first policy meeting with markets watching for strategy review. the tall put is alive and well. a more dovish powell sets the bar very high for another rate or hike. and the $2 trillion win for the crown prince. saudi aramco hits $2 trillion valuation on it second day of trading. welcome to "bloomberg daybreak" on this thursday, december 12. i'm alix steel. central-bank bonanza over the last few hours. in the markets, we are still looking ahead to position for 2020. jp morgan says you are going to want to buy some risk, like equities and emerging-market's. equities totally flat after that more dovish surprise yesterday from the fed. euro-dollar flat as well. a teeny bit of selling in the backend.et on the for the first

half of next year. time for today's global exchange. from dubai to frankfurt, to brussels to london, to rio de janeiro and princeton, new jersey, our bloomberg voices are on the ground with this morning's top stories. in turkey, the lira is gaining against the dollar following a 200 basis point cut. joining me with more from dubai is paul wallace, bloomberg emerging markets reporter. is this going to be enough president erdogan? paul: that is a key question. the lira has barely budged despite that 200 basis points cut being more than markets expected. analysts were expect and about 150 basis points. the lira has had to endure a lot in the last six months. erdogan has sacked his central bank governor. since then, the new one has overseen a whopping 1200 basis points of rate cuts. amazingly, despite all of that, the lira is actually up against

the dollar since the end of june. we will have to see what erdogan thinks of this latest move to see whether he is satisfied that it is enough, or whether he wants more. the central bank did suggest it was going to slow down the pace of easing now, and the real base taking into account inflation is down down to 1.4%. if you look at that, it doesn't seem as if the central bank has that much more room to cut rates unless it can pull down inflation. alix: thank you very much. now we go to frankfurt, where christine lagarde is chairing her first policy meeting at the helm of the ecb. she will likely be judged on how convincingly she communicates the plan to restore priced ability. the ecb me outside headquarters in frankfurt is bloomberg's matt miller. what is the big question at the press conference?

matt: there's a few of them, actually. it is going to be a pretty exciting day even though we don't expect any change in policy. number one, we are going to get some new forecasts, so you are going to want to look for the new inflation expectations from the central bank. we are also going to be watching andee any change of tone, you're going to see a lot of comparisons that people will make between christine lagarde and mario draghi. she seems, at least so far, to be open to even more experimentation. there was a report yesterday that she even discussed informally the possibility of a new cryptocurrency from the ecb. but most importantly, there's going to be a strategic review. this is the first that the ecb , sostarted in 16 years everyone's going to want to know what the questions they will be asking our, what kind of

methodology they are going to get and just in general, details of what the strategic review could entail and what the results could be. it should be a lot of fun, alix. alix: kind of like your hat, matt? fun like that? [laughter] alix: bloomberg's matt joining us from frankfurt. unveiledean commission an aggressive climate target. joining us from brussels is bloomberg's maria tadeo. some snags might be had along the way, though. exactly.maria: this is all about climate change. at stake, we have a one trillion euro transition package that could fundamentally change the way pretty much every industry in europe operates. the carmakers, aviation, farming. you are looking at changes made to the prices of carbon, cutting

those emissions, doing that very quickly. the deadline for that is 2050. are european leaders going to be in a position to endorse the plan tomorrow in the meeting comes to an end? remember, the plan cannot go ahead if european leaders are not on board. every country needs to agree, and every country gets a veto right. what we are seeing now is that some countries, in particular in eastern europe, do have question marks about the economic implications of such a transition because it is going to hurt countries more than others, and going to hurt industries more than others, so the question at this point, are we going to get a yes tomorrow from european leaders? alix: thank you so much. we go to london now, where the international energy agency is out with its oil market report, saying global oil markets till face a surplus next year, even if opec+ delivers the cuts they promised. joining me from london is stuart wallace, bloomberg's executive editor for combined energy and

commodities. that's one part of the story. the other is the saudi aramco to trillion dollars valuation. aramco tosaudi trillion dollars valuation. the iea was here today to offer a reality check on that euphoria. as you said, it is a warning to the market to say even if opec do all the things they said they are going to do, that is still not going to be enough. there will still be too much oil in the market. factorre's a second here, the opec+ does not have a great track record when it comes to doing what they say they are going to do. at that to the mix and may be you should be even more bearish. so yes, the oil price today is more or less flat. it is a worry particularly for saudi arabia. the oil price now is somewhere between 25 and 35 -- between $25 and $30 less than where they needed to be.

aramco did hit to trillion $2 trillionhit valuation today. of course, the higher the valuation, the less likely it is there going to be able to do an international listing. right now the market is looking at it. the volumes are up on aramco. the risk selling in the market, which we didn't see yesterday, we will see that more likely to more in theise market than the sudden rush to sales that we saw yesterday. alix: really appreciate that. now we head to brazil. the benchmark interest rate was cut by half a percentage point to a record low. the bank has said it will leave the door open for additional easing. joining me on the phone is brazil chief.

what is the most important thing going forward? reporter: the cut was fully the benchmark rate, but most interesting thing according to our economist was what the central bank chose not to say. central banks not called the end of the evening cycle as somewhere expecting because we have seen some signs that the economy is finally picking up, and the currency have slid come up which puts some pressure on inflation, which is already under pressure because of food prices, because of exports to china, but the central bank just said it will exercise caution for the next decision in february, which is leading some analysts to say this will probably mean they can cut by 25 basis points, which would bring the rate to an even new record low, continuing the cycle of

fresh records we have seen throughout the year. alix: thank you so much. rounding it out in the u.s., fed chair jay powell hitting the pause button, in no rush to reverse rate cuts. chair powell: in order to move rates up, i would want to see inflation that is persistent and significant. a significant move up in inflation that is also persistent before raising rates to address inflation concerns. that is my view. alix: 20 may from princeton, new jersey, ira jersey -- joining me from princeton, new jersey, ira jersey. your take on what it signals to the markets? ira: we have to think about pricing out the cut that has been priced in for the better part of the last month. the federal reserve is also not likely to hike next year, but the closer we get to the election come of the less likely they are to ease just because they don't want to be seen as political. unless you get an incredibly weak economy and the first quarter of next year, the base case has to be her the fed to

likely be on hold -- has to be for the fed to likely be on hold. jay powell elaborated quite significantly on what he's going to do for year-end funding pressures in the treasury market. were notte that they necessarily thinking about a new facility, but increasing and using more of the repurchase operations have been doing over the last couple of months since that september repo pickup. they will also maybe be looking at some regulations to try and ease some of the pressures causing banks not to lend as freely as they probably should. alix: great stuff. thanks so much, ira jersey of bloomberg intelligence. . staying on that theme of dollar funding stress, the hong kong dollar strengthening the most in four months, climbing to the so-called strong half of its trading band against the u.s. dollar. this is reflecting potentially some concerns about liquidity. there are year-end regulatory checks on hong kong banks that

typically lead to higher demand for cash. that may lock up funds and global interest rates after months of unrest and problems with funding markets. more coming up on your trade and analysis of the markets in today's first take. this is bloomberg. ♪

♪ alix: time now for bloomberg first take. joining me from our in-house team of wall street veterans and insiders is former rates and fx trader and voice of bloomberg audio squawk vincent cignarella, and our international economics and policy correspondent michael mckee, and with us is amy wu

silverman, rbc capital markets equity derivatives strategist. are you fading the dollar now? vincent: on a daily trading basis, you do. on a long-term basis, i think the dollar has rolled over. but on any given day, i'm not afraid to buy the dollar and take the other side of that trade. alix: do you think the market was right to have a weaker dollar? did we really have that much dovishness yesterday? michael: i think we did. it is always relative to expectations. what jay powell did was reassure everybody that cignarella was right. [laughter] basically, there's no reason at this point for the fed to do anymore. you've got this overhang of the china trade stuff, but that's been there for so long. it looks likely to continue to be there for so long and it

doesn't show up in the data, so what can they say other than the economy is in a good place, so therefore we don't need to act? alix: amy, i feel like last time you are here, you were saying you want to hedge a little bit because volatility was really cheap. do you still want to do that now? amy: it becomes a tougher conversation then it was a few weeks ago, but we continue to see buying in december versus january, which tells me even with how long the china tariff stuff has been in there, people are still focused on it. the other thing you can do if it is very difficult to swallow the cost of that volatility is you can also override. how much more is this market going to go? you can fund the fund metoo holding of long stock positions -- fund the fundamental holding of long stock positions. vincent: i agree. you have to look at all the other things in the market that can move asset classes. trade being one of them, tweets being another of them.

volatility is wide open. michael: when you get china overhang, and i don't mean in the trade sense other than tangentially, we are seeing ineriorating chinese data the last year. we are seeing big trades based on bad chinese data news. biggest just saw the chinese commodity trader became the biggest dollar bond defaulter in two decades overnight. we are hearing story after story. where does this leave you on a sector basis? when you need to position for upside if you get a deal, what's already priced in? amy: one thing i think people , what your at, like are we in in this bull market? i've lost count. i think people are looking at an on a factor basis, which we've talked about before, so we switched from momentum to value to some degree, and with that, we are looking at laggards.

what has been winning in this past year? winners have been winning. the question for next year, are losers going to be winning? when you are focused on upside and you've got such a big run in this kind of exhaustive bull market, but you still have volatility generally cheap, i think people are thinking about sectors on a laggard basis, so whether that be what was .riginally hit by china michael: i think it is also -- vincent: i think it is also country based. there's a lot of supply-chain alterations that are going to happen in 2020 weatherby get a deal or not. if we get a deal, it is going to be a minimal deal. talking ceos will be about moving supply chains away from china should this hostility continue. where they go with that, a lot of opportunities, potentially in north america given the usmca.

mexico may become a place. when you look at individual companies, see where their relationships are around the world and what supply chains are going to elevate, what are going to fall, i think that is where you would look for sector changes. michael: vince is right about the usmca. if anything, that may be the one really good thing. most of it is nafta updated. the tariffs went away with nafta, so there isn't a major impact economically with the usmca, except it creates more certainty now. businesses are considering moving supply chains to north america instead of other places because you shorten the travel, and mexico would be a great opportunity. other things you have to consider with mexico, but at this point, it does help the possibility that we expand north american manufacturing. alix: do you feel like good news is baked in, or do you feel there is upside when we get a headline, even if it is an updated nafta-usmca thing?

amy: when you guys are talking about the china trade situation, one thought i've had over and over is we could get a resolution in 2020, maybe just because there's a new president, and we could still sell off because we sort of been distracted from the fact that the other underlying things going on in china are not great, even having nothing to do with trade. so i think you could really see 20/20 be a year where we push through all of these hurdles that were supposedly overhangs in 2019, and still the market is not satisfied at all. alix: i feel like somehow i am going to mckay pivot to repo with that -- i am going to make witht to repo that. [laughter] balanceey expand the sheet and expand the balance sheet. that works, right?

michael: they are finding reasons why it could get worse. the question is, does the fed have the ammunition in place to fight it? jay powell's argument is, a, we the analyses are right, we will change what we are doing to try to address those. they know they have a longer-term problem that goes beyond the short-term funding squeeze we saw in september, and they are looking to make changes, but particularly on the regulatory side, it is not something you can snap your fingers and do. it will take a little while. the basic idea is in the meantime, we will just throw cash at it. vincent: as the economies improve, they are still in the wrong part of the curve. they need to be in the front end, providing liquidity, buying there, not buying when necessary, but taking bills to put liquidity in the market on the daily basis. not be on the long end of the market where they don't need to be anymore. let the curve steepen.

create inflationary expectations. if you want inflation, you have to create the psychology behind it and the idea that maybe rates will move at the long end. they need to be in the front end of the curve, get out of the middle of the curve. that was the experiment they need for the financial crisis. that has passed. let's get back to normal. alix: as an equity derivatives person, how do you thing about repo? amy: to be honest with you, it is only in the sense of how we think about collecting yield in general. it is much more volatility investors what you're getting for selling optionality at that point. one thing that has become more true is as the fed has not made the moves, especially yesterday, that we expected them to, people are turning to the volatility markets for yield. we talked about how

ridiculously low volatility was six weeks ago, and it's come up slightly, but on pit historical grand context, it is still not that high. they are trying to find yield anywhere, and that is to lay place you can get it if the underlying carry is still giving it to you. alix: i thing i made that work. [laughter] vincent: will give you that one. alix: thanks very much, guys. any wu silverman of rbc will be sticking with me. for a look at all the charts and more, go to g-v -- go to gtv under terminal. this is bloomberg. ♪

viviana: this is "bloomberg daybreak." fiat chrysler's unionized workers in the u.s. have a new contract. the uaw says 70% of voting nubbers approved of the new

deal, the last of three agreements -- voting members approved of the new deal, the last of three agreements negotiated this year. it promises to add 7900 jobs. sprint says the wireless company will survive long without a takeover from t-mobile. the testimony coming in a federal trial. it will determine if the merger can proceed. several states suing on antitrust concerns. citigroup says gold has more room to rally. reason? in 2020, there is little possibility of the federal reserve raising interest rates. this year, bullion is already up 50%, set for its biggest annual gain since 2010. that is your bloomberg business flash. alix: thanks so much. another story i am watching for the last couple of weeks, like other star wars fanatics, there's one more day to get vintage memorabilia from sotheby's.

they include a stormtrooper helmet from 1976 or $75,000. there's also autographed movie posters and props. not to mention, the latest film skywalker" opens next week. i have my ticket already, obviously. it is weird to be right next to that darth vader platter. coming up, david kohl, julius baer chief economist, will be joining us. after the dollar selloff yesterday, stocks moving higher. this is bloomberg. ♪ [ electrical buzzing ]

[ dramatic music ] ahhhh! -ahhhh!

elliott. you came back! ♪ alix: this is "bloomberg daybreak." about 15 minutes away from the latest ecb rates decision. it is now christine lagarde's

turn. we had a more dovish fed then we thought yesterday, and that moved the market. and other asset classes, the dollar took the brunt of the selling. we are seeing a bit of recovery there. i did want to point out what is happening with the swissie. it is pretty much flat, despite the fact that the snb is kind of in the middle of a lot of pain when it comes to those negative rates, still having the safe haven status for their currency. the twos-tens spread a teeny bit steeper in the market. as i mentioned, we are 15 minutes away from the latest ecb rates decision, christine lagarde's first as the bankhead. -- as the bank's head. joining us is david kohl, julius baer deputy chief economist, and with me still is any wu silverman of rbc capital markets.

definitely, what we are all curious about is the press conference. if we see a different style in how lagarde is guiding the market here. in terms of what we get in about 15 minutes, interest rates probably stay unchanged, and also the negative deposit rate will continue. alix: part of the rhetoric is that maybe growth in europe is actually going to get better and stabilize next year. all?u see that at if there is stabilization and growth, does it make christine lagarde's job easier or harder? david? me?you hear it looks like we met have lost him. i'm seeingour world, more calls about going into

european equities, going into euro-dollar because that is where you're going to get the beta when it comes to growth. what are you seeing in options markets? amy: i feel like i have now seen this call for multiple strategists saying 2020 is going to be the year that europe outperforms the s&p, and it is all part of the same trade because if you think about it, this is the euros momentum. if we go back to value, that also strongly correlates to the fact that s&p will probably underperform the other countries. to some degree that makes sense, and that is cohesive along what is happening domestically and what is happening with europe. the other thing i would say is it is starting to line up a little in the volatilities. you are starting to see that being priced into some degree with investors looking at owning basis, but in a paired like s&p versus europe using the etf's, and you are starting to see those relative volatility

pairs showing that is where the interest is for options investors. alix: david, i think you are back with us. we were talking about potential stabilization of growth in the european economy, and perhaps in green shoots. do you see that within europe, and doesn't make christine lagarde's job easier or harder -- and does it make christine lagarde's job easier or harder? do you see stabilization in europe next year? david: yes, there are some cautious signs of stabilization. the most important thing is that europe did not too bad with its industrial session, which was a global experience. in europe, we had some stabilization coming from consumption, coming from domestic demand drivers. is crucial question for 2020 really if industrial activity can recover. we see very cautious signs here, but there is some certain optimism, and we accept also that the european central bank will formulate this optimism

probably in the industrial activity's side. there is a resumption of momentum in 2020, and this will definitely help when it comes to the economic growth outlook. alix: david and amy, hang with me for a second. part of potentially an ecb strategy review could be the central bank factoring in climate change, and that really sets the stage for european some debate on ambitious climate targets today. will that be ratified at the european union? if it is, that could also lead to some major stimulus within the region. joining me now from washington is john bersani ferry -- is jean .isani-ferry do you think we could actually get a legitimate decarbonization agenda? jean: the important thing is

whether this is going to be adopted. the commission has put together that goesressive plan from stimulus through investment, through regulations, through changing the fiscal rules, changing the trade rules. so it is very compressive, and concretely, it is meant to lead to a very significant acceleration of the for trajectory lowering byl of by 55%e carbon footprint . they want to reach carbon neutrality by 2050. some are reluctant. we will see whether there is a consensus. alix: if there is some kind of

consensus moving forward, some of the numbers of investment could be enormous. bloomberg economics did a survey on that and said you could look at all was 2.5% of gdp a year. maybe there will be ways around fiscal constraints in germany, etc. do you see that as a possibility if they all agree? jean: absolutely. some of this investment is already taking place. we see from surveys that decarbonization investment is not ay there, so this is 2.5% supplementary investment. i think it is more in the order of magnitude of 1%, but 1% of gdp still be a significant number if sustained, and it would certainly help the european economy. the big question is how credible are the climate plans. is it just announcement, or is it backed by real commitments? investors need visibility.

it is such a transformation that you need to have some certainty about the price of carbon five to 10 years from now, and at present, this certainty does not exist, so the risk is that this investment is not going to materialize, and is insufficient . what investors require is really about thesibility future path of policy. alix: david kohl, do you think the ecb should be looking into climate change for their forecast or policy like the boe is sinking about doing? sense, it helps when the ecb covers this topic. it encourages fiscal policy because this is the major driver for any climate change related investment, regulation and fiscal policy. it is outside the scope of the

ecb really, but bringing this topic in and showing that there is some support also from monetary policy, and when it is only by words, this should definitely help push this topic forward. europe needs a different approach to what is stimulating growth. ofof the low interest rates all asset purchases. it has to come from the fiscal policy, so it can help via sentiment. alix: in this market, is there a climate change trade? i am putting it in quotes because no one knows where that is yet. amy: eng investing is essentially trying to take these things that are important from an environmental basis or social and putting it in a tangible framework for investing. just to give a parallel example, when companies started to do buybacks in bulk, almost every company in the s&p, one thing we noticed on the derivatives side

is when you know they are going to buy it back, it is a very good symptomatically but writing program -- symptomatically put-writing program. think we are going to start to see a version of that when there's actual, tangible dates and metrics around what companies fall under something that is following the climate change plan or not, and you are going to start to really systematically see a differentiation of their volatility. when that becomes the case, i think there are a lot of baskets you can trade where you can essentially say i want to be long a basket of companies that are environmentally sound, and may be short one that isn't, but actually do the flip with volatilities. volatilities for those come at his will actually decline. you will see more downside because they are not operating within the metrics that are now implement it. alix: really interesting trade.

thanks a lot. amy wu silverman of rbc capital --kets, jumps on a ferry markets, jean pisani-ferry of the peterson institute, thank you. david kohl, you're sticking with me. now we want to give you an update on what is making headlines outside the business world. here was first word news is leon hurtado -- is viviana hurtado. kailey: the house -- viviana: the house judiciary committee is set to conclude debate on articles of impeachment. it will likely send them to the floor for a vote. north korea may return to launching long-range ballistic missiles. the u.s. and bessette are to the u.n. telling the security council kim jong-un's regime is poised for major provocation. north korea has threatened to take what it called "a nupathe"

in nuclear talk -- a new path" in nuclear talks unless president trump makes an offer by the end of the year. staunch defense of negative rates. we spoke to the snb president thomas jordan. >> the current monetary conditions are delicate ones, so we have no reason to change monetary policy. if you look at our inflation zeroast, it is almost at for one and a half years. we've had a growth rate that is roughly 1%. next year may be 1.5% to 2%. so we have no reason to change this monetary policy. viviana: switzerland's deposit rate is -0.75%, the lowest in the world. global news 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. i'm viviana hurtado. this is bloomberg. alix: thanks so much. coming up, more on the ecb rates

decision. this is bloomberg. ♪

alix: we are waiting for that decision from the ecb. no change really expected among anything, and that is true. deposit rate facility unchanged in the main refi rate unchanged as well. they do confirm that bond buying will continue, at least 20 billion euros a month. qe will run until shortly before it winds up raising interest rates. they are going to reinvest the qe debt for an extended time after the first rate hike. the strategy review, and what the ecb looked at in terms of its long-term

inflation target and stability, if long-term inflation is structural, and how to address that. bloomberg's matt miller joining us from outside the ecb headquarters in frankfurt. you are looking at this in the same way i him, as the headlines come out. anything that surprises you? matt: i do think it is interesting, the last headline that you mentioned, that they will leave rates at present or lower levels until they get near their inflation goal. logically, that makes a lot of sense, of course. but what it means is this ecb under christine lagarde is willing to lower rates even further below the -50 basis points where they already are. it could be that we see a willingness to cut rates. we saw that under draghi as well come but the question was and will still be is christine lagarde telling the same line --

christine lagarde towing the that mario draghi has? as far as the strategy, we will hear from her during the press conference what she expects from the review, what kind of fidelity is going to be used, but kind of questions they are going to be asking, and what kind of results they can imagine. it is a long time before we get revealed till -- before we get real details on that. alix: david kohl of julius baer still with me as well. what is your initial reaction to some of these headlines, that the ecb will have rates at present or lower levels until they near that inflation goal? david: that is a bit disappointing in terms of everybody who expected a change in direction of monetary policy, probably also acknowledging that

this concept of negative interest rates on punitive rates is not working properly. options remain open. so far we have to say probably lagarde concentrated more on building consensus along the governing council then really changing monetary policy. this is a major theme we expect, and we will see that probably only at the press conference, so decisions right now are unchanged policy going forward, but also more asset purchases commode has also been left open, unchanged so far today. , talk us through building consensus today. the fed yesterday also unanimously work them but we are seeing for 2020. what's it been like for the ecb? matt: we are definitely going to see questions about that. the consensusbuilding is one of the most widely discussed

aspects of christine lagarde's ecb because the rift was so open, so public at the last few meetings of the draghi ecb. a lot of people said this is one of her skills. this is one of the great things , that she to the bank has more of a political operator, and maybe she will be able to heal that rift and bring these two sides back together. they did go on a retreat together. they went to some castle outside of frankfurt. david may know more about the resort than i do. the idea is that christine lagarde should be hoping to get everybody on the same page, and from these headlines that we see now, you're not going to get as much detail as we will from the press conference that we go to in just about 40 minutes. alix: david, what would you pencil in as the rate for 2020? what would you want to see done? alreadye penciled in

unchanged on monetary policy when it comes to rates. we can't imagine that when something goes wrong, so when the economy gets weaker come of the asset purchases will be probably the first measure to take. but when we talk about consensusbuilding, there is certain consensus already built in the ecb that fiscal policy , so bringing the governing council in one direction. that will be the main message from this press conference and forthcoming press conferences, that it is now up to fiscal policy to also support the economy. it is not so much monetary policy. feel likehat point, i we had mario draghi talking about fiscal for a while. what do we expect christine lagarde to say that is materially different from that? matt: that's a very good question, and you are right.

draghi has been banging on about trying to get more fiscal help from governments for years now. the thinking is that because christine lagarde is more experienced politically, she may have a better chance at getting some fiscal help from governments. exactly thesn't united states of america. these countries don't work as close together as the states do. it is not the same kind of federal system. i talked to off schulz -- to cholz in berlin about fiscal stimulus. they could come up but it is not going to help the portuguese

spanish unemployment. alix: thanks so much, guys. david kohl of julius and matt, really appreciate that. much more on that rate decision, christie lagarde takes that press conference at 8:30 eastern. if you are jumping into your car, tune into bloomberg radio on sirius xm channel 119 and the bloomberg business app. this is bloomberg. ♪

♪ alix: time now for trader's take. joining me as vincent cignarella, voice of the bloomberg audio squawk. you are looking at the dollar. rollover yesterday. vincent: it's been rolling over a couple of weeks. looking on a five year basis, we can see the 2019 highs.

the recent top around 1210. over the course of the first part of next year, if you go from the top to that first $11.58, it is a nice 4% move, which is a nice trade to walk into in 2020. ,ith or without a trade deal where shifts in supply chains go from china, asia is going to be more attractive. opportunity for the dollar to be lower. alix: vincent cignarella, think you very much. coming up, julia coronado, macro policy perspectives founder and president. this is bloomberg. ♪ ♪

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december 12. here's everything you need to know this hour. >> aramco is easily worth $2 trillion are more. alix: saudi aramco hits the $2 trillion valuation goal, a milestone for the crown prince. >> the iea was here today to offer a reality check, a warning to the markets to say even if opec do all the things they say they are going to do, it will still not be enough. alix: the iea warns of an oil surplus ahead. u.k. heads to the polls today to choose a new leader. it is decades since britain has faced a vote in december. >> a significant move up in inflation that is also persistent before raising rates to address inflation concerns. alix: a more dovish powell sets the bar very high for a cut or hike as the committee unanimously votes to stay on hold. >> unless you get an incredibly

weak economy and the first quarter of next year, the base case has to be for the fed to likely be on hold. >> some for disciplines even penciled in an overshoot in their outlook. ecb president christine lagarde takes the spotlight. >> they will leave rates at present or lower levels until they get near their inflation goal. alix: some economists think growth could stabilize and improve slightly. consensusbuilding and the pressure on fiscal stimulus. in the markets, here is where we trade. not a lot of market reaction on a more dovish ecb statement, talking about lower rates potential he going forward. euro-dollar flat, treasury market flat, crude kind of flat. joining me for the hour, julia coronado, macropolicy perspectives founder and president. what do you care about most today? julia: we've gotten a lot of the big things behind us. today will be interesting to watch christine lagarde's first

press conference. there's sort of analogy between christine lagarde and jay powell. they are not the top shelf economists that they replaced, but they have more of the strategic political skills that she is going to need in this job. it will be interesting to see how she handles that band of european reporters. alix: absolutely, especially with fed powell's unanimous yesterday, right? julia: that was a smooth performance for once at the end of the year. alix: looking at the ecb rates decision, it was totally unchanged, but the surprise is the ecb says low or lower rates for an extended time. with us is tony despirito, fund minotnvestment active equity director. you're going to to get the growth beta next year in europe. that might be a better trade. tony: i still like the u.s. market quite a bit. yes, valuations are higher, but you have to look sector by

sector and quality adjust. the u.s. market just has a higher growth rate, and i think it is a higher-quality market. given where rates are, we are still very much pro-u.s. finding pockets of opportunity, certainly, and europe, but still pro-u.s. julia: where do you think the valuations are still? is there still room to run? we are so highly valued in the aggregate. tony: at first blush, the p/e ratio is over 18 on the s&p 500, but you have to consider the rate environment. we just heard from the ecb lower for longer, and that is a worldwide theme. in the context of a 10 year treasury at 1.8%, actually it is kind of low. it is a 5.5% earnings yield. while i wouldn't bank on getting upside valuation from here, i am certainly not worried about it. alix: here's what i found really interesting. lower for longer today and at the s&p -- at the snb as

well, and the euro didn't really move. this swissie didn't move. what does that tell us about what the market is pricing in? julia: that the world has acquiesced for lower for longer. one of the key reasons is there isn't a the growth driver we are seeing. expresseslagarde optimism that maybe we can move a little higher in growth, but there's no strong growth impulse from fiscal, not from china, not from the usual suspects. we may very well be in a benign does thent where growth come from? tony: as an investor, you have to increasingly look at free cash flow of companies. their ability to pay dividends, grow those dividends, buy back stock. a lot of the earnings growth is going to come from that. alix: do you think we are going

to have a peak margin conversation that is going to dent that? wages are rising and there's not as much pass-through. is that a story for 2020? i know we've tried to make a story. [laughter] tony: it isn't an issue for the market as a whole because there's expectation that margins will increase. stuck specific work becomes really important. some companies have margin opportunities, and some don't. i think that will be the story of 20, differentiating between those companies. julia: i think we also have to keep in mind that we have the fading fiscal stimulus. one of the huge supports to the market this year and last year was that tax cut that really gave a lot of free cash flow to companies, and that is now in the rearview mirror. now it really has to be top line or margin expansion to deliver the results that investors seem to still be expecting. as far as i can tell, analysts

are still looking for close to double digit earnings growth in 2020. tony: and that is too high. we have been talking mid single digits as a more realistic estimate. as a stock picker, i like that environment because when you produce 2% alpha, that's nice, but if the market is up 6% or 8% and you produce 2% alpha, that is a big deal. julia: that means there's going to be surprises somewhere, right? where you expect those downward surprises to come from? tony: i think you have to think about disruption. the theme of tech disruption is an important one. you want to own the disruptors, but you don't want to pay too much for them. you really want to take a skeptical line and avoid is companies being disrupted. retail is the obvious one. alix: i feel at the last couple of days, the conversation has emerged in the market about liquidity.

there's not a lot of trading happening. there's also volatility starting to pick up. is that going to continue, or is this a short-term, end of year thing? the two.ould separate my views are stronger around volatility. next year we have trade issues continue, and whether or not we get a deal is a long-term issue there that will keep rearing its ugly head. we have the election coming up. we are also later in the economic cycle, so that spells volatility. i think that means you want to err on the side of quality to smooth out that ride, and also want to look longer-term. i worry that there is a bit of a disconnect between what companies are managing on the ground in terms of these trade uncertainties in the headlines that the market overall is trading on. there's a lot of optimism around a phase one deal, but it seems like it is going to be, even if it is still going

to be pretty cosmetic and minor, and we still have all of this uncertainty. alix: when you boil down the difference, the rhetoric is this is just a little bit beefed up nafta. there weren't necessarily huge changes. i wonder if that is a template for what a china-u.s. phase one deal with the. julia: it doesn't look like there's anything they could possibly agree on that would address things like the interruptible property right -- like the inlets will property rights concerns -- the intellectual property rights concerns. we can't even agree on the amount of agricultural exports that china wants to commit to. likely, think that more if we get something, it will be on the disappointing side. on the also want to hit central banks, lower for longer. rateowell said on the repo -- what jay powell said on the

repo rate and how he was thinking was interesting. here's what he had to say. we stand ready to adjust our operations is necessary to keep the funds rate at the target range. we are not at this place, but if it does become a free it for us to purchase other short-term coupon securities, we would be prepared to do that if the need arises. alix: what did you make of that? julia: you noticed that he was reading from some prepared talking points. [laughter] with a lotame armed of information to give to the market, and that information, the basic messages we are going to do what it takes. if we have to buy coupons, we will do that. if we have to increase the operations. it is sort of the opposite message of last december, which was autopilot. we are going to do whatever it takes. don't worry. we see the stories about disruption and pressure in the

markets, and we stand ready to adjust our operations to fix those problems. alix: how do someone like you in u.s. equities think about some thing like repo? you can make an argument that you are still having a bigger balance sheet for the fed. tony: i think about it as we want financial stability, stability in the financial markets. we've heard from the fed we are going to do everything it takes, and that is good news generally for markets. julia: and more liquidity, right? -- ites more participants means more participants can take more risk at the margins. alix: is that a good thing? julia: driving capital markets, that is the lifeblood of our economy. alix: tony despirito of blackrock, julia coronado of macropolicy, you're sticking with me. more coming up. this is bloomberg. ♪

alix: we are just about a few weeks away from the new year, so let us get some top picks. julia coronado of macropolicy perspectives and tony despirito of blackrock. you've been talking a lot about the macro backdrop and how you invest. . let's get more specific on where there's opportunities are at a reasonable price. tony: one of our favorite sectors right now is the health care sector. we talked about a slow-growing economy. health care is growing regardless. as you get older, we can see more health care, and we as a society are aging, so that demands analyst, graphic certainty. the question is how we -- demands an almost, graphic certainty. the question is how we pay for that growth.

they have very good free cash flow. it's been a consolidating business, where the winners are getting better and better -- are getting bigger and better. there's a lot of talk about medicare for all. i don't see that is a big risk. if you look at state governments and the federal government, they have been both increasingly outsourcing health care to the private sector. about 2/3 of state medicaid is outsourced, whether it is a republican or democrat state. been increasingly choosing to use the private care medicare advantage. julia: those demographics are at the heart of our macroeconomic perspective as well. it means consumers are more cautious. they don't run out and spend and borrow and go crazy like they did in the 1990's come so that gives us a more stable base -- in the 1990's, so that gives us

a more stable base. it also takes us from a higher inflation regime to a lower inflation regime. you outline all of these cost pressures. there is so much demand for that health care inflation to be contained so it comes through public policy, through public budget pressures, from consumers ofanding some control prescription drug prices. all of these forces are acting to keep health care inflation low. that is a big chunk of the consumer basket. that has moved from a regime where it was consistently running above core inflation to where it is consistently at or below core inflation. that is going to be hard for the fed to meet its 2% objective in the environment of very low, stable health care inflation. i think that is one of the things behind lower for longer, these demographic trends that actually asked to constrain inflation. here, europe, japan, everywhere.

alix: does that mean central banks have to lower what their target is for the structural change, and does that have broader implication that we are not aware of yet? julia: i think the health care anti-demographics combined with the technology disruption has been a force -- care and the demographics combined with a technology disruption has been a force. i think that is one of the drivers of what seems to be a shift to a more dovish reaction function. that is what we heard from powell yesterday. the policy review they are doing, i think what it means is in the next recession or through the next cycle, they are not going to feel that urgency to ort off the zero lower bound normalized policy the way they did in 2015, 2016. so i think that sense of inflation pressures and the risks to inflation, that skew has shifted from upside to downside. alix: how do you then think of

2020 in relation to a health care call? tony: i think there will be political noise, but i don't think that will have a real impact on earnings. if you look at the sector this year, it is up about 17%. good, not as good as the s&p 500. a lot of that is partially because they are less economically sensitive. it is bad in a massive bull market, but good in a slower market. and then the political pressures, but i think that has impacted evaluations, so you are now a really good starting point. it is one of the lower valued sectors in the market, particularly when youth about stability sectors. most of the stability sectors have been priced up, and i see that as risk, whereas health care multiples are low. julia: i think you mentioned the election. i feel like the combination of ongoing trade uncertainty and the election is probably more consequential than the average

presidential election in terms of what it means for trade, for ever and sectors, so i feel like that is going to be -- i agree that we are likely to see e sentimentows in risk and volatility in the market given that we are in a low growth environment with a lot of uncertainty still. alix: i would love to get your take on small caps, what you do with that. you could make the argument, obviously it hasn't performed within the s&p, but if we see a shift within the market, that could be any good place. do you want to own it? what do you think about the small-cap sector? tony: i've really been emphasizing prudence in our portfolios. we are 10 years into this economic cycle. this is the longest economic cycle in history. cycles don't die of old age, but you've got to be cognizant that we are in the later innings, so i think you want to be prudent in the risks you are taking. there's just more prudence at

the larger end of the market. better balance sheets particularly, and i think that is important. julia: i can't speak really to the small-cap valuation, but small businesses do often get squeezed at the peak of the cycle in terms of their ability to navigate a really tight labor market. they are not always the ones that can apple meant plans or recruiting efforts -- that can implement plans or recruiting efforts. they are the ones that often feel the pressure the most in terms of having to compete for these workers. alix: tony despirito of blackrock and julia coronado of macro policy perspectives be sticking with me. coming up, apple taking a leg lower in premarket after shipments dropped 35% in november. off the lows, but still off by about 0.8%. this is bloomberg. ♪

♪ viviana: you're watching "bloomberg daybreak." the international energy agency warning next year, global oil markets still facing surplus even if opec and its allies deliver newly announced production cuts. even if the full cuts are implemented, inventories will grow by 700,000 barrels a day. aramco now surpassing the market value sought about saudi arabia's defective leader on its second day of trading. the oil giant surging the daily unmet again. that pushed its value past $2 trillion, and that number is also the valuation crown prince mohammed bin salman sought before the ipo. investors convinced him that was too ambitious. iphone shipments in china plunging more than 34% from the previous year according to credit suisse. it also follows the 10% decline

in october. early suisse saying indications show better-than-expected performance for the iphone 11 model. still, the firm says softness in china is a concern. that is your bloomberg business flash. alix: thanks so much. tony despirito of blackrock and julia coronado of macropolicy perspectives still with me. what do you do with tech? the winners have been the winners, but they get hit whenever thing rose over. tony: you definitely want growth and quality, but you want to be sensitive to the price you are paying. i think there are a lot of older tech companies that have now become the new industrials that are incredibly important to the lifeblood of corporate america. julia: like microsoft? tony: i'm not going to name specific companies, but i think you could guess. those companies are growing. they are growing their dividend yields, growing returns to shareholders. also, the uses of technology. go back to the hmo discussion we

were having earlier and how that is helping suppress health care inflation. that is all about technology. these are massive data companies. scale matters, so go back to the discussion of large-cap versus small-cap. the large caps have the scale. i can deploy technology. smaller companies, more difficult. julia: the news on apple is interesting, though. i think it highlights that it hasn't really been the u.s. consumer that has been key in the cycle. the u.s. consumer is older, more stable, slower growing. it has been the chinese consumer that has driven a lot of growth for a lot of companies. if china is settling down to this lower and lower, more stable trend growth, what does that mean for the u.s. companies that have grown up of that china and asian market? i think it is going to be a tougher environment for them. alix: we continue to hear reports about chinese companies actually making their own stuff at the lower end of the scale.

what is the long-term implication of that? how do you then look at the semis or something and say, great, they are going to have better exposure to china when china is making their own stuff? that is a tricky thing. tony: one of the things that is incredibly important is quality of the business model. what we mean by that is what are the moats around this company? is that a patent, and incredible brand, cost position? that is the analysis you have to go through company by company to see if this business can be replicated by someone else, or is it unique. julia: the tech center is going to be the epicenter of the ongoing disruption in the growing tension between the u.s. and china. people talk about the concern of a bipolar tech world, where there's dual supply chains centered on china and centered on the u.s.-europe market. that is a completely different

world than we've been in. we've been into globalization world. everything is integrated global supply chains. now we might have to peel that apart, and that will be costly and less efficient. that is, i think, where we still might see that disruption even if we get a phase one trade deal. the tech sector is really where the rubber hits the road in the u.s.-china relations. alix: really great conversation. tony despirito of blackrock, thank you so much for coming. julia coronado of macropolicy perspectives is sticking with me. coming up, we await christine lagarde's first news conference. ill she have some verbal flubs? it's her first time a central bank chief. this is bloomberg. ♪

alix: this is "bloomberg daybreak." i am alix steel. 30 seconds away from some data in the u.s. like producer price index. the ecb has done nothing.

talking about rates lower for a longer period of time. classes, not a lot of movement again within the treasury market or the euro-dollar market. the ftse i wanted to point out. the ftse will keep seeing safe haven flows. i dilemma -- age isla map for ae -- a die lemma for this -- dilemma for the central bank. sequentially at -- much lower as well. in october the number was 1.6%. month by month basis we go negative. final demand month by month is 0%. that is ugly, julia coronado. that is not so great. julia: there are elements of the ppi that feed into the pce and there is growing divergence. health care is one of those

areas of divergence. i'm wondering if that low print is driven by the health care inflation, which has been low in the ppi and pce. alix: we are also seeing christine lagarde taking the helm of the ecb in her first news conference. not her first news conference altogether. everyone excited to look at her first news conference. she is getting settled after the ecb does nothing. initial jobless claims coming in at 252,000. are we out full employment or not? julia: it depends on labor force participation, which has been trending higher. prime age people coming back to the labor force. that means we can sustain this pace of job growth without much in the way of wage pressures. when we take a look at the weaker producer price index, how much of that is china? is that still conversation? julia: it is a conversation.

they have headline inflation from underlying agricultural issues. we demand translates into week inflationary pressures. we have seen china stabilized but not turn up decisively in terms of growth impulse. a lot of subdued pressure around the world. alix: we go to christine lagarde in her first meeting as ecb head. pres. lagarde: welcome to our press conference. today is the first time i've had the privilege and pleasure of sharing the monetary policy meeting of the governing council of the ecb and i'm delighted to proceed with reporting on the outcome of our meeting, together with my friend the vice president. the governing council meeting was also attended by the commission executive vice president. based on our regular economic and monetary analysis, we ecbded to keep the key interest rate unchanged. we expect them to remain at the

present or lower levels until we have seen the inflation outlook from wall street converge on a level sufficiently close to or below 2% within our projection horizon. such convergence has been consistently reflected in underlying inflation dynamics. 1, we restarted purchases and our asset purchase program at a monthly pace of 20 million euros. we expect them to run for as long as necessary to reinforce the accommodative impact of our policy rates and to end shortly before we start raising the key ecb interest rates. continuentend to reinvesting in food, principal payments from maturing securities purchased under the

app for an extended period of time past the date when we start raising the key ecb interest rates. in any case, for as long as necessary to maintain favorable liquidity conditions and an ample degree of monetary accommodation. the incoming data since the last governing council meeting in to continuedpoints muted inflation pressures and weak euro area growth dynamics, although there are some initial signs of stabilization in the that offer a down mild increase in underlying inflation in line with our previous expectations. ongoing employment growth and increasing wages continue to underpin the resilience of the euro area economy. comprehensive package or policy measures the governing council

decided in september provide substantial monetary evidence which insurers favorable finance conditions for all sectors of the economy, in particular easier borrowing conditions for households are underpinning consumer spending and business investment. this will support the euro area expansion, the ongoing to build up price pressures, and the robust convergence of inflation to our medium-term aim. in light of the subdued inflation outlook, the governing council reiterated the need for monetary policy to remain highly accommodative for a long period of time to support underlying inflation pressures and headline inflation developments over the medium-term. we will therefore closely monitor inflation developments

and the impact of the unfolding monetary policy measures on the economy. our forward guidance will ensure financial conditions adjust and are portents -- adjust in accordance with changes to the inflation outlook. the governing council continues to stand ready to adjust all of its instruments as appropriate to ensure inflation moves toward its aim in a sustained manner, in line with its commitment to symmetry. let me now explain our assessment in greater detail. starting with the economic analysis. area real gdp growth was confirmed at 0.2% quarter on quarter and the third quarter of 2019 and changed from the previous quarter -- unchanged from the previous quarter.

the ongoing weakness of international trade and persistent global uncertainties continues to wait on the euro area manufacturing sector and is dampening investment growth. at the same time, incoming economic data and survey information, while remaining weak overall, points to some stabilization in the slow down of economic growth in the euro area. the services and construction sectors remain resilient despite some moderation in the latter part of 2019. looking ahead, the euro area expansion will continue to be supported by favorable conditions, further employment gains in conjunction with rising , the mildly expansionary euro area fiscal stance, and the ongoing growth in global economy.

this assessment is broadly reflected in the december 2019 euro system staff macro economic projections for the euro area. all see annualns real gdp increasing by 1.2% in 2020, 1.4% both in , compared with the september 2019 macro economic projections, the outlook for real gdp growth has been revised slightly for 2020. the risks surrounding the euro area growth outlook related to geopolitical factors, rising protectionism, and vulnerabilities in emerging markets remained tilted to the downside, but have become somewhat less pronounced.

estimates, euro area annual hip see inflation increased from 0.7 inflation in october 2019 to 1% in november, reflecting mainly higher services and food priced inflation. ,n the basis of current futures prices for oil, headline inflation is likely to rise in the coming months. indicators of inflation expectations stand at low levels. measures of underlying inflation have remained muted, although there are some indications of a mild increase in line with previous expectations. while labor costs have strengthened amid tighter labor markets, the weaker growth momentum is delaying the pass-through to inflation.

over the medium-term, inflation is expected to increase, supported by our monetary policy measures, the ongoing economic expansion, and solid wage growth. this assessment is also broadly reflected in the december 2019 euros system staff macro economic projection for the euro annualhich foresees inflation at 1.2% in 2019, 1.1% 2021, and 1.6%n in 2022. 29pared with the september ecb staff macro economic ejections, the outlook for hicp inflation has been revised up slightly for 2020 and down slightly for 2021, mainly driven by the expected future path of

energy prices. turning to the monetary analysis growth stood at 5.6% in october 2019, unchanged from september. the same rate of broad money growth reflects ongoing bank credit creation for the private sector and low opportunity cost of holding m3 relative to other financial instruments. continues to be the main contributor to broad money growth on the component side. the growth of loans to firms and ,ouseholds remain solid benefiting from the continued pass-through of our accommodative monetary policy stance to bank lending rates. loansnual growth rate of to nonfinancial corporations increased to 3.8% in october,

compared with 3.6% in september. the annual growth rate of loans to households continued on its gradual upward path, reaching 3.5% in october. our accommodative monetary policy stance will help to safeguard very favorable bank lending conditions and will continue to support access to financing across all economic sectors, and in particular to smaller and medium-sized enterprises. a crosscheck of the outcome of the economic analysis with the signals coming from the monetary analysis confirms an ample degree of monetary accommodation is still necessary for the continued robust convergence of inflation to levels that are below but close to 2% over the medium-term. in order to reap the full

benefits from our monetary policy measures, other policy areas must contribute more decisively to raising the longer-term growth potential, supporting aggregate demand at the current juncture, and reducing vulnerabilities. the implementation of structural policies in euro area countries needs to be substantially stepped up to boost euro area productivity and growth potential, reduce structural unemployment, and increase resilience. the 2019 country-specific recommendations serve as the relevant signpost. policies,our fiscal the euro area fiscal stance is expected to remain mildly expansionary in 2020, thus providing support to economic activity. in view of the weakened economic outlook, the governing council welcomes the your groups -- the

euro groups readiness to coordinate. government with fiscal space should be ready to act in an effective and timely manner in countries where public debt is pursueovernments need to prudent policies and meet structural balance targets, which will create the conditions for -- all countries should intensify their efforts to achieve a more growth friendly composition of public finances. likewise, the transparent and consistent implementation of the eu fiscal and economic governments framework over time and across countries remains essential to bolster the resilience of the euro area economy, improving the functioning of economic and monetary union remains a priority. the governing council welcomes the ongoing work and urges

further specific and decisive steps to complete the banking union and the capital market union. with thew together vice president's available for your questions. before that i will take just a couple of minutes of your time to tell you a few things. presidenth and every has his or her own style of communicating. i know some of you are keen to rate or rank. i will have my own style. as i said before, do not over interpret, do not second-guess, do not cross reference. i am going to be myself and probably different. point number one. point number two. this introductory statement

probably rings a few bells for those of you who follow those documents very carefully, but some of you will be disappointed that it does not include anything having to do with the strategic review. it is intended to be that way. the introductory statement does not refer, and should not be associated, with the strategic review we are considering. i will be happy to give you -- i can do that now if you want -- a little bit of my thinking and our collective thinking on the strategic review because i know it is of interest to some of you. shall i do that now? that is easy. then you can ask questions. all, there is nothing unusual or extraordinary about having a strategic review. i consider myself that it is overdue. legitimately so, because there

were many other things to do. the last strategic review was in 2003. it has been 16 years since there was a strategic review. it is quite legitimate to have a strategic review at this time. second, that strategic review needs to be comprehensive, needs ratios, will turn each and every stone, and will will not time, but take too much time. by that i mean my plan is to get the review started in january -- do not ask to be -- do not ask me which day or which week or which second -- and our goal is to complete it by the end of 2020. third, about the strategic , it will be reaching out

to not just the usual suspects, but it will also include consulting with members of , it will reach out to the academic community, it will reach out to society representatives, and it will aim at not just preaching the gospel we think, but also listening to the views of those to whom we reach out. it is the point of every strategic review by all central banks conducting this exercise to look at the objective, how they define their medium-term objective in particular, how they give content to the price stability that is in their mandate, and it is the only objective we have in our mandate ourselves. indeed, will be center to

our strategic review. there is no preconceived landing zone at this point in time. address theill also major changes that have taken place over the course of the last 16 years. by that i include the massive technological change that our societies are facing. it will include the immense isllenge that climate change addressing to each and every one located, ander whatever our mission or duties. it will include aspects of inequality that are certainly rising in our economies, and all of those will be addressed with a view to exploring each and every corner of the business we conduct as a central bank, to see how those businesses are affected and how we can take them into account to better respond to the mission we have

and to deliver on our mandate. serving the euro area citizens, and delivering on the mandate of price stability. that is on the strategic review. if you have an additional point i can answer, i will. i will not go into further details of the substance, because the framework has not yet been completely agreed and discussed with members of the governing council, and i've certainly made a point of my tenure to include members of the governing council and to seek their views and their consideration before any decision is made. , i have huge respect for the work that you do, you are a main audience on the central bank, you are not the only audience, and i would also encourage you to try to not draw too much conclusions on decisive findings from communications i

would address to different audiences with a different language in order to be better understood by those who do not have your level of skills and in-depth knowledge of the matters we deal with. with that i am happy to take questions. when i don't know i will tell you i do not know. maybe you will know. >> my first question is about the inflation forecast you just read out. the 2022 forecast is now 1.6%. is it compatible with your idea of closer below 2%? the second question is about tltro. the option this morning did not go too well. banks took out fewer loans than the ones they are set to repay. does that undo some of your work in terms of adding excess

liquidity to the system? what you make of the option and how concerned are you about this low take? thank you. pres. lagarde: thank. one thing the interim directly -- one thing the introductory statement does not specify is that in our 2022 forecast for the entire year is forecast at 1.6%, the fourth quarter is at 1.7%. slightlyally, it is increasing over the course of 2022 forecast we have for inflation. is it satisfactory? it is directionally good. is it the aim that we pursue? no, indeed. oftltro, my recollection what was taken this morning was

something like 97.3 billion euros, which is a little less than what was coming for maturity. do i regard that as have success, have failure? neither. i would tell you two things. we have seven options in the 2, to bef this tltro precise. i would not draw conclusions from this one. i would wait, particularly given the fact that this one is taking place at year end. bookar end, you close your , there are many considerations that come into play. i would not draw many conclusions from this one. i would have preferred it to be then 100,oser to 1.20 but we will look closely at the next one. thank you. welcome to frankfurt.

i mayst question, if follow up on the review of what doesaid about the review, the fact that you are launching the review or launching the review while you have not met your mandate limits your wiggle room to how much you can change your definition of the mandate or your goal, since you've not reached it yet? the second question is on negative rates. we have heard quite a lot from you and other members of the governing council about side effects of negative rates. at the same time, your statement today says you are committed to adding stimulus. the question is how committed you still are, or maybe you are increasingly worried side effects should be reflected in

how you express your commitment and give your guidance. thank you. on the timing of the strategic review, there is never a good timing because you could argue equally that if and when you have delivered on the way in which you have defined your mandate, then why bother about a strategy. i think it cuts both ways. is after 16 years of the same strategy, which is the rule today and we will respect and continue to respect until such time as our strategic review is completed, i think it is timely. , it is thehis job most appropriate moment to rally

support of members around the table, to re-examine the effectiveness and appropriateness of each and every single instrument that we have used in the past to take assessment of that, and then to redefine for ourselves what will be the medium-term objective that will deliver on the mandate we have, which is not changing. the mandate is price stability. the way in which we deliver on the mandate will be under strategic review. side effects. first of all, we are very aware of the side effects. i think it has been a constant in the policy of the euro system to actually measure, monitor the side effect. this is part and parcel of the work that is done.

we will continue doing that. we might develop that work further. , what we have done was always intended to deliver on the mandate as defined under the current strategy, to create new conditions for growth, and on that point i think the use of interest rates, in particular, has been quite efficient in order to lower the financing cost, and that clearly seems to have worked and seems to work properly when i look at the increase and the volume of financing, both in the noncorporate finance and the household, when i look at the decrease in the cost itself. i think this is a policy that works. the side effects are a preoccupation. there is no question. we would not be doing our job if

we were not monitoring and being attentive to that balance of cost benefit of such measures. >> martin arnold, financial times. to carry on with the side effects, do you believe there is such a thing as a reversal rate? will this be something that is looked at by the strategic review? will it examine in more depth the side effects of your secondly, given that growth continues to be very by 2020 you are not expected to achieve your core target, do you think there is a risk of japanification in the euro zone? thank you. pres. lagarde: on the first

point, the reversal rate. my understanding of the reversal rate is that you are facing a reversal rate when credit begins contracting. that is how an economic theory the reversal rate is defined. given the progression rate we 3.8% in the most recent one in the nonfinancial corporate sector, three point 5% and growing in the household sector, that certainly does not meet the definition of credit contraction. we are still seeing credit expansion. are we attentive to that credit expansion and those credit numbers? of course we are. it is clearly one of the clear objectives that we have to facilitate the financing of growth and facilitate the investment, facilitate the creation of employment and so on. and ofnot seeing it

course we are looking very carefully at the indicators of credit growth in the economy. growth. yes it is weak growth. it is not at potential. we see it reaching towards potential in the medium-term horizon. 1.4% for 2022, we are getting close to the growth potential of -- itro area and it is would be very welcome to have other policies join the monetary policy in order to support the reduction of slack and to arrive at that growth potential and why not exceed it? that would be very welcome in physical terms and instructional reform terms as well. , i do not think were