may's deal january 14, i think the scenario would be a

thential of more turmoil in fx markets, but the parliament ultimately instructing the prime minister to renegotiate a deal and delay article 50, and ultimately paving the way to a deal of sorts down the road. given that noise, you cannot just buy the pound now because they are is a risk of being market and the options providing a better trade. tom: valentin marinov with credit agricole, thank you for a valuable hour. a little improvement here, but nextutures -346, in our hour, short-term paper. this is bloomberg. ♪ ♪

. . .

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?"

"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. tom: this morning, this new year, markets are correlated.

equities, futures are lower again. wall street us watching very short-term paper. in this hour, anthony existence he of pimco. there is a global slowdown during look to china and italy as well this morning. washington, simply, it is a shutdown for president trump and speaker losey will attempt to meet. no word if they are on speaking terms. good morning. in london, anna edwards in for francine lacqua for us. news in italy today, what does that mean for the rest of europe? anna: speaking on the very front, tom, we have the european parliament in 2019, and all issues surrounding populism will be very much front and center from the european political

perspective. americanill frame populism as well. with first word news, here is viviana hurtado. president trump has invited top congressional leaders both parties to be at the white house today on order security. has existed there will be no end to the shutdown unless congress gives him money to build a wall on the mexican border. north korea's kim jong-un has issued a warning to kim president trump journeys of the will take a nupathe if the u.s. is not relaxed economic sanctions. kim reaffirm see once a second meeting with president trump. in denmark, police say 60 were killed when a passenger train on a branch hit an unknown object. media, itto danish hit the passenger train.

this caused it to brake suddenly. italy is on the brink of another recession during italian manufacturing sector shrinking for a third month in a row. market showing it is the weakest in six years. new orders, by the way, falling straighh street musteri-- month. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am viviana hurtado. anna, tom? tom: thank you very want market really beginning to move, futures deteriorating. curves flattening. we have seen in the last couple of, 16 basis points. next screen, please. 28.20 for the vix. i would look for that to adjust a little bit higher here. two-year yield in

germany will get to in a moment. and youot yen, anna, have euroyen front and center. anna: euro-yen being watched. asset investors globally looking for hayes spurs, and the yen -- haven. is remaining a haven. markets,iously by the and we see the futures down by 2.3% now. yield roll toward the section in the u.s., no doubt we will keep an eye on that, tom. tom: in asia early this morning come over to europe come over to the u.s., and we'll open here in three hours, plus. i want to get our two important guests this morning. 10-year yield in germany positive, two-year yield in germany, summer of 2014 negative. here is a narrowing of the difference in yield, and then we

call it something normal. here is a little bit of the near theield, somewhat intention of 2016. all you have got to know , anna, is tension in europe. anna: an interesting conversation with valentin marinov about whether the ecb will ever get off the ground during this cycle, which kind of rates they have to have. on the emerging markets side, look at borrowing costs, a very long-term perspective, 2010 or so, near a nine-year high. it makes me wonder how the global economy manages under this kind of higher borrowing costs path, even though they come from a low base, tom. tom: kevin cirilli, our chief washington correspondent,

kevin, it is about the zeitgeist, mitt romney, former presidential candidate, olympic guy, he know something about boston, massachusetts and the boston red sox. you will see this worldwide all through the morning. "the trump presidency made a deep percent in december. this comes at a very unfortunate authorede leadership by china and russia is autocratic, corrupt, and brutal. the world needs american , and it is in america's interest to provide accurate how can we get that, kevin, if we have a shutdown in government? kevin: the incoming senator is positioning himself to take the position of senator jeff flake, who will no longer be in here. both parties were invited to the white house today. both sides are digging in. like her speaker nancy pelosi, the first thing she will do is

pass a budget, that does not include what the president wants, which is wall money. post" has ashington beautiful analysis of suburban republicans, the pop-up you did for at least 90 days after the election, or 80 days. they movet is how forward. romney is from the middle of nowhere in utah. flake is from the middle of nowhere in arizona. the president has lost the wild west, hasn't he? kevin: no, they would say he has not, because if you look at the gains they were able to make in terms of the senate in particular, the flyover country, as it is typically referred to hear, has really stuck with this president. that said, the president needs his allies in the senate. he will need the likes of senators lindsey graham and senator romney, especially on the notion of foreign policy, and issue in terms of the president's decision to withdraw troops the other week from the middle east really has been a dividing factor amongst republicans in the senate.

the president made a calculation on immigration to stick with his base and stick with the freedom caucus, but in terms of foreign policy, it is a much different political landscape. anna: kevin, good morning to you. how do we get resolution here? who is moved to find some kind of resolution on the shutdown? is it significant that trump is talking about doing a deal? is not,t is and it because i think in terms of where everybody is right now, this new crop of democrats in the house that are set to take over, nancy pelosi is trying to pass a budget agreement that has essentially bipartisan support, but it does not include the wall. that is where this gets really interesting. what she is trying to do, and i'm not sure it is going to work moderates in the senate to get on board with her. other senators had a tough reelection, to tom's oink, in the suburban -- point, in the

suburban district, she is trying to negotiate with them that the president is going to try to meet with them and say hey, i want money from eyewall. -- for my wall. anna: how long does this keep going, then? when you look back at previous shutdowns, and the markets, how long does this go for? kevin: if it goes until january 22, it will become the longest political shutdown in history. that is what we will have to watch for. it does have an economic impact for potentially the first quarter of this year. if they pass a short-term agreement, if it is in the debt ceiling, or even in the fall, that provides a lot of volatility here in washington, especially if this gets tied to the debt limit. tom: o another land make toolethe holidays was o' and the "l.a. times" with the interview of general kelly.

let me read a forward. how alone is this president? kevin: in terms of how alone he has, i think we will find out today, because i think that in terms of whether or not he is able to find key allies in the senate and in the house to negotiate with on this shutdown, where all this is, but good morning, washington, because mitt romney clearly has a message for this white house today. tom: that is the message for today. kevin's really, thank you for a congratulations on your new radio property out there in the evening of washington as well. coming up, we will go back to the markets. what a perfect guest to speak about the oddities of this continuity, the short-term paper market at the end of the year. there is no one better to talk with then toni kroos since the crescenzi of

pimco. stay with us. this is bloomberg. ♪ oomberg. ♪

viviana: this is "bloomberg surveillance." high-end viviana hurtado. more evidence of a shutdown in china. manufacturing at its lowest readings in more than a year and a half. factory conditions also falling in taiwan and malaysia. investor david einhorn's green light capital ending with the biggest annual loss ever. it ended down 35% after a 9% lost in december. green light posting some of the industry's best returns in its

early years, but stumbled more than 20% in 2015. netflix announcing it will --her spencer newman hire spencer newman, from blizzard entertainment. that is the bloomberg business flash. anna, tom? tom: thank you so much. know, we are as good as our team, and they are not only brilliant, but sometimes the "surveillance" team will get lucky. they said tony crescenzi, you need to start our year. definitive on short-term paper. bring up a chart, if you would. i have never shown this chart before. i am only doing this because crescenzi showed up in the early year.

one-year, two-year yield. you have the normality between the two-year and the one-year. tony crescenzi, let's start with the why of the short-term paper market. why is the one-year two-year yield inverted? tony: this is the crystal ball. we know the fed in december raise the policy rates to 2.5%. here the markets are saying they will go back to the low 2% at some point. a rate cut at the beginning part of next year. so we will not be roaring into the 20's like we did a hundred years ago. we could be stumbling into the 20's is what the market is saying. tom: everyone wants to know, when we talk commercial paper or arcane stuffer that you and others at pimco look at everyday, ok, great, give it a liquidity crisis, is that a tension?

tony: absolutely not a liquidity crisis. there is still over $1 trillion of extra money that banks can utilize to keep themselves liquid. banks are in an exceptionally good shape today. tom: what about shadow banking? tony: what is concerning is this all began in market distress with political factors, not macroeconomic ones. it is related to brexit, italy, trade stories. now markets have gotten the feedback, where what is happening in market as of the politics, feedback and the real economy, back into the market, so one of the major questions for this year is whether we can get back to expansion in june, a record dating back to the mid-1800's, or not, and it looks like we might stumble. there is a lot that could happen. of course there is an accumulation period, one should

be thinking about building assets, but be very careful about that. anna: ok, tony, good morning to you. this inversion of the short end is telling us something gloomy about where we will be selling into the 20's, what kind of lag this normally deliver, then? what kind of lag does this signal usually require? tony: well, it depends. markets will tend to be correct on this, but nine-month is the period where it has pristine accuracy. one looking out here or two, not so great. think about a year ago, markets were potentially at around 3%. now instead of the rate hikes that would stay in place through 2020, even 2021, markets make a rate cut. it shows you that looking past when you're out becomes a bit precarious. so the forecast that markets have a bit today, may not be correct. but isn't that important anyway?

the global story interest rate is piping on. look at the german bund today, the 10-year, 21.5%, $10 trillion of bonds globally making and yielding. so the worry in the markets today has very little to do with interest rates, and it has a lot to do with the other tactics i mentioned. one final point of brexit, the bank of england said the u.k. economy could shrink 8%, so there are numerous other things markets are concerned about, and before the feedback into the economy and markets again. anna: do you think the fed should pause here, tony? tony: there is a very strong case for the fed causing at the march meeting. financial conditions do matter. the transmission of monetary policy occurs through five channels, stock prices, bond yields, the dollar, and bank lending standards. all of these combined should

suggest the economy should be weaker. tom: let's look at the terminal and tell you tony chris anstey up the crescenzi ripped market. when we come back with mr. crescenzi, i want to look at some of the fed dynamics, really throw the chart and try to translate into english. we will do that in a bit here on bloomberg radio. james paulsen will join us, leuthold group chief investment strategist. stay with us. this is bloomberg. ♪

stability.ve market anna edwards in for francine lacqua in london. new york or i in am going to show a total off the wall chart. this is buried within the bloomberg. it is really hard to see. this is what the pros look at. a bedu need to know is out three years on the lower rate call has widened dramatically. bet of amportant, the rate increase has evaporated over the last number of weeks. anthony crescenzi, you say there has to be a rate cut and

estimates of value, or are we flying blind? tony: we are not flying blind when you think of how high rates can go. one only has to think of demographics on the sturdy rate of growth in the economy and interest rates. there is almost no way the u.s. economy can grow rapidly in the next 30 is given the demographic story, growing half the rate of the last 30 years, about half a percent per year instead of 1%. that limits the number of people who can buy and produce goods and services. groupr or not we can because of productivity, whether it is the workforce that exists, simply doing things better, who knows? tom: let's get anna edwards in, anna it is. important when you try to work out wages and inflation anna: here, tony.

does that continue to exert this downward pressure on inflation in the united states? tony: technology is certain a certainly a major inflation story, price discovery, as we have all experienced, you pop into a store, see a price, and see if we can fare better on the internet. about 70% or so of it is inflation, commodities about 10%. it is there, just not any meaningful pressure. the prospect of slowing economic growth globally in the next year is unlikely that the lead story will be a major influence on the inflation story. uncertainties matter a great deal to the entrepreneur. inthe entrepreneur matters the end the most. tom: i want to go back to anna's question earlier, the idea of what the fed matters, january 30, march 20, may 1, june 19, on

and on. which matters to tony crescenzi? tony: january 30. it is the first time that there will be eight conferences instead of four, so jerome powell, the fed chair, will have to tell us what he thinks of the financial tightening conditions. they have to have a narrative that supported what they had just gone. tom: explain the narratives of january 29, before the meeting. tony: we know that clarida, a former colleague, talk about walking into a room that was dark and he found it difficult the room and see, in other words, a drop in the stock market, etc., tells the fed something about where whether themeaning fed is pressing on the gas or the brakes.

clearly neutral is somewhere very close to the current policy. so the light has come on. tom: ok, anthony crescenzi with us of pimco. you mentioned vice chairman clarida formerly of pimco strategy. we will discuss with michael mckee. conversation with a different fred president, for that matter, a different regional office, the dallas fed president in the 7:00 hour. look for that thursday. stay with us, with markets improving a little bit right now, as if he futures -36, dow futures -327 as well. from london, from new york, this is bloomberg. ♪ bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers.

"activecore, how's my network?" "all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. anna: good morning, everybody. i am anna edwards in london with tom keene in new york. francine lacqua is off today. let's get to have you are not. viviana: president trump --

viviana hurtado. viviana: president trump has invited congressional leaders to the white house. on twitter, he suggests he wants to make a deal and end the stalemate over the partial government shutdown. income in utah republican senator mitt romney has blasted president trump. the former president candidate using an opinion editor in the "washington post" calling the president's shortfalls "glaring ," saying his actions have caused dismay around the world. says hef paul wheatland was in moscow to attend a wedding. he is the director of global security at fort warner. captain with a nationalist message has been sworn in as the president of brazil. tackleromising to rampant corruption and economic malaise.

he says brazil has begun to free itself from socialism. they are waiting to see if his proposals can actually be implemented. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i am viviana hurtado. this is bloomberg. anna, tom? anna: viviana, thank you very much. oil has started 2019 with another slide. the world was the second-biggest consumer of fuel. opec and its allies have promise curbs to prevented from forming this year. others say the cutback was not enough. joining us now is the bloomberg executive editor for commodities. just how much control of the oil price does opec really have? would say. i

allied they can bring on board, they have sort of run out of road. they have russia, they have others, but the other big players in the market have absolutely no interest in joining opec. anna: on the demand side of things, the chinese story seems to have taken oil another leg down, down another percent today. is this growth story really pivoted, the china growth story specifically? art: we had an opec meeting in december, and we will have another in april. yes, investors will talk about what they love, but they cannot make a decision. what are we left with? story, demandwth from china. i stole this chart from your wonderful team, the hydrocarbon worldwide. this is american oil production, and back in 1986, we were here during the years of decline,

here is the boom, and on a basis, stuart, off we go to a level that is absolutely unprecedented. what does that chart mean to somebody in vienna here in a couple of months? stuart: i do not think they have figured it out yet. we have a very unusual situation where they have started to invite the show producers, whether they go to houston or two vienna. part is how they figure out -- what do we do with shale? how do we respond to shale? the whole industry has now moved from thinking about five years, 10 years out the thinking one or two quarters out, and that is shale, too. i do not know what you do. if you're in vienna, there is very little you can do. tom: there are degrees of freedom but have come down, and , as adam come down inches, like the united states, like russia as well. assist americans

shale oil in driving the price to where they want it, or is it every nation for itself? stuart: i think that is exactly right, tom, it is every nation for itself. despite the referendum we have within the opec plus group about unity and so on and so forth, it is absolutely nonsense when it comes down to it. what they will do is absolutely in their own interest. friends and, russia will play nice -- for instance, russia will play nice. fundamentally, when it comes down to it, it is making money. very few of the opec producers managed to break even on their budgets. russia will do what it needs to do for itself. anna: thank you so much for the insight on the oil story. let's get back to tony crescenzi of pimco still with us. the relationship between the supplies we have seen in the last quarter or so and the u.s. economy.

the role that the u.s. plays in so oil market has changed considerably since the last time we saw oil prices collapsing this quickly. tony: that is right, anna. ime, the years' t increase in u.s. output has been barrels a day. that makes it difficult for opec and particularly for saudi arabia to cut output much more. day, that barrels a is probably a practical floor. they do not want to go below that, because it is giving up shares to the united states. the biggest factors productivity. u.s. producers have become more and more productive. at one point, it was much higher. producers can get by if the price is $40, $45 a barrel, but getting below that will be difficult. the production increase will probably stall, if not reversed,

so oil is close to the bottom because of production in the united states. anna: tony, we often talk about lower oil prices being a tax cut for the consumer. president trump tweets supporting lower oil prices. is it still that simple, given the amount of reliance, in some states, obviously, more than others, on this oil production and export as an industry? tony: sure. 100% of the population will benefit from the decline of price in the oil, but half of the population or more will get hurt by the fall in the stock market. a consumption declined that relates to a drop in the stock market will be greater than the one that relates to the increase from the drop in the oil prices. how does high-heeled and energy high-yield, how does it do at the end of the year? tony: similar to four years ago --

tom: exactly, a little bit of a lift. tony: reason is productivity. russian companies have lower -- tom: you guys are not voting for the los angeles rams. i understand that. the new york jets we will not even talk about. tony: never. tom: the issue is the high-yield market is not a cause for alarm for pimco? tony: it did, but we have been acting on caution, suggesting that markets are fully ball valid and fully , so we will continue to invest using risk factors, invest from the bottom up, watch out for the credit and equity data. do not get too tired. tom: we have got to go to your use the green glitter, the first day of the year. go. krzyzewski -- tto letter of three

on the first day of the year. tony crescenzi, we have got to go. anna edwards and i. stay with us. this is bloomberg. ♪ this is bloomberg. ♪

viviana: this is "bloomberg surveillance." iamb viviana hurtado. canada says apple is an increasingly risk off environment. 40% highered about than where apple ended the year. in china, a government crackdown may lead to 70% of the nation's peer-to-peer lenders folding this year. chinese regulators are

dramatically in shaping a market that spawned a nation's biggest ponzi scheme. sam walsh is the retiring in july of 2015 come a month before rio said it alerted about payments of a consultant about products in new guinea. said he acted lawfully. that is the bloomberg business flash. tom, anna. tom: viviana, thank you so much. capitalgabriel with us alpha partners. chuck, i want to give you an open question. what do you write about this morning, looking forward to the 116th congress? charles: tom, what we would write -- thank you, and good to be with you, and happy new year -- i guess we would write that we do not expect this hangover

from the last year and the last congress to last very long. -- tomorrow, but all amid a shutdown that really begins to hinge today with the shutdown of iconic memorials, talks, and incidents like that, but we do not think it will last long, is the bottom line. tom: the 10-year yield that chuck gabriel does not care here is the ugliness of new year's eve, and then we have just seen this markdown as we begin the open markets early morning, united states.

how close are we to the markets really linking up with the chuck gabriel world? we have been talking a little bit more -- it seems the past, and it certainly should be come up with president continuously tries to invade the consciousness of the markets, attacking the fed, tweeting in a provocative way towards the chinese. that is probably going to continue to pass groundhog day or beyond. i think he is still very concerned about the mueller investigation's. he really tries to work his own agenda to worry about the markets, but eventually he will have to start working worrying about the, because his reelection path is very narrow. he is trying to block very supportively on that this morning. his shutdown is a sign that it should be over by next week. anna: good morning to you,

chuck. we were having a conversation with tony crescenzi from pimco, and he was talking about the wealth effect, the fact that the market set up with a negative feedback loop into the u.s. economy. how high up the agenda is that for trump? he has clearly talked about stock markets on the rise in the past. how much will he be engaging with this wealth effect here? i think he does care about the markets, and his advisers certainly care about the markets, but he has some higher priorities. i thank you he very much feel the need to dominate news cycles. he always fall back to try to appeal to his base, and say that his agenda is free trade, fair trade, making america great again, you know, etc. i think the markets are going to have the problem with the riskdent, have trump for at least a couple of months, sensationalize de-

is, if you will, and if china can agree and extend the deadline passed march, we can at least right size concerns about trade and about the fed, and then the president, that wildcard from the president can diminish a bit. anna: chuck, for an international audience, help us understand how this congress will be different from the last one. what impact do you think that will have? charles: you will have a lot more gridlock. i do not think that will be blessed, like it was at one point in the past. few we have the onset of another austerity cycle, if you will, or at least a budget exercise that will be stretched into september, october, worrying about the debt ceiling. yeah, tom, because even though the debt ceiling expires march 1, treasury weaves extraordinary measures to extend that in october, and by october, we have

onincrease the ceilings discretionary spending for defense and nondefense, so it all comes to a head by october, but between now and then, we will continue litigating trade and immigration, and international markets can look forward to not much change but a lot of noise. tom: that is important for the congressional budget office to keep score in 2019. gabriel, l partners, thank you for a much for joining us this morning. crescenzick with tony with a great chart. we see the bond market moving toward lower yield at higher prices across the current. that will be the -- the curve. for will be the theme michael mckee mckee tomorrow, dallas fed president robert kaplan. stay with us. this is bloomberg. ♪ this is bloomberg. ♪

tom: anna edwards denver francine lacqua in london. i am tom keene. i will turn to the bloomberg and tell you we had the worst equity futures two hours ago. they are a little bit better now, -37.

the bond market is not stable. if we open up bonds here at 6:49 a.m., yields are coming dramatically. let's go to our chart, our single best chart right now. of course we're talking with tony crescenzi and the short-term, so let's mix it up and go long-term with anthony crescenzi. 2 point 6%, everything is fine, prices over, and the yield is coming with a vengeance. now 3% on a 30-year bond. tony, what does the long-term bond say about trust in america? ony: coming back to reality america, we spoke earlier about demographics. there is a limit to how fast u.s. economic growth can go. it says something about the neutral policy rate. the -- 4.25%, now defend

now it is then max 3%. tom: it comes back to the rate to come down, that is unacceptable to the politicians. tony: it is important to note the two-year yield, about 2.5%, investors are saying stop, we cannot go much lower, because the cost is almost the same. and we do not want you, we, investors, do not want the security dealing less than the cost of borrowing, which is about 3.5%, related to the site. in other words, yields will be on the long end, because they are getting close to the cost of money. money matters a lot to treasury yields. 2.5%-ish. tom: what you just heard from tony crescenzi, folks, is the gospel. anna, was that too much math? anna: that is just about ok.

i am getting my calculator out. [laughter] tony: a lot in terms of numbers. pretty easy. anna: i am keeping up. let me talk to you about the data, the underlying data of the u.s. economy, tony, because i am fascinated to get your take. 8, weakening in the months of december. fed balance sheet stay on autopilot? another important part of the fed conversation, does it stay on autopilot even when the rest is clearly not? tony: it probably goes for most of the year, but as for the interest rate story, the balance story will become favorable for the 2019. by the end of 2019, markets will be thinking about the likelihood that the fed. shrinking us balance sheets -- fed will stop shrinking its

balance sheets, it will probably stop shrinking early 2020, and start buying treasuries again. it will continue to shrink at modest proposals, but it will start helping the markets by buying securities, shrink the balance sheet by $50 billion a month. a loss of $50 billion of liquidity is something investors have been worried about. and again, the markets look at the horizon of 2020, beginning of the year, they will have a different story. anna: how far away from the kind of base of the market, tony, do you think, how many are really talking about the fed going out and buying treasuries again and actually expanding, not shrinking its balance sheet? ony: some say the fed will start shrinking its balance sheet sooner because of the technical dynamic pushing up short-term interest rates, commercial paper, etc. markets are thinking about the possibility of that date being postponed, and also

thinking the fed will react using its balance sheet, but that is wrong. its interest rate will be a neutral. tool.ew tom: mike allen over a axial's and his team just publish the idea that the president will meet with speaker pelosi and other democrats and republicans in the situation room that will highlight his securities order issues, and i come back to this, tony, because the fact is the markets have to fold in politics and the trust of the moment. where do you come up with pimco, income, if you have to buy fixed income, when you want to buy a seven-year, but you have to buy a three-year, etc.? tony: for some there are interest-rate risks in certain equity. so thinking in those terms, we would rather buy in thinking of corporate bonds, short dated once. if we bought a two-year, three-year high-yield bonds, if

you done the work, the analysis, you have confidence or not and whether the company will pay you back, in over a two-year or even ,, the securityod could be close to 4% now. 5% plus. of: there is a whole history pimco, you guys used to corner markets with your size and your dominant. can you buy the coupon, the tantalizing e.m. coupon? tony: you just said would you data, do you want to get on the emerging markets bandwagon? we say no. we want to do this on a case-by-case basis. there are certain countries, markets that we would be interested in buying. if you typically what have $10,000 to invest, you would not be fully invested. tony: pimco would work on a

$10,000 -- tom: pimco would work on a $10,000 basis? [laughs] tony: no. we would rather be less than fully invested. bottoms up. tom: thank you so much. tony crescenzi, we continue on radio for your beginning of the year briefing. anna edwards, thank you so much. i really look forward to joining you in london here in x number of days where we can pick up the brexit debate. we were hearing way too little brexit today, anna. thank you so much. anna edwards with us in london as well. a lot more to talk about here. markets decidedly on the move, 10-year yield 2.65%. stay with us. this is bloomberg. ♪ this is bloomberg. ♪

comcast business built the nation's largest gig-speed network. then went beyond. beyond chasing down network problems. to knowing when and where there's an issue. beyond network complexity. to a zero-touch, one-box world. optimizing performance and budget. beyond having questions. to getting answers. "activecore, how's my network?"

"all sites are green." all of which helps you do more than your customers thought possible. comcast business. beyond fast. ♪ >> china ugly pmi, 2019 kicks

off of the win for rubble at -- global equities in the top 2019 risks. worst year since the financial crisis, u.s. equity suffering decade,est selloff in a could your portfolio hit more volatility? let's make a deal, president trump invited top leaders to the white house to end a government shutdown with a plan to reopen the government and a stage for the 116th congress. david: welcome to "bloomberg -- daybreak" on this first day of the year. isx: what's exciting to me the bond market, purchase anything you can, there has got to be some pen of action happening there irrespective of -- china data. david: it's a flight to safety, the yen was up in a big way. alix:g