manus: good morning from dubai. this is "bloomberg daybreak: europe." i'm manus cranny. nejra: i'm nejra cehic in london. president trump's steel tariffs on brazil and argentina send asian stocks lower. companiests at u.s. as the december 15 deadline looms. it could be an awkward meeting between trump and the president in london today as the president bemoans tariffs on products from the nation. don't miss our interview ahead of the nato summit. fed for thought for the after the fourth straight month of contraction.

at the ecb, christine lagarde says the central bank will be resolute on inflation. manus: we kick off "bloomberg daybreak: europe," waiting to hear exactly what the list of unreliable entities are from the chinese back to the u.s. alive and well against argentina, brazil, france. that is the market angst in global trade. it is not going down. if anything, we are ratcheting higher. man back at it, and this is the first time president trump has explicitly tied tariffs to currency issues. we sigh risk on session yesterday and that started to

sour in the u.s. on the terrace risk and on the factory data out of the u.s. after optimism around china. manus: of course, you are quite right. interesting how his view on currencies -- the bloomberg john, "crazy from like a fox" in terms of understanding how currency markets move. the backs rose on a of issues. socgen says the fed will cut 100 basis points year and the u.s. faces recession risk, and you may see yields drop to 1.2%. bloomberg say if you see a drop off in the yield down at 1.6, you go short with a target of 2.25%. they say the u.s. economy is in a healthy space. if you want to understand volatility, look at this. the biggest one-day

ratcheting volatility in the u.s. market since august, because you are seeing that concern about manufacturing and the rest of the world. index,got the dollar traded below the 100 day moving average yesterday. the dollar just manages to recover this morning. socgen face-off on treasuries. convergence in equity markets. read on the screen in asia. yesterday, the s&p 500 dropped the most in almost eight weeks. are seeing a recovery in u.s. futures today, the emerging from the asian session. concern around the tariffs and data out of the u.s.. aussie, the best-performing g10 currencies in today's session. the rba stays on hold but talks about risks receding and says rate cuts are having an impact. is the market going to reprice

on the prospect of more easing? manus: well, there's one clear theme this morning, between the rates of central banks and the trade angst. our top story is trade and tariffs. mr. trump has reinstated tariffs on brazil and argentina's steel and aluminum, linking his trade agenda with another thairade against the latin american countries. alternative suppliers of agricultural products to china amidst the trade war. let's listen to what the president said soon after landing in london for the nato conference. brazil has really discounted -- if you look at what has ,appened with the currency they've discounted the currency by 10%. argentina also. i gave them a big break on tariffs, but now i'm taking a break off.

nejra: joining us, the senior currency strategist at cba europe. good to see you, first of all. thes focus for a minute on fact this is the first time president trump has linked tariffs with fed action and currencies. we know he has been calling for a weaker dollar. does that change your strategy at all in terms of how currencies might move on the imposition of tariffs and trade wars? >> he didn't specifically call but a u.s. dollar, complained about the currencies in brazil and argentina being overvalued, which to a degree is correct. in the real exchange rate, the peso have been. limited currency market implications from that or financial market implications. a bigger deal in terms of what matters for currency is whether

the latest -- the passage of the hong kong democratic law -- from a bill into a law will derail or jeopardize the prospect of a phase one u.s.-china trade agreement. so far, the retaliatory measures from china do not appear to lead to a derailment of this initial trade agreement, so this is still relatively supportive for the global growth backdrop but things can change and by the 15th of december, the u.s. will raise tariffs on the rest of the chinese exports to the u.s. and aat could probably lead to more destabilizing negotiation process between the countries. manus: that is what wilbur ross intimated on the fox news program. when i look at the map this morning from gmm, what we have here is a stoicism in the high

delta currency, in the aussie dollar relative to the equity story. that goes back to the central bank credited -- rhetoric, stronger rba this morning. currencies are fairly stoic in the face of the trade angst overnight. elias: that's right. the australian dollar had its own -- its own factors pushing it higher, particularly more constructive rba, but the fact it is pulling above 67, the same with the new zealand dollar, firm despite the uncertainty on the trade front, it has been in a relatively tight range the last few weeks. until we have clarity with respect to where the phase one u.s.-china trade will take us, i believe those cyclically like the currencies australian and new zealand dollar will remain range bound and it will be difficult for

them to sustain their latest upswing. becauses there a risk, as we head to the prospect of a phase one deal and ask whether we will get a pause of tariffs or a rollback, president trump takes another tack with china, and i want to come back to the currency war because you criticized argentina and brazil for cheapening their currencies. is it a risk in your mind that even while trump may pause tariffs on china, he starts talking about the u.n. and we start seeing that affected? that is certainly a risk that -- i believe the treasury has now put china on the list of the currency manipulators. it is certainly a weapon the u.s. can use if they really want to turn the trade war more nasty, and that is certainly something -- it is a big risk to the global economy going into 2020, but at this stage, it looks encouraging.

the big headwinds to global growth in 2019, this intensive vacation in trade tensions looks to be easing going into 2020. risk to some upside global growth in 20 20th trade tensions don't worsen. green chutes -- if things do get marginally better into 2020 from the growth side, how do you want to be positioned? is it -- dare i say it, is a short the dollar? is it shortly and? -- short yen? how do you position for that flourish? elias: if we have a positive surprise to global growth, i would be comfortable being long the australian dollar against the u.s. dollar. same thing with the new zealand dollar.

all these growth sensitive currencies will outperform most major currencies, including the u.s. dollar. nejra: pc a weaker dollar for 2020, then. is that something you would position for now or advise people to take positions in or is that a story for 2020? elias: that is a story for probably the second half or beyond q1 of 2020. if we start to have a stabilization on the trade probablyfront, the fed delivering a bit more rate cuts than what is anticipated. these will be some of the factors weighing on the u.s. dollar beyond q1 next year and would give a good opportunity to see those cyclically sensitive currencies outperform. , stays with haddad us. to the agenda, live in london. the navajo summit -- nato but that0th birthday,

was before three key players began questioning the foundations of the alliance. macron's recent criticism has ruffled feathers within nato. the french president has said the alliance was "brain dead." the question is if he risks pushing other countries too far. nejra: he's already traded barbs with turkey. european leaders have to choose between endorsing some of erdogan's policies in syria or seeing more refugees make their way to europe. >> mr. macron, i call on you from turkey and i'll say it at the nato summit too, you should get checked whether you are brain dead, kicking turkey out of nato or not, how is that up to you? do you have the authority to make such a decision? manus: on top of this, the u.s. has proposed $2.4 billion in tariffs on french goods in response to the tax. macron said trump will meet

today. maria tadeo is in downing street for us. macron has ruffled quite a few feathers in the run-up to this meeting. what is his strategy? maria: that's right. today should be, in principle, a happy day. of one ofnniversary the longest standing military alliances, but there are so many points of friction and one is emmanuel macron who said nato is "brain dead." he said there is no strategic vision and questioned one of the most fundamental basic principles of nato. there is the continuing spat with erdogan where the two men were trading insults.

macron who should get a medical check to see if he is brain dead. macron never said turkey should be expelled from nato, but was critical of his incursion into syria. the problem for the europeans is the same. turkey's key strategic location for the eu when it comes to the migration. we expect today when emmanuel macron and erdogan, johnson, and merkel meet on downing street, he will ask for more money on his syria policy, which is becoming more difficult for the europeans and expensive. add to this the trade tensions, the u.s. considering the idea of imposing more tariffs on friends -- france. emmanuel macron has many issues today focus on. nejra: exactly. so that might be a discussion on the sidelines between president trump and emmanuel macron. president trump has been critical of nato repeatedly, but he's now not the only one, so how are all those tensions going to play out this week? he's always said the u.s. should not be paying for what he describes as the rich countries.

there is always the criticism of the 2% target that many countries that belong to nato do not comply. if you look at the tweets thenight from trump, language is more diplomatic than other rotations and he has now taken credit for the increase in spending from many nato countries. we understand today that the u.s. is not going to focus so much on spending, but they are going to target china and they are going to talk about technology and 5g. this is something that creates tension between the europeans and the u.s.. the u.s. wants to push for the veto of chinese technology. the europeans do not want to go there, but this is something that for the u.s. is critical, to make sure they tame china. you have to see this in the context of the trade war. nejra: maria tadeo at westminster, covering nato. don't miss our interview ahead of the nato summit at 1:00 p.m. london time. let's get the first word news with annabelle droulers in hong kong. well, in washington,

a gop report says investigation into president trump failed to establish impeachment offenses. it paints a picture of "unelected eurocrats disagreeing with the president. the democrats will release their findings this week ahead of the judiciary committee's public hearing. the european union is gearing up for the world's most ambitious policy against climate change. to cutcks leaders are net greenhouse gas in missions to zero by 2050. the eu is also considering taxing imports from countries that fall short of environmental standards. in the u.k., the labour party is ratcheting up its attack on big business. it is singling out five companies it says are some of the country's worst employers. havese amazon and uber exploited, ripped off, and dehumanized their workers. criticism ate same

outsourcing giant iss. in hong kong, carrie lam is pledging or release measures as ongoing unrest continues to hit the city partial economy. she didn't elaborate on what measures would entail, saying there would be -- they would be targeted. she declined to answer questions on whether she considered meeting for the protester demands. 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. manus: thank you very much for the roundup. coming up on the show, staying resolute. christine lagarde is determined to restore inflation under her tenure. more on the story. nejra: and when traveling to work, tune in to bloomberg radio live on your mobile device or dab digital in the london area. this is bloomberg. ♪

nejra: this is "bloomberg

daybreak: europe." i'm nejra cehic in london. manus: i'm manus cranny in dubai. juliette saly is in singapore. manus: certainly the latest trade news weighing into market sentiment in asia. and wef once again ignored the positive movement coming to her yesterday, wiping that away today. 2%, the worstn day in two months for australian stocks. they had been trading. with a record. hong kong, holding up ok because of carrie lam pledging fresh measures for the city after terrible retail sales yesterday. the nikkei, closing weaker. a pickup in yields on the 10 year following the global bond selloff. for the 10 auction year in japan since august 16. rba left rateshe on hold at .75%.

we had a hawkish commentary coming through from the governor saying global risks have les sened and interest rate cuts are having impact. a 50% chance on the bloomberg we see another rate cut from the rba when they need february of next year. you've also got the gdp number to look at tomorrow, and we are expecting a slight pickup in the third quarter to 1.7% growth year on year. manus: juliette saly in singapore. let's turn to the ecb. christine lagarde says the central bank will be resolute in priceing eurozone stability in her tenure. she said it will be wide-ranging including climate change and inflation. accommodative policy stance has been a key driver of domestic demand during the recovery, and that stance

remains in place. in the ecb's forward guidance, monetary policy will continue to support the economy and respond to future risks in line with our price stability mandate, and we will obviously continuously monitor the side effects of our policies. manus: christine lagarde was speaking at the european parliament's economics committee in brussels. elias haddad, senior strategy at cba europe is still with us. had a debate at what christine lagarde will attempt to do and i am seeing more notes about rate cuts from the ecb next year, which almost is in contrast to the intimation we have had into the run-up of her accession to the top. what do you make of the debate? elias: to see the ecb turn more inressively loosening

monetary policy, we need to see a worsening in eurozone activity and right now, that is not happening. industrialturing production, especially germany, is starting to turn around. this week, we are having the factory orders and industrial production data out of germany, and the year-over-year contraction in both these numbers are expected to ease, so if we continue to have this --rovement or this lessening as long as manufacturing activity does not worsen in the eurozone, the ecb will be quite comfortable in keeping monetary policy on hold for the time being. their review they have a specific 2% inflation goal, is that going to lift inflation expectations in the eurozone or will it take more than that? elias: it will take more than thatelias:. the ecb already has an unofficial target. this monetary policy

review will be very interesting, and it could take a long time. we will probably not have the result for another year. the fed has started their own monetary policy review last november and are not expected to give the result until the first half of 2020. it will take time, but the immediate implications for the euro and eurozone financial markets are probably limited, but it is important because a lot of times, -- the last time they reviewed the ecb was 2003 and monetary policy has changed significantly with the use of unconventional easing. the ecb will review everything from the price target, will they continue to target consumer price index, and the tools they primary to get to their objective, which is price stability. that het is interesting says himself, ruling out

integrates -- helicopter money absolutely not. --y will review possibly revisit the definition of price stability. one thing that did catch my eye, where the currency goes next. we are seeing volatility in the euro. did spikes, albeit a tiny amount, but 17%. -- let's look at the chart in the gdb library. -- gtv library. the volatility index trending at its lows, but the spiking euro does that continuing to 2020? what drives volatility in the euro? elias: it is certainly all about relative monetary policy. the big spark up in volatility here is this increase expectation for the fed to turn on the monetary policy tap

following the poor manufacturing isn yesterday. recession in the manufacturing sector in the u.s. has deepened. the created a jolting volatility and the ongoing trade tensions, bech doesn't seem to concluding any time soon. we still don't know when or if and where the u.s. and china will sign this famous phase one trade deal. all of this uncertainty is causing a lift in currency market volatility. nejra: elias haddad, senior currency strategist at cba stays with us. we are seeing erdogan speaking in ankara, saying russian relations are not an alternative to other allies and that nato needs to be updated. he says turkey expects solidarity from its allies in nato.

he heads to the nato meeting in london this week. he has already exchanged some barbs with president trump ahead of that meeting. for traveling to work, tune in to bloomberg radio live on your mobile device or dab digital in the london area. this is bloomberg. ♪

manus: "bloomberg daybreak: europe," i'm manus cranny in dubai. nejra: i'm nejra cehic in in london. let's get the latest first word news with annabelle droulers. annabelle: chinese state media says the government will publish a list of unreliable entities. it could lead to sanctions against u.s. companies and is assigned trade talks are under pressure as washington and beijing spar over politics. beijing has threatened to publish the list since may after the u.s. put restrictions on huawei. backs,heese, and hand some of the french products that could face tariffs from the u.s.

thisngton is considering in response to tariffs on tech companies that have hit google and amazon. robert lighthizer says the tech tax unfairly targets american companies. in australia, the central bank is keeping interest rates unchanged as three cuts since june look to be injecting new life into the property market. ofraises the prospect improved household spending but the rba's final meeting of the year's ease policy makers no closer to revising wage growth and inflation. isope's finance chief calling for a new anti-money laundering agency after wave of scandals across the banking industry. the current system is vulnerable because it is a long national lines. leadsdinated response to a revamp of the system. 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.

thank you very much. unicredit is delivering buybacks. 2 billion euros of buybacks between 2020 and 2023. the payout, he prefers giving back in plenty rather than looking for deals. raising the capital distribution to 40%. it includes a 30% dividend and 10% buyback for this year, and forward guidance on revenue. for 2023 was 19.8, it is 19.3. buyback, so it a is all about cash on delivery. let's talk about america's most-watched surveys, pointing in different directions in november. annmarie hordern on the two roads that emerge. diverge.he verge --

isn, contracting for the fourth straight quarter while the pmi number by ihs shows an expansion for a third straight month. when you look at the spread between the two, this is ism shown weaker than the other, weaker since august. some say we see weakness in general. the markets embraced more of a bearish survey from ism. dow all nasdaq, and ended in the red yesterday. nejra: before we get to the guest on the data, we've got a couple more lines from unicredit. you were taking us through a lot of the numbers in terms of the plan. you talk about the share buyback, 2 billion euros of share buybacks over 2020 to 2023. unicredit, also planning about

8000 job cuts in 2020 to 2023. that is the latest line coming through and we will bring you more. elias haddad is still with us. we've got information on the diversions on manufacturing. arlier, you said you expect weaker u.s. dollar in 2020, particularly the second half. on your outlook for the u.s. economy moderating or slowing further from here? elias: that's right. it is also based on the expectation the fed will deliver more interest rate cuts than what it has discounted by the market. there were already some warning signs out there that the u.s. is probably behind the curve in stimulating economic activity and making sure inflation gets back to target. if you look at the signal from the manufacturing data, before i get to that, the two big concerns from the fed is global development and muted u.s.

inflation, so the manufacturing data we had that came out yesterday suggests global development remains -- will continue to be a concern for the fed, meaning the fed will -- loosen monetary policy further. at leading indicators of business investment and it shows business investment is on the verge of contracting. right now, it is currently slowing and add to this inflation expectations whether you look at market-based or survey-based measures of inflation expectation, and they are slowing. this will leave plenty of room for the fed to deliver more rate cuts into 2020, and that is one of the big reasons why we see the u.s. dollar weakening in the second half of next year. manus: can we did a little deeper on that, on the data front? we were seeing the differential between ism and pmi.

pmiin the u.s. versus the -- the pmi in the u.s. versus china. this is something we should focus on. this also builds the case that slowdown or recession risk in the u.s.? is it a topic that we will revisit more aggressively on the back of this kind of data? elias: i don't think it points to a recession. i think the new york fed has their own recession probability indicator, which is based on the yield curve, but three month, 10 year yield curve. ofsuggests a probability recession in the u.s. over the next 12 months is quite low, under 30%. what the poor manufacturing in the u.s. tells me is the fed will need to cut interest rates

a bit more aggressively than what is currently anticipated by the market, and also what is anticipated by their own dot plot, which essentially has interest rates on hold until 2020, right? manufacturing has caused concern in the past 24 hours, but then people who talk about the strength of the u.s. economy keep pointing to the strength of the u.s. consumer. they say look, we know global manufacturing is in the doldrums. that is not a new story, but look at the u.s. consumer. does that not give you more faith in the u.s. economy? elias: the consumer is doing the the bigit is one of of drivers of u.s. economic activity and we will see the job numbers on friday support consumer spending activity in the u.s., but you are starting to see some big headwinds that could offset some of the supporting factor from consumer spending, particularly on the business investment side. durable goods ordered in the

u.s., and you are pointing to business investment shrinking over the next six to 12 months. that is a bit of a concern and could remove tailwind from consumer spending. an interesting 24 hours in terms of what the word is. jpmorgan says defensive trades get hurt like in 1995, 19 99, 2012 and 2016. the question is, are you still in a midcycle thinking? if we are coming off a midcycle moved by the fed, defensive trades get hurt next year. what does that mean in the currency space as a currency dynamic? elias: if the fed starts to or is behind the curve and catch up with more aggressive rate cuts, i would expect, at least this would be supportive for global economic activity and i would expect the

commodity sensitive currencies to do particularly well against the u.s. dollar in this type of environment. nejra: you seem hopeful about global economic activity in 2020, but see the fed cutting rates. that makes me a little confused about where you would see 10 year treasury yields next year. we highlighted the discrepancy, the difference between socgen seeing a 10 year yield at 1.2% next year, bluebay says get the shorts on. where is the yielding 2020? elias: 10 year will probably be around -- below 2% and the reason is you have the inflation expectations component of 10-year gilts that continue to be -- yields that continue to be a drag to 10 year. term premium is still negative. term premium is still negative. these are two big factors that way on treasury yields. manus: thank you very much for being with us this morning. the bigt back to one of

equity stories. there are two at play, but they are thematic. on the unicredit side, 8000 job cuts planned between now and 2023, all part of the attempt to ship grasp on turning the around and return the equity of 8%. they are targeting a 12% growth between 2020 and 2023. the other red headline from gam, much under pressure asset manager in switzerland. it ties together the pressures coming through on the asset management side and on the bank side and on gam, saying they will cut the workforce by 14% in a revamp. in aajor headlines -- 40% revamp. it will play across sentiment. nejra: coming up, repo market worries. prompt a fireons sale this month? strategists think so.

traveling to work, tune in to bloomberg radio live on your mobile device or dab digital in london. this is bloomberg. ♪

manus: it is "bloomberg daybreak: europe." i'm manus cranny in dubai. nejra: i'm nejra cehic in london. in normal times, wall street doesn't pay attention, but there could be tremors across the banking system. december may see the chaos that struck the financial hub two months ago. with more is dani burger. how much worse could it get? dani: we see investors continue to be concerned this month will see a squeeze in the recall market, prompting a fire sale. a recall is a short-term loan. you get one party that lends out cash in exchange for government debt. as soon as the next day, that is

bought back at a higher price. this is basically a lubricant for the financial system. deals --ds, brokerage dealers use it. toward year end, you see the funding process get squeezed. it is during seasons of illiquidity. cash payments that bring cash from the banking system. aeasury settlements prompt rush for scarce reserves, and we see banks pull back from the system as the year comes to a close, especially with europe. a surcharge is based on their footprint at the end of the year, so at this time, they want to start downsizing. is nothing new and we see your rent squeezes, but we have seen recent spikes in the repo market rate, which suggests some big banks have become increasingly wary of playing market facilitator. if you look at what happened in september, the fed was forced to boost short-term liquidity for

the first time in a decade. the risk looks contained for now, but analysts warn a jump in rates again this month might cause a repo dealer to default and if that happens, we may see money funds dump treasuries they are holding as collateral. that would be the fire sale the car possibly drag down the greater market. manus? manus: some pretty good lines. dani burger, with the latest on illiquidity issues in the u.s. let's get to the business flash with annabelle droulers in hong kong. annabelle: europe's finance chiefs are calling for a new anti-money-laundering agencies after a wave of scandals across the region's banking industry. the current system is vulnerable because it is largely among national lines. a coordinated response leads to -- opens the door to a revamp of

the system. cyber monday hit a record -- record with u.s. shoppers spending $9 billion online. it is a boost to an already robust holiday season, but the total fell short of some estimates. online shopping could hit about $135 billion this holiday season despite a shorter gap between thanksgiving and christmas. green, the first to pledge illumination of all byenhouse gas emissions 2050, the most ambitious goal yet to align with. clinicals. . the giant will reinvesting clean energy -- reinvesting clean t in cleanreinves energy. manus: australia central bank kept interest rates unchanged, in line with market expectations from economists.

the hold comes as three cuts have been seen since june. they've injected a into the property market, raised the outlook for household spending at home building. the rba's final meeting of the year sees policymakers no closer to reviving wage growth and inflation, trends that have plagued central banks worldwide. elias haddad is the senior currency strategist at cba europe. you've already touched on the aussie this morning, but i want to date a little deeper because the japanese are going for a stimulus package -- a couple of weeks ago, we thought it was going to be half this size. what do you make of the stimulus package from the japanese? is that something that is going to grow and grow in terms of trends for 2020? elias: i think the stimulus package is equivalent at this stage to 5 trillion in extra stimulus for the upcoming fiscal year. .7, .8% ofghly

japan's gdp. this at least reduces the risk of more aggressive easing from the bank of japan. to an extent, this is relatively supportive for the japanese currency. it goes along with the theme we are starting to see building where a lot of g10 countries are starting to announce more fiscal stimulus. from thet releases individual eurozone countries suggest the eurozone fiscal stimulus in 20 is going to be in so aange of .3% of gdp, little under 2019, which is .5% of gdp. new zealand yesterday said they would bring forward infrastructure investment from 2021 to 2020, so these are positive because at the end of the day -- and this goes back to the rba -- if push comes to shove and the rba fails to

achieve their inflation target, the market narrative is the rba will have to undertake unconventional monetary policy bettery in 2020, but a tool to really cushion economic activity and lead to a pickup in inflation will be fiscal policy, increased fiscal spending. this is a big theme that central banks are urging governments to undertake. this is a bigger bang for your buck in getting the economy and inflation on target. nejra: some of the commentary in response to the rba today is saying the market is going to start pulling back on those easing bets. the market is pricing in a more than 50% chance of a cut at the rba's next meeting in 5 -- february, but some say the markets will pull back on that, providing support for the aussie dollar. if i understand what you said a

comment you think the rba might need to cut further and even bring in qe, which should weigh on the aussie? elias: it is a risk. our base case is for the rba to cut interest rates in february next year. risk isreason i see the for more aggressive easing from the rba is it is still a long ,ay from getting unemployment the equilibrium level of 4.5%. unemployment in australia is over 5%. plenty of labor markets left and that means wage pressures will remain muted in australia. gdp growth is not expected to return to trend, 2.75%, before the end of 2020. you still have all this slack left in the australian economy that suggests inflation pressure continues to be muted, leaving some room for the rba to cut rates in february.

i believe that is priced in from the market, but you cannot rule out the risk of more aggressive easing via quantitative easing. interesting, the comments this morning. risks to the global economy have lessened recently. a turnaround in the property market in sydney and melbourne. a theme we are exploring is fiscal stimulus in 2020, so we amalgam together, we touched on $90 billion worth of stimulus from japan but if i look at the yields moving higher, we are seeing bond markets react, selloff on the back of stimulus prospect 2020, and therefore this chimes with your team, which -- theme, which is a lower dollar and higher g10 currencies. if you look at this smorgasbord of currencies, where -- will yields come into play for real

in 2020 one we trade fx? elias: i think the key in terms of the big driver for currencies on the relative monetary policy front is to look at the real two-year interest rate differential and also nominal, but real two-year interest-rate differential has quite a big current -- correlation with currency. point, real -- or if you look in nominal terms, these are headwinds to the g10 currencies outside the u.s. interest-rate differential continues to be a supporting factor for the u.s. dollar, but as we move into 2020 and interest rate expectations start to shift against the u.s. dollar, that is when we see the rest of the g10 currencies outperform. nejra: which out of the g10 will outperform most on that measure you just talk about? favor theould

currencies that have a favorable balance of payments actual and the most undervalued. australiange, the dollar looks reasonably good because the balance of payment is fantastic. i think overnight with the australian recorded second consecutive quarterly current account surplus. that suggests in case things turn ugly on the global growth front, australia is not too dependent on foreign savings to recycle their external deficit. that is quite positive and from evaluation perspective, australia is relatively cheap relative to the terms of trade, for instance. these are some of the metrics i look at beyond the relative monetary policy stance to guide the currency performance into next year. nejra: that makes sense because you see the aussie dollar holding up, even though you said there are risks of further easing from the rba. elias haddad, senior currency

strategist at cba europe, thank you for being our guest hostess our. post thistrump is -- hour. president trump is in london and maria tadeo has all the details. a fair amount of barbs ahead of the summit. 70th anniversary. what can we expect? a: nato is trying to show a united front, but we see many points of friction's going into this meeting. president trump, in the context of the trade war, is trying to morehese countries to pay on military protection and get them to move away from china. we have emmanuel macron who has said at this point, nato is pretty brain-dead. there is no strategic vision behind the alliance, and erdogan too has created a lot of tensions because of the purchase of russian military equipment.

he is trying to play it both ways and it is unclear the conclusion we will get from this meeting. -- amount of attention attention we are seeing from so many directions. will be ana, it electric atmosphere behind you in number 10 downing street at the nato summit. maria tadeo, in the heart of westminster. coming up, a conversation everyone wants to tune in or. jens stoltenberg ahead of the nato summit. that is 1:00 p.m. london time. the nato secretary-general. betweennd a discussion president trump and emmanuel macron that might happen on the sidelines related to the digital tax france has been talking about and president trump talking potential tariffs on french goods. we got the french junior economy minister coming through saying no need to retreat on the digital tax. the junior economy minister, speaking on radio. bloomberg users can interact with charts used using tv

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>> good morning from bloomberg's european headquarters in london. i'm nejra cehic i. manus: i'm manus cranny, live from dubai. this is "bloomberg daybreak: europe." these are your top stories. president trump's steel tariffs on brazil and argentina send asian stocks lower. atnwhile, beijing hints sanctions against u.s. companies as the december 15 deadline looms. tax backlash. it could be an awkward meeting between trump and the french president in london today as the , tariffs, some

$2.4 billion on products from the nation. don't miss our interview with jens stoltenberg ahead of the nato summit and a big revamp for the strategic plan at unicredit. we will see 8000 job cuts, 2 billion euros of share buybacks. we are live to rome this hour. nejra: welcome to daybreak: europe. cpi data coming through from turkey after we got softer than expected gdp data yesterday. on the cpi front, we are seeing year on year a touch weaker than the expectation of 11%. 10.56%, the core cpi year on year comes in at 9.25%, the expectation was 8.9%.

we are seeing double-digit inflation for turkey, perhaps limiting the central bank's ability to continue easing with lower interest rates. the current central bank governors so far is 1000 basis points of easing. turkish inflation, bouncing back to double digits in november. what we are digesting today is tariff man back with a vengeance when we look at president trump looking at steel tariffs on latin american nations and explicitly linking that the currency, complaining about currency devaluation from brazil and argentina. manus: maybe we are underestimating the proclivity for tariff man to strike substantially going into 2020, $2.4 billion potentially on the likes of champagne and handbags and france. that may be is not so much a new risk as we just need to be vigilant of those risks. let's talk about the bond

markets. there is a great debate. socgen says we will have a recession, the fed cuts by 100 basis points and yields dropped 1.2%. that is one side of the bond board. on the other side, jpmorgan saying yesterday, midcycle, 1995, 1998, defensive traits run out of steam. toy see yields rallying back .02%. bluebay says if you get to 1.6%, it is time to reenter short on the upside. german bunds lower 10 basis points this morning. you are seeing those markets drop a little bit. nejra: if we look at equity futures, under an hour from the start of cash equity trading in europe, we are seeing them on the front foot, which is interesting because we seen weakness in the asian session. yesterday, the s&p 500 had its

biggest drop in eight weeks on concern around tariffs and the u.s. manufacturing data, the ism causing concern but u.s. looking positive and european futures doing the same. interesting given the concerns in the market and risk on yesterday. let's check on the markets in asia. juliette saly is in singapore. how are we looking now after a little risk off earlier in the section -- session? perhaps playing catch up to yesterday. manus: none more reflected than in the australian market. it had one of its worst days of the year, a drop of more than 2.2%. this was happening before the rba left rates on hold. very much reflected in this market. the australian market had been tracking at those records and you can see the index actually fell to the 50-day moving average. big selling coming through in the australian share market. the rba, leaving rates on hold. you saw yields pick up on the 10

and aussie dollar spiked to a two-week high. let's look at other markets because you've seen a little buying coming through in mainland chinese equities today. the shanghai, closing the session firmer by a third of 1%. hong kong holding up ok after carrie lam came through pledging more measures to the city after a shocker of a retail trade print yesterday. the nikkei closed lower by .6% and we saw a pickup in japanese bond yields. it was the worst option for 10 year since august 2016. nejra: juliette saly, thank you. back to our top story on trade and tariffs. president trump has reinstated tariffs on argentinian and brazilian steel and aluminum. he has accused the latin american countries of devaluing their currencies. manus: indeed. brazil and argentina have become alternative suppliers of soybeans and other agricultural

to china amid the trade war. let's take a listen to what the president said after landing in london for the nato conference. really discounted, if you look at what has happened with their currency, they have devalued their currency by 10%. argentina also. i gave them a big break on tariffs, but now i'm taking a -- that break off. manus: alive and well, self-styled moniker tariffs man. cheek global strategist at bering investe ment institute. brazil, argentina, france in his sights, is there slippage now in your mind in regard to a substantial phase one deal before christmas? >> we are learning the trade deal with china, whether it

comes or doesn't, doesn't solve the worlds problems with regard to trade. we have several other fronts underway. argentina, brazil you just mentioned, there are issues with the european union, airbus and boeing, issues over trade. of the will be part tools people are talking about that leaders are talking about for some time to come and investors will have to get used to that background noise. fixated on the tariffs recently in the run-up to december 15 when the market is waiting on tenterhooks to see if we get a pause as part of a phase one deal. should we read into yesterday and president trump's comments with brazil and argentina into the u.s.-china relationship and the fact that if the trade talks breakdown from here, currency war aspect could come to the forefront again? china has already been labeled a currency manipulator and that has fallen to the background past couple of months. toistopher: it is hard

ascribe a lot of intentionality to the administration's strategy on trade because they move forward and back, but the president views tariffs as a legitimate tool against what he believes to be currency manipulation and bad trading practices, and he won't hold back from using them. markets, which had been hoping a many one deal would solve of the problems going into the end of the year, are going to have to learn that even if there is a phase one trade deal, it doesn't solve most of the issues we still have with china. in fact, it probably makes the relationship more difficult to manage because we've taken tariffs off the table. -- if thists get gets more protracted, we have been looking at volatility across product. focus on the yuan, this is two week volatility trading above one-month volatility. the essence is do you expect more pressure to come to bear on the yuan currency given the currency is in the zeitgeist of

mr. trump and his renewed attack on argentina and brazil? tariffs -- christopher: you could see some of that, but i come from the view that most of what happens to the one depends on data -- you on depends on data from out of china. in the broader picture, the u.s. china relationship will have an impact on that and investment views of that particular exchange rate. nejra: what is your view on how investors should position around risk assets in 2020? it sounds like you think a phase one deal is not the end of the market's problems by any degree, but the market might jump on that as optimistic and we could see equities hit highs again? christopher: we've seen them hit highs on the expectation of a trade deal. whether we get one is hard to say at this stage and time is running out to have one this year. the president's takes time, the music has been

mixed in the background, but what investors will have to deal with is this is uncertainty that will remain in the background. what gives optimism is we have the central banks of the world on the case. the monetary policy has injected liquidity into the markets and what we worried about a few months ago has been postponed. manus: what about the $90 billion japan has proposed? from an investment point of view, does that send it benchmark -- set a benchmark for fiscal stimulus for the rest of g10 to meet and match? i know not everyone needs the same amount or same nature of fiscal stimulus, but pretty high bar, isn't it? christopher: it is a high bar. i think most people you talk to, whether they are in the markets were economist, looking at what needs to be done to extend the cycle or underpin global growth would tell you that fiscal policy is where we need to andentrate right now,

certainly when people talk about that, they are talking about what needs to be done in europe, particularly in germany. i think it is very helpful whenever there is a government willing to look at weakness in the cycle and put some money on whatable, but a lot of people are looking for right now is a response in germany. that is what makes this political drama we have seen play out in berlin lately so important. nejra: christopher smart, head of the barings investment institute stays with us. london is today, amid doubts about nato's mandate. donald trump demand europe pay more for its military protection. emmanuel macron has called nato "brain-dead" amid as fast with president erdogan over syria. the u.s. has proposed $2.4 billion of tariffs on french goods in response to the tech tax.

maria tadeo is on downing street for us. what are we likely to see from this sideline meeting between president trump and emmanuel macron? aria: that is the meeting this morning. it will be difficult to separate nato and the idea of defense spending from the trade war, in particular because of the timing of the announcement that the u.s. could consider tariffs on billionroducts, $2.3 because of the digital tax which has been controversial between the french government and the u.s. administration. when it comes to nato, the two men agreed they see many issues with the alliance. president trump says the u.s. should not be paying for rich countries what he considers to be rich countries to protect themselves and he will urge the eu move away from china. the u.s. sees all kinds of risks from china to technology, 5g and

also huawei. macron has an additional headache when you look at the thatfs, but he has said concept of nato has become brain-dead. alsoave president erdogan fighting with the u.s. over the russian military equipment and president macron over the comments over nato being brain-dead. erdogan has suggested perhaps it is macron who is brain-dead. manus: you've got to admit, some pretty aggressive lines coming from everybody. president trump has been critical of the organization repeatedly, yet he's put a lot of dollars to work. what is he saying now? maria: one of the things he said, this is what we understand that the u.s. will push for today, is to look at china and the risk that may pose to security. the u.s. has been pushing hard for the europeans to not use

chinese technology. this is something the eu does not want to do. they do not want to veto china completely. they are caught between the u.s. and china, and again, in the context of the trade war. aain, we are expecting bilateral meeting between macron and trump, but also macron, angela merkel, boris johnson, and president trump. it is interesting that we will not get a meeting between trump and boris johnson, the delegation careful about making distance between nato, the summit, and the u.k. election. concerned about her marks from president trump that can be detrimental to the campaign. manus: it is all about protecting brand boris in the run-up to the election. maria tadeo in downing street, on the ground tracking nato. don't miss our interview with jens stoltenberg ahead of the nato summit at 1:00 p.m. london

time. to be a fly on the wall in some of those meetings. it will be an interesting couple of meetings. nejra: and when traveling to work, tune in to bloomberg radio live on your mobile device or dab digital radio in the london area. this is bloomberg. ♪

41 minutes from the start of cash equity trading in europe. this is "bloomberg daybreak: europe." i'm nejra cehic in london. manus: i'm manus cranny in dubai. one of the biggest equity stories today will be unicredit. the italian lender has announced plans to launch a 2 billion euro share buyback in 2020 and 2023. its ceo has announced 8000 job cuts, 9% of the workforce. joining us from rome is

bloomberg's european finance editor. if we take these two headlines, 8000 jobs to go and a $2.2 billion buyback, what do you think the market will make of these two banner headlines? certainly the plan has plenty of sweeteners in it, so they are giving investors reasons to stick with the bank. the payout will even increasing we will see if that is more or less than the market was expecting. there were expectations of increasing this, so it depends on whether they consider this generous or short of expectations. thatob cuts shows really they are still in repair mode. they are still fixing things, about fixing things, cutting costs, bad loans, and that is still a work in progress.

it should be realized that you have to spend money to save money. actually paying for the job cuts will be a big expense over the next two years. nejra: great to have you with us. does the plan suggest anything about unicredit's m&a strategy? ross: only that it looks like there isn't one, and of course, the ceo has said for some time that not only does he not favor any big cross-border m&a for unicredit, but he doesn't think it is a good environment for anyone to do it, saying stock prices are too low and there is a lot of regulatory problems with that. that is one take away from it. there doesn't seem to be any approach that is transformational, a big expansion anywhere, big retreat from anywhere besides what they are already doing. that is what you see, more or less the same size and shape of unicredit minus the job cuts and branches are closing. nejra: our europe finance

editor, ross larson, thank you so much. breaking headlines from franch. -- france. he says the eu will be ready to retaliate and it is in no one's interest to enter a retaliation spyro. the point -- spiral. has said heminister reached out to the commission but they are awaiting the u.s. decision on the digital tax. this coming to her after the u.s. has proposed tariffs on roughly $2.4 billion in french products in response to a tax on digital revenues that hit large american tech companies, including google, facebook, and amazon. manus: it will be interesting to see how the europeans respond to the, because if you thought trade angst was dissipating, it is alive and well. to data, the core of assessing where the markets are. in u.s. ism dropped to 48.1

november. this left a four-month string everything's in the contractions own. the ism joins reports that have failed to show lift from the strike in october. christopher smart is the head of barings investment institute and is with us. this was the shocker. came in hard, it came in heavy, and it disappointed. does it unseat you in any way or is the fed more aggressively and play? but is the consequence of the data readout from yesterday? christopher: it clearly puts the fed in thinking mode, but the fed is always watching the data as it unfolds. i think the markets have clearly been caught on the back foot given the rally in the last couple of weeks, but i think that is the tension we will have watching what0,

is going on in the manufacturing sector, particularly capital investments, and whether or not there is enough confidence to see an expansion of the manufacturing sector to keep the jobs picture and the consumer picture as rosy as it has been this past year. nejra: we do see this tension playing out in a couple of calls we have talked about overnight. socgen, seeing the 10 year treasury yields dropping to 1.2% by the end of next year as the u.s. enters a recession. there will being a jump next year because the fed has finished cutting interest rates and the u.s. economy is in better shape. where do you sit between those two views? is it more likely to go to 2.2 -- 1.2 or 2% and stay there? christopher: for every buyer, there is a seller. from my point of view, we are seeing enough data that we have postponed a recession and going into next year, we are likely to see yields bubble slightly higher than head toward

1.2%, which seems like a gloomy outlook to me. data isn't ism helpful right now, but with cheaper money coming from the fed, ecb, bank of japan and bank of china offering considerable monetary support, i think the data will start to turn. , butways turns with a lag we will see better data going into next year. thing written about this morning is europe's japanification won't stop. dividend stocks in the 1990's in japan were really stall wart. and high the givers, dividend stocks performed well in japan in the 1990's, this is what ubs is saying and this could play well for european equities next year. does that time with you? high dividend paying stocks could be in a performer for europe next year? christopher: in a world where

everyone is looking for yield, those who haven't been able to find it in the fixed income market are looking to the equities market, and i can clearly cash today is better than cash tomorrow, so if you can get a steady stream of dividends coming from your equity, that has got to be very attractive in this kind of world. nejra: let's talk about the ecb, because we heard from christine lagarde yesterday being resolute on the inflation mandate and taking a strategic review of monetary policy. if we do get the inflation target tweaks and an inflation target of 2%, what does that mean for whether you would invest in fixed income? christopher: it is a positive step. be moreeeds to flexible in the way it looks at inflation in a lower return world. christine lagarde is the right person to have a conversation within the ecb and within the complex political world in which she inhabits, i don't think it

is a game changer on its own. i think a lot of the things your needs to do is incorporate new views of monetary policy like what we see out of unicredit this morning. big reforms, big restructuring, rethinking the banking sector. the last thing you want to see out of european banks is to stay the way we are because it is working. whether unicredit has the right strategy, it is a way forward and that is what gives me more hope than whatever strategic review the ecb undertakes. manus: thank you so much. christopher smart, chief global strategist and head of barings investment. -- investment institute. a 100 basis point cut by socgen and the other side of the coin with bluebay. this is the conversation we will have through the day. it is the dutch prime minister at 3:00 this afternoon. breaking news about unicredit, job cuts, and a buyback. 8000 or more jobs to go.

nejra: the ceo planning to reduce the work force by 9%. that is it for "bloomberg daybreak: europe." futures looking positive after losses in the u.s. yesterday. this is bloomberg. ♪

anna: good morning and welcome to "bloomberg markets: european open." here live inards our london headquarters. the cash trade is less than 30 minutes away. tech backlash, france and u.s. crosshairs as washington considers $2.4 billion on wine, cheese, and handbags. mccrone and trump meet today -- macron and trump meet today.