>> good morning from dubai. it is "bloomberg daybreak: europe." i am manus cranny. >> these are today's top stories. china's economy gains momentum in november with industrial output and retail sales beating expectations. beijing and washington strike of phase one trade deal. network problems. china's ambassador to germany threatens retaliation if berlin banns huawei. we will get important pmi readings for the euro zone. after the vote, we are from downing street as boris johnson appoints new ministers to his cabinet. the bank of england releases its financial stability report.

manus: a warm welcome to "bloomberg daybreak: europe." do you believe that phase one trade deal between the u.s. and china is the most momentous day in trade history? those are the words of lighthizer. bank of america, a cracking note out this morning. get ready. it will be frontloaded. 5% up on the s&p 500. to e old rates are going bang up. nejra: how worried should we be about the potential curse of phase one and done? we have seen a risk rally. the phase one trade deal for china but also the u.k. election, but the question this

morning, as we sit here going into 2020 becomes is the absence of some bad news going to be enough for risk assets or do we actually need more good news to come along? manus: indeed. to the markets. there are the believers, the doubters, and there are a course those people that have yet to be convinced. the yuan is truly one of the believers. we come off that break point down to one of the biggest 1% ony drops moving by friday. what does it take to rerate you want even stronger? that would take a bigger -- yuan even stronger? sales,ial output, retail and fixed assets all helping the yuan strengthen. to the rest of the markets, the ecstasy, the agony. back to the reality. this is a doubting thomas of markets.

the bond market doubts the veracity of this trade deal. you have double line capital adding to the 10 year bond position. down by .4% as the hedge funds -- before the trade deal so we are giving a little bit of the euphoria back and a little bit more of a pause, nera. -- neijra. up .1%.he msci pacific, uncertainty still ahead even though we have a phase one deal. s&p futures meanwhile a little bit more in the green, edging into that after the s&p 500 closed flat on friday and i want to talk about the pound. on the back of the tory win in the u.k. election, the huge majority of 80 seats for boris johnson, the best result since 1987. we saw the pound rise to its highest since 2018 and jumped the most in almost three years

at one point. 133.86 is where we are. lots of questions in terms of how brexit is going to look for the negotiations with the trade a risk ofthe e.u. and a scottish referendum on independence. china's economy showed signs of stabilizing as industrial output rose 6.2% from one year earlier and retail sales expanded by 8% ahead of estimates. it adds to the good news for the nation's outlook after the preliminary trade deal with the u.s. was reached last week. robert lighthizer said it was the most momentous day in trade history ever in a cbs interview. robert: we do not have a date. we have to get this final translations worked out,. i will tell you this, the second phase will be determined by how we implement phase one. phase one will be implemented

right down to every detail. it is a remarkable agreement but it is not going to solve all the problems. nejra: joining us now is the global macro strategist at rbc. there are things we know and things we do not about phase one. are you worried at all about the so-called curse of phase one-and-one for risk assets? not really. it is the absence of bad news or is there good news as well? the absence of good news is a good starting point. one of the things with the deal is it prevents further escalations of tensions into 20. that is the absence of bad news. the question of good news, as you just highlighted, some of the stabilization of the data. the question is, will it continue? that is unclear. if that continues, i reckon we have a better q1 ahead.

manus: good to see you, peter. about in momentous trade deal. he's going to use strong language like that. some people in the market say it is incremental rather than monumental. ishew on -- cash yuan flying. the options market is perhaps a little bit more suspicious because we have got volatility in the one year just a little bit more. the one year implied volatility is trading a little bit higher than the realized volatility so we are seeing a note of caution from the market in terms of the forwards. would you be a doubter of this, and if so, do you play it through the currency? what i just of all, mentioned is we do know that a deal is certainly going to be struck. we don't know exactly what is in it and what will come thereafter.

it is not unreasonable for me that there are some people further out that are doubting further progress. that does not surprise me. but how would we play this? as i was mentioning, i think the way to play this, in my mind is expecting a stabilization of growth, expecting a stabilization or lack of further escalation, and that helps us in the risky assets predominantly and the fixed income market. the currency market is probably a different story because obviously, the currency is a two-way bet. i am not sure the currency market is the way to play this. nejra: before they got the phase one deal, some were saying it was priced into equity markets. it is not just phase one but the inflection in global growth you have been mentioning. in 2020, do you expect equities to outperform bonds again? peter: yes, we do. that's a short answer. in an environment where you have

some stabilization of growth and a rebound, there's certainly the fixed income assets that have to price that in, so i would expect, in the environment, 10 year treasuries will be traded with the two handle. if the equity market is not collapsing, there is almost and outperformance built in straightaway. manus: bank of america had that melt up scenario, talking about 2.2%. to the global equity market rally, we talked about record highs being achieved, but they have not been delivered. let's bring that up again to put it in context. they have not been delivered in asia, in the shanghai composite, nor in japan. 1989, the last time the japanese saw a record high. one potentially rerate asian equities relative to the rest of the world on that benchmark of records? peter: i am not quite sure about that, but for starters, getting

to a new record high in japan is going to be a tricky task, but when you look at it, asia has built in problems anyway. the chinese economy, even if it is rebounding, we know it still of itsre-shift some production capacity anyway, so actually, i think, in this environment, i am much more positive, let's say, on our part of the world, which is probably going to have some kind of a catch up, but also in the western market in general, the developed market in general, i think they will be doing quite well. nejra: in china, does your expectation for the evolution of the data mean that you see any monetary easing off the table for 2020, and if we get anything, it will be more on the fiscal side? peter: off the table, i thing that is probably too strong. you will see some monetary policy action here or there still. we are still pondering about whether the bank of canada or

australia is one of those quite likely to do it. we will see monetary policy action still but clearly, the gist of your question, -- nejra: for china. peter: it is plausible we do see some moderate action as well. sorry if maybe i maturity. gist of your question, is fiscal going to take over for monetary policy? there is a chance we get more fiscal. manus: ok, peter. peter schaffrik from rbc capital markets. let's get you up to speed. your first word news flow from around the world. annabelle droulers is with the team in hong kong. >> thanks, manus. boris johnson appointed new ministers today to his cabinet following his landslide victory in last week's u.k. election. the prime minister will name his senior team if he welcomes 109 new members to london. downing street says the

government will introduce a law to deliver brexit before christmas. paving the way for the e.u. -- to take place before january. the international fossil fuel pollution has stumbled after u.n. talks. delegates left madrid's meeting after more than two weeks of discussion. agreeing only on the urgent need -- greenhouse gases. it also failed to agree about finance. keqiangpremier li reiterated beijing's firm support for carrie lam. the remarks came as li hosted lam. another weekend of protests rose in the commercial area with demonstrators throwing glass bottles and other items at police. lebanese security forces fired rubber bullets and tear gas amid another weekend of clashes in beirut.

the cityhe worst in since antigovernment protests erupted two months ago and, head of talks to name a new prime minister. previous negotiations were postponed when rival political groups failed to agree on a new leader. 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 am annabelle -- this is bloomberg. nejra: annabelle droulers in hong kong, thank you so much. there will be consequences. china's top envoy to berlin threatens -- we will bring you the story, next. manus: if you are traveling to work, tune into bloomberg radio live on your mobile device and , dab digital radio in the london area. this is bloomberg. ♪

nejra: this is "bloomberg

daybreak: europe." i am nejra cehic in london. manus: i am manus cranny in dubai. let's get the agenda set up for the week. it will be busy. the bank of england publishes the financial stability report today. it will outline the central banks views on the stability of the u.k.'s financial system. in the u.s., investors keep a close eye on the repo auction amid growing concern the amount of liquidity in the markets -- tuesday, the u.k. parliament reconvenes after the conservative party gained the largest majority since thatcher. nejra: lots to look ahead to with cabinet appointments today in the u.k. vladimir putin delivers his annual year-end news conference on the same day the bank of japan announces its final policy decision of 2019. u.s. lawmakers faced a friday deadline to continue funding the government and avoid a shutdown. china has threatened retaliation should germany ban huawei. the chinese ambassador to

germany was at an event on saturday and said there will be consequences. the chinese government will not stand idly by. he cited the millions of vehicles german carmakers sell in china. running us now from beijing is bloomberg anchor tom mackenzie. great to have you with us. just catch us up on the details. tom: i think it really puts a spotlight on the pressure that germany is under, which of course has a strong security military partnership an alliance with the u.s.. on the economic front, it relies on the chinese market particularly for auto sales. they are trying to come up with some way to address both of those tensions. but you have divisions within the governing coalition because you have merkel and the economy minister saying you cannot freeze out huawei in terms of its equipments for 5g, for the 5g buildout of the network, but you have members of the coalition in germany who are concerned about

this, pushing a bill through the legislature that would effectively freeze out huawei. it does not name the company, but it is designed, essentially, around huawei, which is the world's biggest telecoms equipment maker. so you have the chinese ambassador to germany coming out and saying if this bill gets put into law and becomes law, we will be forced to put in place those consequences and to retaliate, and he name dropped the auto industry, pointing out that china is the largest market for german automakers. again, it highlights that even if you have some resolution or partial resolution on the trade front between the u.s. and china, the questions around technology and cybersecurity, not just between beijing and washington but also between beijing and its other trading partners, remains front and center. this really highlights that. absolutely. great roundup. tom mackenzie, cohost of our beijing program. peter schaffrik is our guest host this morning from rbc

capital markets. peter, when you listened to that roundup of the threats from china to germany, it does remind me that 2020 could be a great risk. brazil, argentina, the e.u., the u.s., china, now lobbying back at germany. these trade risks, they are far from dissipated. they are still very much alive. peter: absolutely. if you allow me sort of to take maybe five steps back, if we look at the bigger picture, it is absolutely clear to me that globalization, the way how we trade, the whole international architecture is very, very much on the growing change. this is a very long process. this will not happen in one month or three months or six months. this will happen over years and potentially decades. when you look at it from that angle, that is going to de-escalate things for now but that does not mean all the frictions are going away, and today need to be dealt with peer

what we are seeing in this particular story is one that is very evident. i mean, how do we deal with security concerns when it comes to communication networks and all these type of things? this is a story that will not just go away. nejra: peter schaffrik stays with us. let's get the bloomberg business flash with annabelle droulers in hong kong. international -- reached agreement to buy dupont's nutrition division. the deal sees the u.s. company beat the group as it seeks to expand into the fast-growing food ingredients business. the unit specializes in products such as sweeteners and emulsifiers and is seeing growth in areas such as plant-based meats and probiotics. english football club arsenal is facing a backlash from china after one of its top players attacked the treatment of uyghur muslims. -- the club's immediate attempt

to distance itself from the star players remarks. earlier this year, the nba was flagged in china after an executive showed support for the democracy protests in hong kong. is considering temporarily halting production of the 737 max as regulatory clearance for the grounded jet looks likely to slip beyond 2020. boeing executives believe a temporary pause would be less disruptive and a further slowdown in production. that is your bloomberg business flash. thank you very much. annabelle droulers rounding up the news. coming up on the show, we look at the pounds correlation with the macroeconomic data. stay tuned for why this chart really does matter. that is next. this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe."

i am nejra cehic in london. manus: i am manus cranny in dubai. let's turn our attention back to stealing because we see the currency move. is that likely to be in sync with the macroeconomic data? with your chart, dani burger is with us. dani: one key risk taken out of this market with the decisive tory victory. will the pound react like brexit is not a huge fear hanging over the market? we have seen options traders pricing that. one month volatility is in the white and blue line and it is starting to smooth out. what is interesting is the purple one year volatility pricing. when you see it's plunged recently, when you take this data back, it is at its lowest in five years so that means pre-brexit referendum levels. we will see the pound finally start to trade with macro data. this week will be a key test to that. we have pmi's, inflation, a boe rate decision. that could move the pound instead of the fear of brexit.

there is still the trade accord that needs to be figured out. the deadline is set for 11 months. at least according to this chart, the pound is returning to its pre-referendum glory. manus, nejra. nejra: let's stick with the u.k. scene. boris johnson set to appoint new ministers to the cabinet. the prime minister is pushing ahead with brexit after securing an historic victory in last week's election. the conservatives decisive win in the election clears the way for the government to name the bank of england governor. speculation over the identity of the new chief largely died down during the election campaign until the financial times reported that a former deputy governor was the most likely candidate. others have suggested a former deputy governor. even boris's former economic advisor, gerard lyons, is in the mix. peter schaffrik is still with us. before we get onto the boe, i want to reference what dani

was saying. that would be about 150. before we get to that, how soon do we get to 140 and above and what will take the pound to the -- pound there? peter: we are not in the camp that this will happen very quickly. a reduction in volatility does not necessarily indicate any level. what it means is the volatility will be reduced or at least expected to be reduced. having said that, i want to come back to the point that i think you also referenced earlier. aboute the uncertainty the trade deal with the e.u. we still have the uncertainty about what happens if that cannot be achieved in a relatively short timeframe and all of these things are not going to go away. we think it is unlikely to see a rebound all the way to the previous levels before the referendum very shortly. manus: ok, so maybe a little bit of caution there in terms of the next leg. peter, what about the bond side

of the market? we have seen some berating in the gilt market and goldman sachs reckoned you get another 25 pips higher. another 25 into next year. and gilts will underperform balloons and treasuries. we are about to go into a -- bunds and treasuries. we are about to go into a fiscal slip. peter: we are generally negative on the bond market for all the reasons i mentioned earlier and that includes the gilts. we like gilts as a vehicle to express those shorts but again, we have to stay realistic. i think we can't go up to 1% and the 10 year. i do not necessarily think that the fiscal slip matters in terms of pricing and repricing the risk as it probably would have in a different election outcome but what it does is to support the economy and as it supports the economy, that is slightly negative for the market. i don't think it is sort of a

complete rerate of the low interest rate environment that we are in. that is not going to happen. nejra: the markets have started pricing out to some extent or at least adjusting their pricing around a rate cut for the bank of england in 2020. does it mean we could potentially get a rate hike given the fact that inflation expectations have plunged because of the strength of the pound? peter: the way i see this, it is not necessarily very likely. we get an actual rate hike next year. it takes time and for all the risks i mentioned, that would stay the bank's hands but that should not prevent the market from pricing in a probability of that to happen because that is a very different thing. we came from about 10 basis points to 15 basis points of rate cuts. over the next year, we can price about 10 to 15 basis points of rate hike over the next 12 months which has an impact on the market without the actual rate hike happening. for thereaking ranks last meeting going for a

quarter-point cut. let's see if there is a shift. peter schaffrik from rbc capital markets stays with nejra and i. and mark carney will present his financial stability report today. ♪ ♪

nejra: good morning from bloomberg's european headquarters in the city of london. i am nejra cehic with manus cranny, live from dubai. this is "bloomberg daybreak: europe," and these are today's top stories. manus: china's economy gained momentum in november with both industrial outputs and retail sales beating expectations. beijing and washington strycova phase one trade deal. china's ambassador to germany threatens retaliation. if berlin bans huawei from the nation's 5g network. we will also get important pmi readings for the euro zone. after the votes, we are live

from downing street. boris johnson appoints new members to his cabinet. it releases its financial stability report. nejra: on this monday morning, we look at phase one done. the u.k. election, the rearview mirror, and the conservatives getting a resounding majority in that u.k. election, yet risk assets struggling to gain traction today. we get all the market action from around the world, manus. manus: we are indeed. is it time to hesitate or to reengage? we get the team in place at we have our boom bloomberg partner -- bloomberg partner. annmarie hordern is back from her vacation.

global markets relatively flat jra just said. what is the story? >> well, that is actually the thing, manus. good morning. we start off very well. it has come off a little bit. they are getting support from us. resolution of the insolvency in bankruptcy court. the measure in india. it has seen its first case. led to the banks doing well and giving that support to the index. just a moment on this chart. watch out for this. twice in the last three months, the nifty has taken strong support. this time around, the support came in because banks gave their helping hand. maybe there is more in store. back to you. nejra: we had some better than expected data out of china, but some moves in the yuan show

traders remain cautious on the trade front. juliette: absolutely, nera. we have seen the offshore yuan rise quite sharply today but a little bit of weakness in the onshore and i am looking at implied volatility suggesting traders to remain a little bit cautious over this phase one trade deal. you can see the options implied one year volatility, remaining above the levels we saw in april and july when the market saw the deal as more imminent. options implied one year volatility on friday at 5.05% while it was at 4.5% in april and july. as our bloomberg opinion columnist puts it, the fact that onshore and offshore currencies are back below seven to the dollar is a clear sign of peace from china and exactly what the americans want to see as negotiations move towards phase two. manus, nera. -- nejra. manus: good to see you. the trade deal phase one is in place. details, we await to see. china, $50 billion worth of farm products.

some would say a little bit of a tall order. what have the chinese to say? >> not whole part of the deal we don't know yet, the devil is in the details of this phase one trade agreement. we have yet to hear from china agriculturale u.s. products that donald trump says will be coming soon. that is one of the details missing. i am looking at the damage that has been done. these are exports as a whole. you can see there has been permanent damage when it comes to soybeans alone, a lot of reports are saying it could take six years to seven years to make up for the loss the trade war has put. agricultural products will be want to watch when china comes out. it will be a huge reprieve for american farmers in american heartland. nejra: annmarie hordern and juliette saly and niraj shah. let's get the first word news with annabelle droulers in hong kong. annabelle: boris johnson will

appoint new ministers to his cabinet today following his landslide victory in last week's u.k. election. the prime minister will name his -- as he welcomes 109 new conservative members to take their place in the house of commons. the government will introduce a law to deliver brexit before christmas, paving the way for placeu. move to take before january. china has welcomed the signing of the phaedrus one trade deal with the u.s. by pledging -- phase one trade deal with the u.s.. the ministry of finance says it will refrain from imposing duties on vehicles and auto parts shipped from the u.s.. there will be a continued suspension of tariffs on a combined 126 billion dollars worth of american imports. the international effort to reign in fossil fuel pollution stumbled after u.n. talks watered down language agreed to in previous years. the delegates left the meeting after more than two weeks of

discussion, agreeing only on the urgent need for the per cuts to greenhouse passes. cuts to greenhouse gases. china's industrial production retail sales both beat estimates in november. factory output rose more than 6% from a year earlier, surging past expectations for 5% growth. retail sales expanded by 8%. however, separate data shows investment is still slowing. it is expanding at its slowest pace since 1998. chinese premier li keqiang has reiterated beijing's firm support for hong kong leader carrie lam. the remarks came as li hosted lam. another weekend of protests. demonstrators throwing glass bottles and other items at police. 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. this is bloomberg.

manus: annabelle droulers in hong kong. christine lagarde zero at the ecb has begun with an assured performance at her debut press conference on thursday. she showcased her initiative for a year-long review of monetary policy and expressed hope for the economy to stabilize. a rbc markets label her an owl. the euro area was stabilizing. he said "there is the beginning of an economic stabilization." we stopped revising down our forecast. peter schaffrik is still with us. a couple of big seems to deal with -- themes to deal with. describe an owl to me and what

is your take in terms of my down the guards propensity -- madam lagarde's propensity to fly? peter: that was her words, not ours. we just borrowed them. going back to the substance, indeed, she delivered a short performance and when you look at them, you reference how the ecb -- that is our new index that we have created to measure the hawkish in us or the dovishness of any central bank, really. and what it shows very clearly is that she has sort of stayed the course of her predecessor. there is no indication that we can make out that the ecb is going to firm up policy anytime the really, and i think biggest focus for next year, particularly for the first half of the year, is going to be on the review rather than monetary policy in its own right. nejra: does that mean we could get no action at all in 2020 as opposed to a rate cut that some are still expecting?

peter: a rate cut is completely out of the question unless the economy magically collapses. so that is not going to happen. and therefore, i think if you look at it, they have put their policies in place, which they will try to see through. i think for a very long period of time, we will get no concrete action from the ecb, and whether or not that is entirely true for the entire year remains to be seen because i reckon towards the end of the year, they will have to make a decision what to do with their qe program when they get to their limits so that is more mechanical, but at least for the first six months, i really don't think there is any chance of any policy action. concrete policy action. carte given your a la menu of a lot of introspection, a lot of sitting still, i have seen the travel on the bund yield from -.62 -- we are going to get the pmi's. you have a phase one trade deal. what does that do? do iget back to zero on bunds?

peter: there is a decent chance of that. as i was saying earlier as regards to trade deals, for me, this is a process, not sort of a big bang moment, so i expect or we expect that the data will stabilize. if i may say, if we have the global economy stabilizing, that is very, very important for us in europe, because obviously, we have very open economies. if that transpires into better data in the european economy, then i think, in q1, maybe q2, we have a chance of getting back to zero. nejra: how much of a lift could that give to the euro, which got to a four-month high at the end of last week on the u.k. election news and the phase one expectation? could we go much higher? leep for an as while now. peter: it will stay asleep. we have forces on both sides, but generally speaking, if we

have a little bit more inflows into the european markets, equity and other assets, that should help the euro to some degree, but again, if you look at it against the pound, that is its own story. the dollar has its own story. particularly against the big story. it is difficult to see a massive appreciation. manus: tell me this one of the things he focused on, peter, was christine lagarde's reference to this. there is the lack of take-up on those. is this the balance to no movement in policy? open-ended qe a sufficient ballast for the growth story in europe with no movement on rates? peter: yes and no, of course, particularly as far as that is concerned. there are quite a lot of uncertainties because what we do know is towards the middle of the year, quite a lot rolls off, and that is of course one of the key things that drives the ecb's

balance sheet, the liquidity in the market, and all the rest of it. if it remains relatively low, whilst the repayments are quite plentiful, then you might have sort of a bit of a wobble. overall, with the ecb's balance sheet in expansion mode, i think that this is not going to be a big story. nejra: peter schaffrik from rbc capital markets stays with us. repost stress. we will be looking at what today's activities could mean year-end funding, next. this is bloomberg. ♪

manus: it's "bloomberg daybreak: europe." i am manus cranny in dubai. nejra: i'm nejra cehic in london. annabelle droulers in hong kong. annabelle: international flavors and fragrances reached a deal to

buy dupont's nutrition division. the deal sees the u.s. company beat the group as it seeks to expand into the fast-growing food ingredients business. the unit specializes in products such as sweeteners and emulsifiers and to has seen growth in plant-based meats and probiotics. china's ambassador to germany .as threatened retaliation speaking at an event on saturday, the ambassador said there will be consequences if sterling makes the decision. it also made reference to the millions of vehicles german carmakers sell in china. english football club arsenal facing a backlash from china after one of its top players muslims.-- uyghur despite the clubs immediate attempt to distance itself from the star players remarks. earlier this year, the nba resigned in china after an

executive showed support for the democracy protest in hong kong. the wing is considering -- boeing is considering halting production of the 737 max as regulatory clearance looks increasingly likely to slip beyond january 2020. bloomberg understands boeing executives believe a temporary pause would be less disruptive than a further slowdown in production. and that is your bloomberg business flash. nejra and manus. manus: thank you. i will pick it up from here. here is what you need to know for the trading day. it is all about the repo market. money market participants will be watching the activity is a bellwether for potential year end funding stresses and whether the fed has been effective in relieving that pressure. dani burger has been keeping an eye on that. dani: definitely today will be a key test for the repo market because we have a similar set up to what happened in september when rates spikes, causing concern among players.

we have the treasury option as well as corporate tax settlements. both of those things tend to drain cash from the system and make it difficult for hedge funds and market players to get the short-term funding they need for their day-to-day operations, not to mention it is december. we see liquidity. inject $.5ns to trillion into the system. $50 billion now. their hope is it will relax some of the stresses we have seen so far this year and that we tend to see in december so that will be the question swirling around markets today. has the fed done enough to relieve those pressures? sora: dani burger, thank you much. gdp is expected to show growth expanded in the third quarter. that is by 2.1 percent. meanwhile, economists expect growth to slow in the fourth quarter and we will get pmi data that is more forward-looking. peter schappert is still with us.

peter, 2018, 2019, the dollar has been on the up, up. is 20/20 the year of the weaker dollar? -- -- 2020 the year of the weaker dollar? peter: when you look at the fx argot, it is always the story of two opposing forces. one of the reasons the dollar was strong is it was weak. if we have a little bit of a comeback in europe, that probably means some weakening of the dollar. having said all that, when you also look at one of the other key drivers, the relatively high interest rates compared to anyone else, that will not go away, so we overall think it might weaken a little bit but not by, you know, not by a country mile. your: peter, i want to get thoughts on inflation. i put together some breakevens. for the u.s., germany, and australia, if i look at this, just want to get a sense of whether we are underpricing the risk. these are the breakevens. and the u.s. leads. whether we are underpricing the risk of slight momentum and

inflation last year. pimco, blackrock, and state street saying these could be cheap hedges on the breakevens. your thoughts? peter: i tend to agree. it is a bit of a widow maker trade because, unfortunately, breakevens have been low, extremely low for quite a while. we have been bouncing back from previous lows whenever central-bank stimulus came in just to collapse again. i daresay i think the development of actual inflation is one of those things that keeps people awake at night because it's very much an unresolved mystery as to why inflation is not stronger even in places where -- over the more medium-term, the breakevens under price the risk of inflation to come. debate between the good inflation and ugly

inflation. capitalhaffrik, rbc markets, stays with our spirit a little bit more to do. bank of america is out with a new phone call for 2020. we will give you your morning call. this is bloomberg. ♪

manus: this is "bloomberg daybreak: europe." i am manus cranny in dubai. nejra: i am nejra cehic in london. bank of america is out with a new bold call for 2020. annmarie hordern is here with more. markets aresaying set for a risk asset melt up. if either of you are superstitious, strategists are saying the s&p 500 will reach 3333 on the third day of the third month of next year. that is a 5% increase for the s&p which closed on friday. they are saying all this is due

to the fact that the trade war, brexit, all that will be taking a backseat. we have the fed and ecb likely providing liquidity and that's why they are seeing this melt up into next year, manus. suspicious att all i will take all the threes every day of the week. annmarie hordern. peter schaffrik is our guest host from rbc capital markets. we started this show with this line. you were a little bit more cautious. melt all about the mini up. do you think markets will frontload risk generally but maybe not just in the melt up kind of mania way we have referenced? bank of america referenced it. peter: i think that's a very good description and when you think about it, the u.s. markets, on many levels, already looks expensive. one of the things that should be driving the equity market in our my next year rather than multiple expansions is going to

be the expansion of earnings expectations. other markets, particularly over here in europe and in the u.k., you still have a very decent chance of multiple expansion because obviously, over the last couple of years, it has been lagging behind substantially. i see a chance that this will happen relatively quickly. nejra: will european equities and u.k. equities outperform the u.s. in 2020? peter: at the beginning, we would think so. some of the european uncertainties lift. coming back to something we discussed earlier in the show, if the global economy stabilizes, that should be positive news for europe in general, and if that is the case, at least the beginning should see that. we will have to see how it pans out in reality because expectation is one thing. reality is quite another. manus: there is a great distance between the two. i assure you. i am going to get a bit boring

and talk about dividends. my drum that i beat. there is a lovely piece on the terminal. is quite appealing and rich from where i am sitting, looking at 0% in my bank account. peter: certainly. u.k. equities is a very interesting story at this stage. clearly, and i think we mentioned it also earlier, there's a lot of expectations following the election that things are getting better very quickly. as i was saying regarding the pound, i would tend to say not so fast because there are still a lot of headline risks coming in 2020. we just don't know how they will pan out. in general, i think u.k. equities have a decent chance of a bounceback. nejra: in 2020, if investors want to take equity risk, should they rotate that out of the u.s. a little bit and reallocate like you talked about but also emerging markets?

peter: certainly the former two. we would think so. in general, what you tend to find is that if the global economy stabilizes, it tends to be good for emerging markets but you have to be much more selective. one thing that will happen is sweden may go back to zero on the repo rate. does that state something about the prospects for 2020 and central banks and negative rates, peter? peter: i get that question a lot. obviously, the two central banks have very low interest rates or negative interest rates. the ecb or even the boj. typically, the leap is once we have one central-bank making matt, you see the ecb following and that is the broader picture it i don't buy it, to be honest. i think this is a very special case in sweden. i don't think it has any direct implications for what the ecb will do and certainly not what

the boj is going to do. nejra: great to have you with us for this hour. peter schaffrik. that is it for "bloomberg daybreak: europe." the european open is up next. we start monday fairly muted in terms of the equity trading front. this is bloomberg. ♪ g. ♪ [ dramatic music ]

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>> good morning welcome to the european open. i am anna edwards aside matt miller in berlin. a health check. pmi data do across the nation. futures solidly higher. ♪