>> good morning from bloomberg's european headquarters in the city of london, i'm nejra cehic. >> on the manus cranny in dubai. this is "daybreak europe." >> the bulls are back. stocks in asia are on a tear, european and u.s. futures gaining, investors are new their appetite for risk. has the markets of the bottom? exuberance hangs in the balance. washington in beijing start trade talks today. analysts say the latest move to cushion the slowdown won't be the last. less than three months ago until britain's schedule departure from the eu. theresa may warns of uncharted territory and doesn't rule out the possibility of a second referendum. ♪

>> a warm welcome to the show. two little words that are driving sentiment -- listening carefully. six more fed speakers will speak this week. the dollar is down because it is the rhetoric which is really driving the market sentiment this morning. dollar,sachs is the credit suisse says get ready for a dimmer dollar. flexibility in the fed is the word. what is that mean on the balance sheets? the yuan is stronger this morning. is that going to continue as the chinese go after another rrr cut? will there be more policy response on that side, rather than the monetary side? let's roll it over and have a look at the oil markets. goldman sachs is everywhere, but they are calling their brent price down for this next year,

just over $60 per barrel, they are talking about supply being the dominant force. over the past two days we have rallied in goldman is resetting the agenda on crude entomology -- crude and commodities. happy new year. manus.goldmanear, is targeting 93 on the dollar index , and it hasn't been below that level since may. we saw all three benchmarks gain more than 3% on friday. it wasn't quite as good as the post-christmas rally, but still one of the best of the bull markets. what drove that was largely the comments from fed chair jay powell, and the blowout jobs report. looks like we could see modest gains, s&p futures a little bit higher. the 10 year yield hit 255 last week, and then we rose 11 basis points on friday. we are down just a touch and gold has been performing well, a

little stronger in today's session. now let's check in on the markets in asia. more, in the has party is certainly continuing from that rally in the u.s. on friday. >> yes, happy new year. you and manus are talking about best days the for asian stocks, we have the nikkei closing higher by 2.4% but we highs of the day, had that big for when it played catch-up. elsewhere it is a very solid, positive session with some very good moves coming through in bonds and currencies on the back of that weaker dollar. that rrr cut on friday, investors are really trying to buy into this rally. let's have a look at the stock movers we have been seeing.

one of the apple suppliers in 7%, the most up by in about a month. credit suisse maintaining its outperformance on one of the apple suppliers that got hit last week. ceo,ve heard from the saying that they will divest their assets following that deleveraging deal to acquire shire. then having a look at the shares, one of the worst 9.3%,mers today, down by nearly hitting the 10% daily limits on reports that the chairman could be leaving the company. >> juliette saly in singapore, thank you so much. on friday, fed chair jay powell gave the equity markets what they seem to be looking for, saying he was listening to the markets and that the pause could be possible. today we are asking the question, how far can assets go on a dovish powell? which assets?

plus tvjoin the debate, on your bloomberg. >> it depends how far back in history you need to go in terms of the moves in the markets. we will test the bond market with one of the banks that has been mired in scandal. they will come to the market this week with $6 billion worth of nonpreferred debt. prepared for are higher debt costs after the scandal and that they seen that customer flight being negligible. this is what the market will focus on, the capital flight from the bank. let's see how the debt actually goes this week. let's get your first word news. annabelle? >> thanks, manus. u.s. officials have arrived in beijing for face-to-face trade negotiations beginning today. it is the first formal meeting since president trump and xi a

graduate tariff truce. both face a resumption of they don't strike a deal. chinese media reports that they could hold talks with chinese bank president later in davos. theresa may has stepped up the battle to persuade the u.k. parliament to back her brexit deal, warning that the country will be in uncharted territory of the plan gets voted down. the u.k. prime minister says she will give parliament a bigger say over any future trade deal, and will seek fresh assurances from the eu. meanwhile, more than 200 lawmakers from both parties have called on her to roll out a no deal brexit, saying it would threaten voters livelihoods. >> if the deal is not voted on, then we are going to be in uncharted territory. i don't think anybody can say exactly what will happen. >> an unprecedented move, the king of malaysia has abdicated. he is stepping down immediately,

and while the palace gave no reason there are media reports of ill health and rumors of a marriage to a former russian beauty queen. the position is mostly ceremonial but does hold some discretionary powers. global news, 24 hours a day and at @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. this is bloomberg. you so much. u.s. trade negotiators are in beijing for a new round of talks with both sides aiming to reach a deal before the 90 day truce ends in march. here's a look at the key issues. the u.s. has accused china of forcing american companies to share sensitive technology and intellectual property. huawei,er concern is which has long denied claims of facilitating state-sponsored espionage. ins is as beijing's made

raised ire from the u.s., which maintains it violates wto rules. >> trade tensions of also disrupted what should be a sweet deal for the two countries, energy. the u.s. is becoming a major, oil and natural gas exporter while china has emerged as the biggest buyer of both. issue.odities are an investorswill be looking to see if they remove tariffs on u.s. and the ongoing concern has been tariffs with china temporarily being retaliatory on vehicles imported from the u.s. that is from the start of the year. >> to talk through all this, we are joined by enda curran, our chief asia economics correspondent joining us from hong kong. great to have you with us. there are seven issues that bloomberg has outlined that we

need to resolve to get some progress on these trade talks -- how much can be achieved this week? >> well, i think there's an expectation -- the fact that these talks are happening in the first case indicates that some progress is being made, but i don't think anyone expects a final deal to be found. i think there are two key takeaways. the first is whether or not it is positive and whether or not there's a sense that this will go to the next round of talks with high-ranking officials. whether or not, they are making any real progress on the structural side of things, so i think -- there's a mood among emaar -- among the market economists that there's progress to be made. both sides or not can really get a deal to solve all the issues remains something of a tall order. >> and what are the biggest

hurdles? do you think it's the made in china 2025, or do you think it's the intellectual property side the technology piece,? >> you broke down the issues very well just before. the biggest concern remains around these structural issues, and something called promise fatigue. china has made promises before to open up market access and protect ip, but i think the feeling this time is that there will have to be a concrete set of proposals with tangible guarantees attached to them, whereby progress can be measured. this isn't just going to be a trade agreement where china , it will x, y, z have to have an extra layer. china wants to stand up and defend its own economic strategy and interest, and the idea that china will roll over is probably not

realistic. that's why it is on the structural side that we will see some fairly hard ground. >> will put. enda curran in hong kong. let's bring in our guest this morning, the chief investment strategist at green bay asset management. what is the biggest obstacle? is this your biggest obstacle in your ray of hope in 2019? >> it is certainly one of the most important features, i think, for all of those looking for a better outlook for the year ahead, which i think has been a story around u.s. dollar liquidity, as you highlighted the other big part of the story and the volatility we saw in 2018 has been in terms of china liquidity conditions and in terms of the china-u.s. trade war.

certainly the trade war is a key element. i'm also somewhat skeptical we will get a proper resolution of that. we will see what happens with these discussions coming up. >> should markets the reacting as positively as they do when we get any signs of easing from china, like for example the rrr cut? ultimately, when we get this easing, doesn't it put their deleveraging process at risk? >> that's the balance which they are trying to manage out of beijing. they have had a very hard squeeze, and there has been a china liquidity squeeze and the economy has slowed down as a result. irrespective of the impact of the trade tensions, though nonetheless they definitely had a negative impact. what beijing is trying to do at cutmoment -- the rrr signals that there will be further monetary policy evening.

it's unambiguous signal to the market and i think chinese bonds are potentially quite attractive. but they will also try to do more in terms of the balance sheet and fiscal policy and it is not going to be as big as large as we saw in 2015 and 2016. i think there's a danger that the market gets a little carried away, this massive stimulus out of china. i think it is more likely they will try to put the floor on how far growth can fall. >> by the way, would you include -- before we move on -- would you include a rate cut from the pboc in 2019? >> i think we will get rate cuts, yes. >> size of the rate cut? i just think they have

signaled with the rrr that there will be additional policies. i think we are going to get further cuts, or get cuts in rates through 2019. in previously they have had some constraints because of the exchange rate, but i do think they have timed up enough in terms of capital flows that they have to move or maneuver to keep the currency stable while at the same time reducing rates. >> we think there will be more easing, you said china bonds can look attractive. i'm wondering where the bond market you would be looking, and investment-grade debt of chinese tech firms posted the big loss of the year. if we get structural changes in the way that china handles technology transfers -- this is going back to the trade talk -- is there an opportunity in that debt? terms ofmore in

central government debt rather than corporate debt. part of the challenge in terms of corporate debt is the quality of the underlying credit and the way we are able to evaluate the ways that local rating agencies evaluate as well. i do think there are some on china opportunities primarily from a perspective that we will see some further easing, but i don't think we will get so much -- a renewed boom if you like. thehe technology side, correspondent was highlighting before -- that is one of the most difficult areas of u.s.-china relationship. the question of whether we can get a truce in this trade war -- i think it's really whether they can separate out some of the trade aspects of the relationship from the technology

and intellectual property from the structural side, putting them on two different tracks. i'mhey remained together, not sure that you can get a resolution between beijing and washington at this point in time. if you can separate them out to some degree, than i think there's a deal to be made. i think trump actually does want to do a deal. >> ok. let's see what this week's headlines bring to us. david riley. theresap on the show, may steps up her battle to dissuade the british parliament to back her deal, even leaving the option of a second referendum. >> when you are traveling to work, tune in to bloomberg radio, live on your mobile device or digital radio in the london area. this is bloomberg. ♪

♪ daybreak: "bloomberg europe." i'm nejra cehic in london. >> i manus cranny in dubai. let's get you to the markets. and arallies, good data plausible said. 3%, apics is up nearly nice rally coming through in japan. can they raise their factor this year? you are seeing goldman sachs cutting their koran crude but there is no doubt about it, this relief rally in markets is palpable. >> palpable post power. we see u.s. equities rally up by more than 3% in the really could continue today. meanwhile we are seeing dollar weakness and we could see more,

and you're a stock 60 futures pointing higher after the best day for a since april 2017 on friday. now let's get the bloomberg business flash. >> thanks. the flagship hedge fund run by ray dalio lost 14.6% less year as stocks fell broadly. it is the world's biggest, with about $160 billion in assets. the documents seen by bloomberg also shows it made an average annualized 12% net return since its inception in 1991. hedge funds on average lost 6.7% in 2018. grounds finally breaking on a billion-dollar factory in the world's biggest car market. after four years of planning, elon musk is in shanghai today to lay the foundation for the electric vehicle makers first car manufacturing point outside the u.s.

the ceremony comes at a point where car sales and china's economy are both slowing with the trade war. apple and samsung have announced a new partnership which, until recently, what have seemed unthinkable. the iphone maker is bringing itunes movies to its archrival television sets. analysts say it is evidence that apple is moving away from its hardware first approach and is willing to work with third parties to boost service revenue. sears is said to be preparing a wind down after the chairman's it to buy several hundred -- fell short of qualifications. according to sources, representatives were summoned to emergency meetings on friday failed toords sell -- buy and operate the stores. and that's your bloomberg business flash. >> thank you so much. british lawmakers return from the holiday break to little

clarity on the campaign to avert a no deal brexit. theresa may is stepping up the battle to persuade opponents to back her deal, warning about the consequences if they reject your point. >> if the deal is not voted on on this vote coming up, then we are going to be in uncharted territory. i don't think anyone can say exactly what will happen. is still with us. youow we spoke before and said the markets are underpricing the risk around brexit -- do you still hold the same position? >> yes. i don't think very much has changed at all -- i agree with if the deal was voted down next week then we would be in uncharted territory. i think sterling in the market is still a little bit complacent.

the deal will get voted down, nothing has happened. there's an interesting poll suggesting that the tory idearship quite likes the of a no deal clean brexit in their terms. gottennything that has the opposition to come in and support. it is going to get voted down and then where do we go? at the moment she hasn't offered any alternatives to leave the u.k. toward a no deal -- or away from a no deal path. us to ahat takes possible second referendum or even election. -- i are the possibilities have a guest who says brexit has robbed the u.k. of 1% gdp.

how quickly would we go into recession in your view? territory,charted clearly, but it would be a very dramatic negative supply shock and demand shock. a complete no deal exit for the , i think the u.k. is a very poorly equipped for that. i do think the u.k. would go into recession and potentially quite a big negatives decline in levels of output. that outcome is not, in any meaningful way, reflected in sterling assets, either sterling as a whole or in terms of credit. >> but there are some who argue there are opportunities in assets, maybe not in sterling, but in equities, for example. would you look for opportunities elsewhere?

u.k. haveses in the international exposure, and if relative valuations you can see why some of those businesses from the equity and credit perspective might be attractive. i think it isaid, kind of too early to make that call and to take those positions. i think we are going to see things get worse and more volatility around both sterling and potentially around rates as well before we get some clarity. i think you need to look over -- >> a little storm year ahead rather than stability. let's see what the next couple weeks bring. the chief investment strategist

at bluebay. react to avestors dovish jay powell. he uses the word flexibility and listening carefully. ♪ fully. ♪

♪ 2:30 in tokyo this afternoon. this is a live shot of the emperor's palace, a beautiful site. shinzo on the, can he really deliver a sales tax hike this year? that's the question. dollar-yen, the dollar is on the move. that is one of the challenges, whether he can do something on the retail sales side. but let's talk about the market moves. keep an eye on the uber, it is the strongest in two months. policy, shrugs off the the biggest rrr we've seen in 2018. says to me -- this

that they are shrugging off the possibility of rate cuts. our guest says you could get rate cuts this year. it's the sharpest bounce we have seen in the currency. 6.7 could be attained on the currency, so it will be interesting to see how the china trade talks play out. good morning. >> good morning. you have some calling for more cuts of 100, 150 basis points, but you could say the yuan is shrugging off with the pboc has done. on the other hand, it has to do with broad-based dollar weakness. the dollar weakens against all of its peers, and goldman has a call that it is seeing a weaker dollar. i know we had that blowout jobs report but let's not forget that it is backward looking. haven't fallen below that 93 level since may. >> credit suisse put a note out over the weekend on the back of

a benevolent power. joining us is our partner in mumbai. stocks across asia are kicking off. let's take it straight to you. good morning. it has not been a bad morning for india. we are trading in or around the started, weich we are comfortably perching in the green for the two benchmark indices, the banks are not doing , that is leading the indices higher. currency and the indian rupee -- again, in his off the highs of the day, but still gaining. up about a third of a percent. the bond markets have weekend,

and they have spiked in the session. out,'s a dichotomy playing with the crude gains. the equity markets are in line. >> thanks. let's go to annmarie hordern. we have talked about goldman being short dxy following the comments from powell on friday. you are looking at positioning around the dollar. >> that's right. we are seeing powerful moves across asset classes following jerome powell's comments. i'm looking at the dollar. while we are seeing weakness on it, like at where we are on the net positions, the most bullish level in the year. a lot of these could start to unwind. goldman sachs has in no doubt this morning betting that we and we havekness, strong data like the u.s. dogs report, and we could see a pause

on rate increases. i wanted to look at what's happening in the commodities space. american officials in their but if younterparts look at this chart you would think the trade war was already over because the brazilian premium for soybeans is much lower. that was when china was really buying these brazilian soybeans and put a hold on the american ones. if you look at this chart, you would think we could see a deal when it comes to the trade war. >> thanks so much. trump renewed his threat to invoke a national emergency and bypass congress to build his border wall as a partial government shutdown continues for third week. joining us from hong kong is jodi schneider, our senior international editor.

good to have you with us. update us with the latest intel is if we are any closer to ending the shutdown. >> well, it doesn't look like it's going to be ending anytime soon. over the weekend, people at the white house, senior staff led by met president mike pence, with some negotiators on capitol hill and really didn't make much progress. president trump is still demanding $5 billion for either a wall or some kind of structure at the mexico-u.s. border and congress is saying they are not going to spend that much, they are not going to build that wall. president trump a few interesting things in recent days, one that it doesn't necessarily have to be a wall, it can be us deal structure, some kind of sense, saying that maybe that would make it easier for democrats to accept, even though democrats are saying they

are not going to spend $5 billion on that. the other thing he mentioned is that he could perhaps invoke a national emergency, saying that the border crisis is a national emergency and therefore he may go ahead and put in effect an executive order that would spend that money on some kind of facility at the border. that would almost certainly invoke legal challenge right away, and of course is getting lots of criticism on capitol hill. but it does show that the white house is being sensitive to the fact that the shutdown is and ang its third week, prolonged shutdown would not be viewed well by either side. yet at this point, there is still really new negotiations scheduled, and they are far apart on the amount and whether they will build the wall. it's amazing how the phraseology has changed to a steel barrier.

schneider, our senior international editor in hong kong. the week ahead looks a little like this. wednesday, the fed releases its minutes. also on wednesday the u.k. parliament resumes the debate on theresa may's brexit withdrawal bill. >> on thursday, the ecb publishes an account of its december meeting. on friday, we will get to the inflation update from the u.s., economists forecasting the cpi falling to the slowest pace in more than a year. asian stocks have kicked off strong gains all the way around the comments from the fed, following a strong u.s. session on friday. the cleveland fed president said the central bank was in a good spot with monetary policy. >> it's really not the feds balance sheet that is affecting liquidity conditions in the market. obviously if that were the case

we would reconsider. but right now that doesn't appear to be the case. that doesn't mean, however -- and i know that the markets think we disregard changes in our balance sheet -- no, it is part of the economic environment/ david riley is the chief investment strategist at bluebay asset management's, and is our guest. aboutnteresting to talk the texture of the data -- when we look at the proposition for 2019 from the fed, could it be that you get to rate hikes but a positive effect balance sheet? >> that is certainly possible. --hink the fed at the moment they don't actually see the reduction in the balance sheet as a primary course, and to some

extent they are pointing the finger toward the u.s. treasury, saying that it altered headmans on what the u.s. treasury is doing. they borrowed a lot at the short end which is putting pressure on money market rates. back, the bigger picture is that the market has read patience forepaws. the balance sheet is not on thatilot so i do think this is sending a very positive signal. it is taking away some of the risks that the fed is going to make a policy error and over tighten and that is what the market has been pricing, that they will make an error. >> we can see that clearly in the market pricing. theave shown this before --

market is not pricing anymore 2019 fed hikes and are pricing in a cuts for 2020. powell's message on friday wasn't that different from his press conference last month, except that he reworked his language to specifically appease the stock markets. a way toon is is there get the bond market pricing closer without completely freaking out the equity market? >> i think there is a way of doing that in the sense that if andthink back through 2017 2018, the market at different points have priced in a rate months,the next three but then the fed has been able to talk it up. so long as the economic data is consistent with some further tightening, then they

can manage that without equities falling off. i do think the, markets have gone well over the top in terms of pricing out any kind of fed hikes in 2019. i do think we are going to see some fed hikes. the payrolls numbers, those kinds of numbers, the fed cannot just stay put with 300,000 jobs being generated and unemployment what they consider to be a natural rate. i think iting said, is quite likely that they will -- one of therch powers of innovation is introducing a press conference for every meeting. >> do you think that if we get those rate hikes they will push them into the back half of the year? i think that in the current

environment where they have seen tightening in financial conditions, one of the important aspects is not just the equity market, credit markets shut down in the u.s. during late november to december. we have seen a pretty significant widening of the cost of credit for u.s. companies. the momentum is still there but i think they need to wait until early summer before they get the next rate hike and that's a part of next year as well. i do think we will get at least two rate hikes during 2019. report, a lot of people are talking about how blowout it was, one of the best jobs report of the cycle.

that is this as good as it gets? >> well, they might have said that even before. we are going to get some potentially significant tax rebates into the household sector as a result of the tax reform and tax cuts of early 2018. that could be $40 billion, $50 billion going into the household sector. that the u.s. economy has a lot of momentum in the first half of the year and it will still be very strong. i'm not sure we are in an environment where we are seeing a significant, meaningful slowdown in the u.s. economy. i think the markets overpriced those. where we are seeing some weakness has been more recently on the manufacturing side, and that relates to global trade,

not in the u.s. economy. you can goeresting, and jobsgtd library data. notes, these goldman's it's the top of the market, and would you agree with that if 12 basisis pause, points on friday, and that did nothing to sustain this dollar. >> that's right, but i think what's going to happen is if we pause, in part of the market reaction will be the real rate will come down in the u.s., with some pickup in terms of normal rate in inflation expectations, in that environment it is hard to see

where the daughter will -- were the dollar will have strength and will rally. i'm not calling for a big reversal, but i do think this sector performed relatively nicely, and it is more in the emerging markets space at valuations on a fundamental basis that look quite attractive. even if the dollar is range bound there is value to be had. market opportunities are one of your big calls. we will discuss that next time. thank you for joining us. david will be continuing the conversation with us on bloomberg radio at 7:30 a.m. u.k. time. coming up, 2018 saw a sleeveless activist moves, including high-profile stakes. that could 2019 shakeup to be a bigger year for activist investors? this is bloomberg. ♪

♪ >> they have given each other 90 days, and we should use that time. very often these agreements are never done early on, but always on the last leg of negotiations, and it's a positive signal that this week at some level of government, there are ongoing negotiations. >> they would quite like to deliver a win, and it is probably possible for the chinese negotiators to offer enough so that they can declare a win. will probably see ups and downs between now and the end of the day. >> this is a very short deadline , so we can't be too optimistic about a whole lot, but it would be nice to see some progress. it's a lot about egos, but

ultimately there's a lot on the table, and that is pushing the two leaders in their teens to find a way forward. >> we are not seeing a collapsing global trade but what we are seeing is companies struggling to find ways around the trade taxes, we are seeing less efficient production and that competitiveness is primarily falling on american companies, because they are the ones that have to pay the trade taxes. >> it will probably take a while before they trickle through into the economy, but we do believe overall that investor sentiment is really what needs to be messaging clear around the trade disputes and over the policy measures is necessary to lift that sentiment back up. >> some of the views coming from the ubs for it. 6:50, this is your

asian equity bid. pboc doing a triple, and you have stocks futures indicated up order, the market consensus is a 7% growth in earnings per-share. enough?going to be you really need a trade deal to put some kind of a floor and perhaps even return to the upside. >> absolutely. mohamed el-erian is asking whether or not we found a bottom. activist investors have said to have taken a share in dollar trade, pushing the american discount retailer to explore ways to unlock more value. this is the latest in a long 2019of big moves, so could shape up to be an even bigger year for activist investors? joining us now, that if european

corporate transformation services. great to have you with us in the studio. thanks so much for joining us this morning. i want to ask you about activism in europe because traditionally it has looked very different to what you've seen in the u.s., but particularly with what we've seen in elliott, do you get the sense that other shareholders are getting more receptive to activist investors in the u.s. and why? activists playtive o it differently in europe. it's an engaged approach which they are taking, not a highly aggressive approach, and if you look at at the contrast with campbell soup, which is quite an aggressive campaign to what they are doing with nestle, they are ripping up the pressure but it is a much less confrontational campaign. u.s. investors are playing the

game a bit differently. i was reading through your report and what caught my eye was age. had he defend yourself as an institution against activists? you said the diversity of the board. what is the bandwidth? --yes, so what we have found we have this model we've been running for two and a half years now which analyzes over 2000 activist situations, and what has come out of that is that activists are more likely to strike if the age range on the board is limited, same on gender. if you don't have gender diversity on the board, they are more likely to strike. it is all about good governance. if you don't instruct the board correctly, you are likely to get more strikes. >> you are talking about how

they are getting more attention. what else, it tension was the timeframe, the short timeframe corporate had before activists intervene in identify the perceived underperformance. you call it a window of tolerance of less than two years. is there a risk that companies do other shareholders a disservice to trying to communicate a turnaround in less time than is needed? >> turnarounds can be quite and often it's not something you do in six months. but what the shareholders are looking for is do they have the confidence of the board? they have to plan, they are communicating their action and implementing it, and then shareholders are likely to say it's ok. it's when they don't have a credibility plan when they are likely to strike. we have seen over the last two years that window come down by

about 20% per year. the difference in time between underperformance occurring and activists striking is getting much shorter. you talk about who's on that target list -- you had 56 companies last year and in the u.k. -- why does the u.k. remain the favored nation for activist investors? because of its attractive legal and governance regime? why is that an attractive factor? >> two things. that there are strong shareholder rights in the u.k. compared to some other countries, which makes it easier call and get to people on the boards, to get shareholders behind them. the other reason is one of the things we found is activists like disruption because

those who sorts out can manage the situation and those who can't. we know the u.k. is in a highly disruptive situation and i think that will attract more investors. >> what other industries might be the targets in 2019? >> the threat would pullout, the industrials -- we are forecasting them is the highest, rising above consumer which includes retail. but a lot of those retail businesses have now gone too far for activists, there's not enough greatness left in them. the third where we are seeing some interest is in telecoms, telecoms in technology, the rumors by telefonica. >> malcolm mackenzie, great to have you with us. head of european corporate

transformation services. now back to the negotiating table. u.s. and chinese officials are set to resume trade talks, stocks kickoff with strong gains. this is bloomberg. ♪

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manus: good morning from dubai. this is "bloomberg daybreak: europe." nejra: these are today's top stories. manus: stocks in asia are on a tear. u.s. and european futures renew their appetites for risk on. but the markets have not found a bottom. and beijing start trade talks today. analysts say china's latest move won't be the last. go untilree months to britain's scheduled the eu. theresa may warns of uncharted

territory and does not like the possibility of a second referendum. >> good morning, everyone. just under an hour away from the start of cash equity trading in europe. let me bring data out of germany. year on year down 0.43%. also worse on the month on month -- 1% month on month. the estimate was a drop in 0.1%. retail sales looking better than expectations. month on month are 1.4%. it is a beats to the upside. an on gain for retail sales year on year. last year pmi cause concern. we had back in on equities

friday of more than 3% across all u.s. benchmarks following fed powell's giving these. talking about listening to markets and also showing patients and hinting a cause could be possible. since aprilest day 2017 for european equities on friday. the gain could continue. dax futures on the front foot. up 0.5%. manus: let's have a look at the bond markets. serious repricing in global bond markets friday led by the united states. yields see it is italian flat at the moment. let's see what comes up. to year government bond yields in the united states. we rallied by 12 basis points. that was the most in four years. we are heading the most overboard in terms of territory for that market since 2000. eight

we are to get six fed speakers this week. powell and clarinet will speak speak.ida will that german data is going to be taken by the market and absorbed as another indication. another potential indication of the flatlining, the negativity around germany and italy. talk to the map. manus: juliette? juliette: it is a very solid start to asian equity trading for the week. the regional benchmark index at one point had its best jump in two months. you have japan closing of the session by 2.4%. at one point it was up by 3.5% on the nikkei index. china closing higher by 0.6%. there is a confluence of factors , what we heard from jay powell.

the cut from china, the jobs report in the u.s., mliv analysts saying fomo buying on the rally. you have optimism ahead of trade talks. dollar aeen the aussie very strong performer today along with the qe i missed that optimism of fed talks between the u.s. and china. we have been seeing strength in the chinese yuan. it is em currencies getting a big boost today. the indonesian rupee has been the front runner against the dollar. we have that oil price laying into things as well. indonesia plans direct intervention in the domestic market. also awaiting the r.b.i. governor to be speaking with reporters. a lot of positive momentum into the rupee today. juliette saly in singapore. speaking of dollar weakness we have seen the power of powell across assets. u.s. equities rally on friday.

the u.s. yields dropping 11 basis points. how far can assets go on a dovish powell? reach out to us and the mliv team on your bloomberg. thelet's get the first -- bloomberg first word news. officials have arrived democrat beijing for trade negotiations beginning today. is the first formal meeting since presidents trump and she mp and xi.tru trump may hold talks with china's vice president. theresa may has stepped up her battle to sway the u.k. parliament to back her deal warning the country will be a look on uncharted territory of the plan gets voted down. the prime minister says she will give parliament a bigger say over future eu trade deal and

will seek reassurances from the eu. more than 200 lawmakers from both main parties have called on may to rule out a no deal brexit, saying it would threaten voters livelihoods. ,> if the deal is not voted on we are to be in uncharted territory. i do not think anybody can say exactly what will be happening. >> president trump says he is now planning a steel barrier rather than a concrete wall. he has renewed his threat to invoke a national emergency as a way to circumvent congress. he says that will depend on what happens in ongoing talks to end a government shutdown which is now in its third week. democrats have threatened a legal fight if trump tries to declare a national. -- national emergency. 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. u.s. trade negotiators

are in beijing for a new round of talks with both sides aiming to reach a deal before the 90 day treaty ends in march. the u.s. has accused china of forcing american companies to share sensitive technology and stealing intellectual property. nejra: another concern is huawei. the company has denied claims by the u.s. and allies of facilitating state sponsored espionage worried -- espionage. has raised the ire of the white house. trade tensions have disrupted what should be a sweet deal for the countries. naturalbecoming a major gas exporter while china has emerged as the world's biggest buyer. another commodity this

year is investors will be watching to see if china removes retaliatory tariffs on u.s. farm products that severely hurt america's heartland. an ongoing concern has been auto tariffs with china scrapping a retaliatory tariffs on vehicles imported from the u.s. at the start of the year. our chief asia correspondent is standing by. good to see you. what are we expecting from trade talks? tier guns. mid is that a good way of looking at it? >> i think it is fair. no one expects a final breakthrough deal to come out of these talks. the mood be key is if will be positive enough to progress these talks to the next there will have to be a return trip in washington. don't forget, we are heading

into davos with president trump taking the global stage. there may be an opportunity to meet with chinese officials there. whethertakeaway will be or not talks remain on track and if they are willing to go to the next level or if they run into something. that will be a damper on sentiment. it will depend on the kind of commentary we hear over the days ahead. speaking of stumbling blocks, and we have shown 17 issues that need to be resolved. which of those are going to be the most difficult to resolve? >> you have to look at the structural side of it. china is going to buy more u.s. goods, they have made that clear in the past. they may even be willing to open up their parts of their economy. the thorny end is going to be china's economic and industrial

ambitions to create this world leading technology driven economy with a lot of help from the state. the u.s. has concerns around that. the other issue as well is the whole area of promise fatigue. china has made promises before about opening up markets and allowing foreign competition, only to renege or not deliver. one of the key differential points for these negotiations is whether or not there will be a tangible list where progress can be made in terms of whether congress is delivering. the fact they are talking seems to be positive. there's a lot of ground to become her before we get to it -- ground to be covered before we get to the deadline. manus: our chief asia economics correspondent in hong kong.

that's the state of play on the day. peter, happy new year. good to see you. markets are being pushed ahead by the pboc and powell. let's deal with the china story. a triple are cut. does that poster -- bolster the you expectina, or do more policy response? >> the have done a lot. tax cuts directly which they have not done in the past. beenonsumer, which is not particularly bad last year. it is more of an industrial story. the stock market story has reflected lots of bad news. it has been pretty messy. was going toy what happen with the fangs last year. that momentum has come out of both parts of the markets.

in china there are cheap stocks. negativelyrs are not disposed. that is a positive for the asset class more generally in emerging markets. it is a broader statement about emerging markets, not just china, if we are at that point. nejra: you mentioned china but you also mentioned faang. i'm going to tie the two together. when we got concern about apple, concerns about slowing china because of trade, but also prices being too high on iphones. what people have ignored is tied to credit. consumer lending. is that something we are under appreciating? >> the credit story this time last year was fading. that has been happening for 12 months.

the apple story is slightly erroneous. a slowk blaming turnaround is just more competition. who are we kidding? how many people are there? 1.4 billion? we are not at phone. -- peaks smartphone. this is a big economy. growing at 10% is not realistic anymore. themanufacturing sector, consumer sector, had a slowdown starting this time last year and it is responding to that. you cannot say it is a negative. it is a positive in that sense. the trade talks are putting trump front and center, make a deal. the fed has said, we will be more aware of what is happening. interesting where we are set.

regardless of who you feel is right or wrong, there is more pressure to come to a deal. manus: tesco's is 2-for-1. would you buy apple? i'm going to show you some chinese tech. possibilities?t would you buy chinese tech? >> i don't think so. are you asking 10 years or one year? i would not. they are very different structure. all the companies are led by alibaba. things underneath. they behave like private equity investors. long-term investments in that sense, -- they are very large platforms. i think they are interesting. apple is more like a utility stock now. there is no innovation. have they innovated?

not really. the ecosystem id is great, but look at what we chat just did. they could remain strong in the developed world, america in particular. maybe they will do what everyone does. they're going to make some big deal because they think content is key. of 10 billion, have got to grow that one over that one. that is a egg long-term trend. it is going to take a lot longer than the next 12 months. nejra: lots more to discuss with you. embark group cio stays with us. weber says markets are being too bearish. this is bloomberg. ♪

nejra: 7:18 in london. we are just over 40 minutes away from the start of equity trading in europe. manus: it is just on 11:18 in dubai. nejra: let's check on the markets. we have a rally in asian equities. the topics of 2.8%. u.s. equities gain across all three benchmarks following that standout jobs number and comments from jay powell. u.s. futures points to more gains today. wti on a tear headed for its longest rally in more than 17 months. manus: the dollar down. 50 higher, up 0.5% -- and you've got cable. i think that is more to do with dollar weakness. it is nothing to do with theresa

may's uncharted territory statement. that is a dollar story, not a sterling story. let's talk about pessimism. it is overdone. that is the view of ubs group chairman axel weber. he spoke exclusively to him bloomberg on the sidelines of the bank's greater china conference in shanghai. >> the market in my view is a view of the economy. the market is doing well. there are difficulties we need to watch. overall, the sentiment is not as good as it should be. we are still in a favorable growth environment. by mostms overshadowed discussions. >> what is the environment in shanghai as you speak to all of these people and companies in china? starting panel with

janet yellen. we talk about the state of monetary policy. monetary policy and the retreat of monetary policy because of , theed raising rates european central banks program, those are all events that have changed with the global economy was driven by the last couple years. market appetite used to that. that adjustment -- markets have to get used to that. markets continue to be responsive to economic situations. the economic situation is cooling off. there is less seven upswing as we might have seen last year -- less of an upswing as we might have seen last year. we still have relatively good performance on trade. it is setting the stage for future collaboration between major economies rather than

already embarking on some confrontation. there are some ongoing discussions. i think we are in an -- in a good place. >> do you think the fed should call off rate hikes or change the timing of increases? on hadeconomists early already penciled in a pause for the fed in the last quarter of last year. which did not happen. some of the impact of the trade dispute has been less frontloaded than was expected. the first half of this year for the fed to look at the data, to be data dependent. since inflation is not a major problem yet, the fed can take it in stride. i think they will be cautious first half of this year to really look at the data.

i think that will lead them to a pause in the march meeting. i think it is unclear what the second half of the year will bring. the markets got a bit ahead of itself with the expectation there might be rate cuts on the horizon. dynamic,e economy less but we do not seem any likelihood of a recession. we see less rate hikes in the future, but not a change of direction. nejra: that was axel ever speaking to bloomberg at the china conference in shanghai. u.s. stocks gained after jay powell hinted the fed may be open to a pause. we are asking the question, how far can assets go on a dovish powell?

reach out to us and the mliv team on your bloomberg. the embark group cio is still with us. let's maybe focus on one asset. equities, for example. another way of asking the question is whether the equity market has found a bottom. how far can the rally go on the comments we got from jay powell? >> last year was reversing years of positive stimulus. you are getting a lot more noise. you break the momentum in the faangs. ,he mid-cap, the faangs everything. the likes of the faangs are probably in a bear market. unsurprising this is unwinding .

you have cheaper assets in emerging markets. mr. weber is relating fundamentals with asset prices. that is not always the case. bank of china just started the process of putting that back in. it does not imply the end of rate rises. the argument has to be still more noise. you cannot pretend the u.s. stock market is cheat at this point -- cheap at this point. have a look at this. this is the s&p 500 going back all the way to 1950. we have these moments where we nearly make it to bear market. 19.9% inropped by three months but it was gone in four months.

do you think we are going to see more volatility given the earnings season we are about to go into given apple's curtain raiser? >> i was looking at this chart last week. we still have not broken that 200 day 60 your chart. everyone knows the level. that is roughly the number to break the thing in half. to sit here and prognosticate and say it's all over is very dangerous. the reality is it is not. it goes back to the right cycle. europe has not even had a right cycle. japan has not managed to lift them since 1995. a lot of the world has no interest at all. nejra: the yield stay suppressed. thank you so much for joining us on the program. that is it for daybreak europe.

next.berg" is up manus: nejra is off to radio. ♪

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anna: good morning, welcome to "bloomberg markets the european open." today the markets say by stocks, sell the dollar. the pboc and the fed stoke optimism under the looming threat of trade talks and the u.s. government shutdown. cash trade is less than 30 minutes away. anna: stocks in asia are on a