the same. andrew bailey will be governor of the bank and shepherding the u.k. through brexit. and pound pounded. u.k. currency in its worse week since 2017 as they prepare to vote on the brexit deal. yields pushing their way higher. . welcome to bloomberg daybreak, i'm alyx steele. around the open and close you'll see a lot of options expiring at the same time. for now you're seeing futures calm, 3212 after closing with another record high yesterday and seeing small caps catch up to their own record since 2018. the pound losing steam having a stronger dollar as the year reverses to the early gains. it appears the e.u. signed up to the december 31 time table for a trade deal according to the u.k.

also taking a look here at the curve as well as bonds like i mentioned, 194 is where we sit on the 10-year. time for global exchange where we bring you market moving news from beijing to new delhi to washington and los angeles. our bloomberg voices on the ground with this morning's top stories. we begin in asia where the chinese president is in macau to celebrate the return to chinese rule against the backdrop of unrest in china and calling for macau to diversify its economy. >> with the return of hong kong and macau to the moreland, it is completely up to china to handle the affairs of the two special administrative regions. there is no need for any external force to interfere. alxy: joining me is tom mckenzie the china open

co-anchor. what did you learn by the speech from mr. xi? tom: he was there to mark the 20th anniversary of the handover and swearing in of the chief executive. macau as a reminder is the world's biggest gambling hub, bigger than vegas with a monopoly on the industry in china. it is relatively prosperous and it is a stable city and territory so there's that stark comparison with hong kong which has faced more than six months of often violent anti-government protests. xi used this opportunity to hold macau up as a shining example of the one country, two systems form of government where essentially macau and hong kong are a part of china but operate under different legal systems and have more autonomy and have something of a free press and by lavishing praise on macau for maintaining stability and implementing laws around security and education, he was drawing a very sharp

distinction again with hong kong which has seen the unrest and continuing unrest and also said macau had resisted external interference and meddling cusing the and being behind the unrest mostly being the british and americans. the challenge going forward will be to convince hong kong and taiwan macau's example of subservient loyalty should be followed and so far all the evidence suggests he's failing on that front. alyx: thank you so much for joining us. now to india where the citizenship protests continue despite a government ban on demonstrations. joining me from new delhi is our bureau chief. what is the state of play now n the protests in the capital? >> we saw another day of protests in the capital. the government has been quick to come down on these protests

and did not allow gathering of the people in the capital city for the second straight day and effectively placed an entire neighboring state near the capital city under curfew and shut down the internet and in parts of the capital city as ell as neighboring state hat's swift and with hong kong they haven't touched the internet net but it was quick. about 1,200 in the capital city, most students from various universities. the weekends are on the protest plan and we have to wait and see how they crack down on these protests. as soon as the financial markets are concerned, they shut down the demonstrations

and record highs today as well as friday close. going forward, the protesters don't seem to be in a mood to back down as an assault on india's secular constitution and one that deliberately targets muslims because that's become a determining force for them applying for citizenship. the government on the other hand denies all these charges. it's a pretty big picture because the economy is slowing down and unemployment rate is at a 45-year high and that's the state of fate from the capital city. alyx: thank you. now to the u.k. where the head of the financial conduct authority andrew bailey is said to succeed mark carney as banker of england. they made the announcement today. >> when we launched this protest we said we were looking for a leader of international

standing with expertise across economic and regulatory policy and in andrew bailey we have found just that. alyx: joining me is our bloomberg columnist. what do you make of it? >> andrew bailey has been around 30 years with the bank of england in the prudential regulatories and overlooks the banks and insurers and most recently been ahead of the financial conduct authority. very key experience. the bank of england is not just about setting interest rates but the rules and regulations and overseeing the financial system which is so important now we go through brexit and is probably seen as the most forward thinking and com me tent's person they have hired and his views are not known, he is quite key for regulation and is key for the government's agenda as they hope to be operated from the european

union and keeps the city as the finance center of europe. he's had rocky things the last couple years with a couple scandals, but he's been able to keep the organizations on track and is a popular choice not only in the city but across government. indeed, the bank of england, at least we have a person who is governor for three years and has experience and gives confidence that the bank of england staffers that they'll not just have outside superstars coming in. alxy: thank you very much, marcus ashworth. nike reported the stock. they were at a record going in. danny, break it down for us. >> it wasn't just the record that gives us an idea of how much investors were expecting. call options were the fifth highest on record. we have a large buildup of high expectations but then nike comes out with numbers that

easily sail past estimates and their profits were 70 cents a share versus 68 cent as share and now are falling 1.5% and is better than what happened after market. what happened here? it could be in part this is nike and eventually eat beat every quarter and looking back to 2012 they missed one quarter but the shares fall 1/3 of the time and investigators looking for more than the headline profit numbers. a couple things could have set them off and one could have been these sky high inventories, 6.2 billion which is a bigger number and i should say they fell short by .1%. regardless what the share is doing premarket we've heard analysts say they're optimistic on nike. look at credit swiss, they see

a 20% growth in e.p.s. even though the share price isn't looking well they see a bright future ahead. alyx: thank you. now to washington where president trump is a step closer to his nafta agreement, one day after voting to impeach him the house passed the new agreement. anna is joining us, a bloomberg congressional editor. what's the next step? what's going to happen. > we expect them to send it up next year and mcconnell will take it up after the impeachment process. the house impeached president trump on wednesday and now it's up to house speaker nancy pelosi to send the articles of impeachment to the senate. there are a few procedural steps to do in order to do that and has to name the impeachment manager and who present the

house's case for the national for a trail. alyx: presidential candidates sparred on teenage in the sixth bait. >> people who can put down $5,000 to have a picture taken don't have the same priorities as people struggling with twuent home debt or people paying off debt. >> i can't help but feel that was directed at me. alyx: kevin, thank so you much. i know it's been a long 24 hours for you. give me some of the main takeaways. >> it was a long night for mayor buttigieg and took it not from major warrens. when it comes to finance combinations. but amy globe char from minnesota, the candidates are jockeying for positioning trying to break in and break away from the mold to be able

to go to the top tier with former vice president joe biden and senator bernie sanders. those two duked it out no medicare for all and i spoke briefly for the officials from the biden campaign and they ushed back on the notion the sanders team put out is not as forward thinking about structural change as the sanders campaign characterized it by. the sanders campaign, polling above senator elizabeth warren said they were the originals when it relates to medicare for all. from here there's one more debate ahead of the iowa caucuses, scheduled for january 14 in des moines, iowa. and now it's a horserace to the finish. alxx: another story, the next front tier for apple could be outer space. bloomberg learned apple has a secret teamworking on

satellites and healthed wire technology and the goal is to find new ways to beam out directly to its devices and apple is in the first stage of its projects and still could be a ban and tim cook has shown in in the project and if a one ity would put it above web. we'll have more analysis on the markets and today's first takes. this is bloomberg. ♪ dddd

alix: time for bloomberg's first takes. we give you the news and get the trade analysis. joining me with the in-house

team. vincent and voice of bloomberg audio squawk. and our senior u. economist and rob from invesco, income strategist. vincent, i'll start but. we talk about andrew bailey. ow do traders look at that vincent: it's too soon to see where he'll go with this. i'm not saying traders are happy to see carney go but he's waffled. alix: give it a title. don't make it up. vin vent: one minute he's talking tires and next he's talking rates lower. he lost a bit of a grip. we'll see how bailey moves in. i like the idea he's not a monetary policy guy like powell coming in with a fresh look. it's too soon to have a take on it but is a fresh look. >> he knows the institution and

is there seven years and been involved in the u.k. financial bureaucracy for years and a steady hand from our lot ective and mia has a of regulatory experience which would be important in a time when the u.k. transitions to a new state. so during the negotiations with the u.k. and europe over the next trade agreement, i think it will be very important his experience as a regulator will come in place. rob: he'll lend a lot of credibility to the discussions. alix: central banks will matter less next year and seeing more government and fiscal policy? yelena: let's look at the fed. they're firmly on hold and would like 20 be but there is still a lot of news on that as well.

they're doing prime work and targeting and probably revise how the dot looks like and we'll hear about that in the first or second quarter of the year and they'll probably tell us something about the standing repot facility and that they'd like to do that. alix: market moving? vin intelligent -- vin vent: they've gone back to q.e. the swing to t bills since september, you add that with what the e.c.w. is -- e.c.b. is essential to do, again, they very important and boosting market prices and what we've the fed 're seeing where they belong and the fed need to get in front of the curve and provide the proper

liquidity and let the market dictate where rates should be and not the fed. every time you fix something in the financial system you break something else so fixing the funds rate at 2% or equal to their target inflation is has broken the pepo system and go back to old school and let the markets set the doan and when it is necessary, take it. rob: in our view, a lot of concern over the turn. we think the fed has the tools in their reoppose management to manage this and we think what we did in exeps and october, i found out what we need to know to honor the system because regulatory structures the banks need to keep reserves in order to meet the regulatory requirements. we have to operate in the exit reserves format but they'll be able to manage through the turn

because they've got the tools to do it. so not something neve airous but just the way the new -- nefarious but just the way the new way works. vin vent: they have the ability to do it and will do it and it's a total necessity. i think with the regulatory requirements they may have been a little misplaced and overdone to create these restrictions and maybe massage those two going forward. yelena: i agree. they have a good understanding of what's happening and i think going into the next year things will run a little more smoothly. alix: usually when they say the reoppose step is not q.e. but the delimity says no, it's not q.e. because it doesn't have the intention and is not purposefully to punch anything in the manner that would be an issue?

buy his a green light or ones. yelena: what is happening now they'll extend the balance sheet slightly faster than the growth and nominal g.d.p. but then it will stabilize. they'll continue to keep extra reserves growing along with reath in the commea. -- q.e. rob:ry quidity drives markets. alix: in bonds, what do you mean? rob: if you want to talk impact in the economy, i agree with you. if the fed is buying stuff from the short end of the curve, and they're just exchanging. they want to buy assets from the private sector and will be longer term bombs and we think it has an impact on markets and

how we break down a q.e. and non-q.e. vincent: that's right on the nose. alix: going forward, what do you do? the bond, you see their view on gpt and didn't get personal spending. how are you best defend? >> the market is getting in late trades and the market comes around to spg that need to be a growth portfolio, equities, lower quality assets, rates sell off and the dollar probably comes after it. rob: i can agree with that. and i do think we see the curve steepen as the fed stays on the short end, the curve will steepen and people will look for spread. it's a good thing for banks, a

good opportunity and not great in terms of mortgage lehning but that may do the fed a favor. if you get the idea mortgage rates will go up, it may push people off the fence and start to drive housing and inflation expectations. inflation is as auch expectations as you drive up inflation and makes things easier in the long return. yelena. economic data does matter. spending data is important because it will define expectations for how growth will evolve going into the next year. consumer is a key driver of economic growth. if it slows down, things will slow down rapidly. alix: i appreciate the conversation. yelena of bloomberg economicics and rob, thanks very much. and a reminder, my charts we use throughout the program,

in is bloomberg [ ♪

viviana: i have your bloomberg business flash. it takes a lot to keep nike investors happy. quarterly earnings hitting estimates and shares hitting a record high in premarket trading. the stock is slightly lower. nike sales rising 10%. mark parker says the brand is connecting deeply. he's stepping down. tesla is bucking a downturn in the biggest electrical market. last month in china new car registration soaring 14 fold. it gets says la some promote up is debt to deliver a speech. alix: the top prosecutor in malaysia announced he's ready to ratchet up a criminal case against goldman stacks and wants to take current and

former board members to court. he's accused of ignoring red ags while bills -- where billions were executed. >> they talked about rounds of negotiations but have not gotten anywhere. there's a pacific ocean gulf between malaysia and goldman sachses. alix: bloomberg learned they are in talks with the federal government to have a settlement negotiation and goldman could spend $2 billion. we're an hour away from the m.v.p. data and look at economic growth in the u.s. and see where it is concentrated. this is lettering. ♪

alix: this isberg daybreak. you can imagine what trading volume will be like the next 10 days.

you might see action in the close. the equity futures going nowhere and european stocks inching out a gain there. we're seeing the bond sell off calm down but seen definite retracement. looking at the board the 10-year buned yield, i feel it's a victory, negative 15, u.s. that's something and g.d.p. data is due in an hour's time and here with a closer look at concentration of economic growth, is our economics and policy correspondent. ike? mike: demography is destiny. and we have data. this is a map of the 2016 election. donald trump won the presidency though he got fewer votes than hillary clinton? why? because he prevailed in the electoral college. it's a standard analysis to say he got the vote of disaffected americans, people felt left

behind by the economy. is that right? who is his map of making the most for the puns. look where donald trump won on the red which matches perfectly, fully 1/3 of u.s. g.d.p. is produced in 31 counties in the united states. counties and the u.s. economy is concentrated along the coast and next to big cities now. los angeles county is the largest between 2001-2018 it added almost $400 billion to the u.s. economy followed closely by new york. what does this mean going forward? there are significant implications. first of all, continued hollowing out of middle america, that red area you saw, what happens to those areas when people keep moving away and industry follows and they don't have the economic wherewithal going forward?

second, we see a concentration in the industries of tomorrow. new york of course with finance and los angeles entertainment and technology in the san francisco area. the industries of tomorrow moving to the coast as well. that means a growing tax and spending divide. where will infrastructure be spend and the money go collected from taxes. that's not easy to think the way the senate is designed, by 204030% -- 70% of americans will be represented by 30% of the senate which means more political division because more house members will come from those urban areas and electoral college debate continues. is it still a good system for america? a lot of implications in the way this country's economy is developings, alix? alix: thank you so much, michael.

several democratic candidates took the stage in l.a. and elizabeth warren took some heat for her proposed wealth tax? elizabeth: how do you answer top economists saying taxes of this magnitude would stifle growth in investment? oh, they're just wrong. [applause] 3 alix: looking to the snl part of that. rob is still with me. we're setting up 2020 with the u.s. election and how do we look at the u.s. growth and how it informs investment thesis. rob: we think the u.s. growth is very solid by the consumer and expect growth around what we call potential which if you consider productivity and labor force growth we should get growth around 2% and see every sign that's what the economy will do. the good news is unemployment is very low and we're starting to see wages rise and we're at a very sweet spot in the economy in our view where the early stages of the recovery

went to the high end to margins, etc., corporates we think a time when work agrewed to wages. alix: this sets up your thesis of the late cycle but we're going back to mid cycle next year so within the corporate universe where do you want to be positioning, is there a credit risk or duration risk, what do you think? rob: we think we have a couple years left to go in the sickle. this is the longest cycle we've had in the u.s. but at least a couple years to go. to think about where to set up for that we need to be thinking what we'll be doing for the last year and all our data and conversation tells us people have been setting up for late cycle trade all this last year. but actually if we have a couple years to go they should be in the grothe trades, equities, steeper yield curve, weaker dollar and credit over duration. it means in fixed income which

your investment grade has had fantastic performance, you want to look at bank loans and the triple c high yield assets over investment grade the coming year. alix: within triple c, we hear people want to go up in quality and say triple c is underperformed, is it triple c overall or just energy and you look and say things are better than me might look? ob: without that, triple c has performed the last couple weeks and looks like the market is tilting back to the mid tier trades. triple c has been a high performer the last month. alix: do you have to be a bond bearer for this to work out? rob: a mild bond bearer. fair value is maybe 240. so that's the top level you can get to. it's not a taper tantrum kind of environment. to get a real sell-off in the

treasury market you've got to see inflation. that's the only way to do it and we don't see inflation. we'll get data later today and we won't see inflation but see the numbers come down. when we look at the details, it's just not there. without any real inflation push, we won't really get a rise on yields. alix: what is interesting you look at expectations across g-10, like the forecast next year keeps coming down. what about positioning? you feel there's a consensus that could see whippy action if it pans out? rob: we think an example, we're thinking about the beginning of next year, 2017 might be a good example. i'll tell you why. in 2017 we had sort of unexciting growth and because of the fiscal boost we got in 2018 and we had central banks which were very easy and if you look at the aggregate bank

balance -- alix: i can do that. rob: 2017 we had the fed balance sheet increasing and we had the e.c.b. we had the aggregate if you think about it, the four central banks, the aggregate was to keep volatility very low and if you look at 2017, volatility was low throughout almost all the year until the end of the year we got an inflation scare. i think that's the right model which is central bank balance sheets decreasing and balanced growth and no inflation and keeps it low and grothe assets do ok. alix: what's your favorite pick outside the united states? rob: if you look at the dollar, it's been on a multiyear rally but this environment where we hit easy policy in the u.s., the fed definitely has been more easy and accident growth leads to a better overall market especially with the trade war getting pushed and

the dollar rally ending coming off. and that's very supportive for emerging markets. alix: great to catch up with you. thanks for coming, rob waldner of invesco. we counter breaking news concerning boeing. a spirit arrow system is going to be suspending its boeing 737 max production in january. it's going to evaluate actions to align its cost base but looking at the spending, the 737 max production in january. interesting perspective there as we find up eeg continued boeing issues. we're looking at a delay in the star liner orbit burn thanks to craft altitude issues? they're looking to put their craft in the proper configuration for burn. this is boeing's solution to basically getting people back up in space and we've partnered with russia since 2011 and if

boeing can make it work it would be a significant change and you could see humans go up in 2020 as well and looking closely to see if they can deliver the takeoff and the landing and supposed to land december 28. as of now we're seeing boeing delaying its star liner orbit burn due to some craft issues. viviana is here with first word news. viviana: we begin with a impasse over impeachment between nancy pelosi and mitch mcconnell. ms. pelosi won't submit the articles of impeachment until features are laid out for the trial. mcconnell says the u.s. house has no leverage to dictate terms in his legislative chamber. last night in los angeles, seven presidential candidates squaring off. joe biden had his strongest debate yet and didn't triple

over his words and we look at why they say donald trump that be defeated. >> it's a necessity for the house to act as it did. trump's response to suggest only half the american people want to see him thrown out of office now, we need to restore the integrity of the office of the presidency and about time e get that undera. -- underway. viviana: in politicks it can be ickle. pete buttigieg, he was lauded and last night gundlach said payor pete is not killing it. he supported payments for children separated from parents trying to reach the u.s. illegally. we're powered by more than 2,700 journalists and analysts

in horn 20 countries. alix: everyone is a critic. from hacking a whole country to vanilla. unded by if you have a terg terminal will will watch go. if you go through and miss anything, you can rewatch. this is bloomberg. ♪

viviana: you're watching bloomberg day practice. the billionaire plans behind hospital operator and m.c. health has been hammered this week. e shetty family has seen their fortune drop by $800 million. block has taken a short

position and m.c. is the united arab emrilingts biggest health provider. black rock is in discussions to start an asset management business in china. bloomberg learned the world's largest manager in singapore's wealth fund would partner with one of china's biggest lenders, and black rock has been targeted china as aner of growth for some time. that's your bloomberg business watch. alix: we turn to our feature and profile news, it's the hacker that took down a country, how one hacker named spider-man crippled liberia's internet and economy for days and wall street magic makes banks look safe but despite a decade of reform, the financial companies use tricks to obscure their true condition and vanilla-omcs and venture of harvesting vanilla.

joining me is bloomberg editor. i'm jazzed about the vanilla one. we'll start with the hacker. what happened, spider-man? >> a guy online becomes good at hacking and based in liberia and is recruited by the c.e.o. of one of the internet companies and goes on a hacking spree on behalf of this company and ends up taking out the internet and basically directing a lot of the traffic to one of the companies that got to benefit from it. unbelievable story. alix: he went to jail. >> is he about to get out so we'll see if there's any more things he sets to after he gets out. alix: our second story has to do with banks. banks aren't necessarily safer than they were before the financial crisis but it's a lot of sort of bells and whistles should i say. >> magic. the fog of financial victory as

one writer calls it. this article goes through the number of ways that here we are more than a decade after the financial crisis, everything seems ok and yet there's some magic tricks that banks have been able to make use of that some might be not legal and basically all falls in a bit of a gray area that benefits the banks. alix: like what, give me examples. joel: one was the european regulators, the e.c.b. noticed short term stress tests were failing suddenly after about 30 days and it turns out the banks were using bonds, self-issued bonds that they weren't able to actually count as high liquidity, high value liquidity and swapping it with one another and something the e.c.b. wouldn't come on but one of the signs that's kind of going on that's unintended. sort of like the new rules that have been created, that have been the mother of invention. alix: did you notice a difference between u.s. and european banks or they're all

doing their thing? joel: a little bit of everywhere. that's the thing. everything seems ok but below the surface things might still be lurking. alix: let's get to my favorite story because the video is tremendous and you did a huge deep dive into vanilla-omics and looking at madagascar and the basic farming thing. what did we learn? joel: it's an ingredient as we do our holiday cooking. alix: i don't because it's $25 for two vanilla pods. joel: madagascar, 80% of the world's vanilla comes from there and this story is about globalization and monty real is the writer and did an unbelievable story of what it's like to grow vanilla. you have to take a year and pollinate by hand because the plants are indigenous to mezzo america so there's no pollination and the farmers have to do it all by hand and they have to protect the pods and write it to market.

that marketplace is one of the most memorable scenes from the story because they're not really in charge of the destiny the prices will achieve at market. alix: do any of the high prices and demand get held back in madagascar? joel: it can all be gamed and part of the story is about people trying to create net worth among farmers so they have a little bit more bargaining power. alix: to the fourth story, a bonus story and that's happy anniversary for business week. 90 years. joel: we're really old. alix: you weren't the editor then. joel: there have been those on staff more than 30 years. we did an essay that tied it together and we've been covering business since 1929 and along the way it's verything from world war ii to ewwork and scoff bank one of the biggest investors and we felt it was a way to tie it together.

alix: happy birthday. thank you, joel, we appreciate it. read these stories and more on bloomberg business week digital and on newsstands. in off the beaten streets we're going all the way to napa valley and is the location of the trofersal wine cave where pete buttigieg held a rally and drew a backlash with last night's debate and owned by billionaires craig and katherine hall and it boasts a chandelier, 1,500 swarske crystals and a banquet table that illuminates the $900 bottles the vineyard holds. according to the re/code, some of the guests in attendance include the wife of sergei brynn and the facebook of c.o.o., sandberg and they blasted the candidate for

producing peacewinecave.com that redirects their investors and they had these two should not pick the president of the united states. amazing video. full body statement. cred sit starting to show signs of slipping so how sustainable is slipping. that's up next. if you're headed out and jumping in your car, join bloomberg radio, channel 119 on the bloomberg business app. this is bloomberg. ♪

alix: time for trader takes. joining me is vincent, voice of the bloomberg audio squawk. type in squa go. even if i didn't know the chart you'd talk about would be consumer income and spending e'd get at 8:30. vincent: we know consumers drive the economy and given it's this time of the year, i don't want to come out like

yesterday and to a call or currency >> eight, keep it in mind next we're. next year when you buy them 110 and think you'll be smart, you'll sell them on 109. we'll talk about that in 2000. so this is the fed's measure of consumer credit and u.s. personal consumption. you see as this is the consumption part of the consumer and as the consumer spend. ais starting to get over and it's a three-month average and consumer spending has begun to rollover and retail sales were poor in november and we'll see a consumer number at 10:00 morning. the process kin tators say the number will grow up and looking for an increase. sales in , for retill

january and if it doesn't could be the beginning of something really bad going into 2020. , this is mered frert one thing that could give us the last of it. crazy.es have looked i don't know in the consumer is waiting until the last minute thinking sales comes at the end but we'll see. alix: always fun to chat with you. coming up, the global c.e.o. will speak to us. this is bloomberg. ♪ [ dramatic music ]

this holiday... ahhhhh!!! -ahhhhh!!! a distant friend returns... elliott. you came back! and while lots of things have changed... wooooah! -woah! it's called the internet. some things haven't.

get ready for a reunion 3 million light years in the making. woohoo! -yeah! alix: welcome to "bloomberg daybreak" on this friday, steel. r 20, i'm alix

here's everything you need to know this hour. let's take it from the top. >> we were looking for a leader with international standing with expertise across military, economic and regulatory policy. and in andrew bailey, we have found just that. alix: out with the old, in with the same. andrew bailey will be the 121st governor of the central bank. >> been around 30 years versus the bank of england in the prudential regulatories, the banks and insurers and most recently been head of the financial conduct authority, very key experience. oil -- alix: he'll succeed kearney. >> this is when we move on and discard the old. alix: in the house of commons, the prime minister tried to take the u.k. out of the european union on january 31.

>> brexit will be done. it will be over. the story the last 3 1/2 years. alix: they have a new 80-seat majority. >> people who put down $5,000 to have a picture taken don't have the same priorities as people who are struggling with student loan debt or struggling to pay off medical debt. >> can't help but feel that might have been directed at me. alix: democratic candidates sparred onstage last night. >> it was a long night for south bend mayor pete buttigieg and took it not only from senator warren but also from senator amy klobchar. the candidates are really jockeying. >> we are about to add another document to this stack. the patsage of the united states-canada-mexico trade agreement. alix: it replaces the north american free trade agreement with strong bipartisanship support. >> it's been quite a week in

washington. we had the usmca passing the house yesterday and we expect mitch mcconnell will take that up after the impeachment process. alix: it need a simple majority to pass the senate now. >> two, one, liftoff. alix: boeing's unmanned rocket takes off but ran into trouble within an hour. the company writing a statement on twitter saying the star opnominal insertion and had trouble getting into orbit. they're assessing their next maneuver. in the markets, we're in the close and we'll get whippy action but in the meantime steady as she goes. the s&p yesterday, the bank stocks hitting their highest

level and a lot of movement. the cable calling -- clawing its way into gains at 130 and the bond sell-off is moderating yet somewhat continuing with yields up by one basis points, 193 and what is the bond market trying to tell us? joining me for the hour is michael mackee, our economics and policy correspondent but speaking to me is "star wars". rob: i'm seeing it tonight. that's the highlight of my day. alix: aside from this. rob: of course. princess alix. it's getting mixed reviews. it will be interesting to see how good it is. i think "star wars" fans -- alix: will see it like us. rob: no matter what. last of the saga of the nine-part saga. alix: this is where we break down the important parts of bloomberg daybreak.

michael: there are a lot of traders thinking about the same thing. alix: aside from "star wars" you have the risk on rally ending the year continuing in the equity market and the bond yields heading higher topping out at 31 basis points sitting around 29. joining mike and i on set is michael, morgan stanley c.i.o. of fixed incomes, "star wars" or bond markets, your choice. i'm interested in the single thing. what is it sending? michael: we had a bond rally across the board, treasuries investment grade credit, high yields, emerging markets. everything rallied and in some cases double digits and having a bit of a pullback in the sense a lot of the news which drove this in september where we had the fed delivering a third-rate cut and negative dynamics coming through trade negotiations and status of trade war and they hit 150 in

that neighborhood and probably too low. the maximum optimism we thought the fed would deliver but now it's back up to these yield level getting to the inflection point where the top of the range we've been in for a long time and either we hold here because it's business as usual, g.d.p. growth is 2% and inflation is stable or is growth going to accelerate in terms of higher yields next year? it's possible. the story i've had the past several years, beware, excessive opt miss imor speaks mystic, and you're not likely to be bad and stuck in an ok world so when growth gets strong don't expect it to keep accelerating and don't expect it to collapse either. michael m.: one of the narratives is we'd see 107s get to zero because the economy was going to fall apart.

that's gone away it seems but how low can we go? you said 1501 too low. are we basically taking lower than 150 off the table for 2020? michael k.: i think we are in the sense that real interest rates, the inflation adjusted nominal interest rates is low enough to support the economy. we saw 3% 10-year u.s. treasury since september of 2018 was too high and a 1% real interest rate and now we've got basically zero to slightly negative, call it 10-year real yields and seems to be perfectly ok in a global context right now. it looks like this is a very stable, reasonable rate to continue supporting the economy going forward especially with short-term rates where they are and i take a big confidence in steepening of the yield curve and think that is a measure of success, about confidence the more the yield curve steepens because we're talking endogenous rides, not the fed

pushing them higher but the fed is more optimistic about the future. michael m.: one of the stories we watched the last year or two was the price to sell vol or sell vol. wure talking a lot about volatility and what we get is confined to a narrow range and makes it a big deal 10 basis points but isn't falling from three to one 1/2. michael k.: we're seeing where bond yields go up down, up down and seems volatile and risky but it's not. we're not moving much. yield are back where they were in november and went down to the 160's and back up to the 190's. we're not going anywhere and trapped in the range not at the lowest because things are better than in september but they're not so positive you'd say wow, i'm really bullish about 2020. alix: what do you do? i was interested in this chart,

's tlt and flows into long duration etf's. it seems like a pattern, we do really well and then a couple months not, how much of that is positioning and how do you deal versus like you have your thesis and stick to it and ignore the noise? michael k.: ignore the noise. there's reasons to expect continuity into next year. the u.s. economy despite all the things thrown at the last two years. it seems to be 2% either higher or lower. and the intensity will pull interest rates down and asian markets will overshoot. the 3% is an overshoot but around 2% seems to be perfectly ok barring any make sodge shocks - massage insist -- massagonist shocks we may or

may not see. michael m.: how quickly might the markets turn on the fed and say you have to do one thing or another? michael k.: fed communication would be important where they go in a period they don't anticipate doing anything and they have to communicate that we'll not do anything despite the incentive or pressure that may arise as markets and data unfolds. i think the fed has been clear, they're more biased to let things go stronger and not react and react quicker if things go wrong. michael m.: and will there be patience because we talk about monitor policy and working with long and variable lags and the three cuts we saw probably shouldn't kick in until the middle of 2020 and between now and then the data suggests we might see a soft patch. how much patience are traders going to have? michael k.: a lot of patience

in how you see credit markets perform in september and december and high yields collapsed. to low levels by recent standards and that's about opt miss im, the future and a lot of the worries we had going into the year have dissipated and gone away. i'm pretty optimistic the markets will see through a soft patch and can you telegraph we'll likely or could see soft economic data in q-1 but won't ast. alix: once you see the effect of the rate cuts and then the fed is on hold and you get the juice of the rate cuts in three months, then what happens? michael m.: this gets to your area as well with corporate bonds, do companies start spending again? if we start to see the economy go up a little bit, get a little stronger as we go in the latter half of the year or is uncertainty reigning all over corporate america?

michael k.: that's the biggest questions, cap ex-and using stock buybacks, it hasn't flown to a lot of capex which kept things going. consumption spending has been strong but stable and the business sector refused to join the party which they haven't felt there is a party to join given all the insecurities and there's not a lot of evidence the behavior is changing and people are expecting it to change but we'll have to wait to see if it really changes. michael m.: his "star wars" party isn't enough? alix: i have a yoda hat that is warm and comfy. michael m.: how much do we have to pay you to wear that on air? alix: totally. you know i'm a nerd.

we'll break down the outlook for deals with bill. who is global head of m & a. this is bloomberg. ♪ ♪

alix: we head into 2020 and global m & a showing no signs to slow down and seems to be picking up. according to mark cooper, companies are focused on expansion at all costs. mark: the overarching theme in today's markets that's not going to stop is the need for growth and that's what's driving most of the acquisitions. it's not about price. it's about what your objective is. alix: joining me now is bill curtain hogan, head of global m

& a, michael kushma and michael mckey joining me for the hour. valuations are high and no one cares. >> i would agree. it's great to be back on bloomberg with all of you. i would take it another dimension, it's a push for technology and it applies to any sector we're involved in. at hogan levels we represent all over on m & a activity and everyone is in the take for more technology and valuation is higher as a speed bump in the day but nothing that will curb the continuing growth of m & a in my view. michael m.: you're talking about global and we're increasingly becoming, whether he public likes it or not, a globalized business insider. are more coming into the united states or is the political climate such they stay home and our companies still look

overseas to buy thing things? bill: i spent a lot of time with your friends at morgan stanley and there's a motorable klein, statistically it's absent. and three years ago china head a record level of m & a and there has been a decline there. beyond that the united states will still be the propeller for m & a worldwide, 45% of transactions involve the united states. our economy is so strong. you can say it's not been a great year for donald trump but the economy has been good for donald trump and it's been a good year for the economy. these things will emanate from the united states and be drawn to the united states as well. alix: are you noticing any distinctions, there's one negative if you have a wild strike you don't ee the mary joeners come in. is that a real story?

michael k.: i think not there's a hunger to find bonds. we've seen discriminating behavior on the backs of investors. i think the uber performance, weworks pulling their i.p.o. and people are not willing to throw money helter-skelter. we see in returns whether it's the high yield market, triple c is having the worst year ever relative to the market because a lot of the industries have a rd time financing and in difficulty. and customers are more discriminating in what they're willing to do which means a healthy sign of the economic expansion going forward. you don't see the excesses you may see in terms of just throwing money at things. bill: if you talk to folks in the c suite, they keep saying are we on the forefront of a slowdown? no one wants to use the r word. we watched europe and we know

t slowed but is everything breaking ourselves to be more vigilant and it keeps going with a busy year. michael m.: we tend to talk about the big deals, the sprint-t-mobile kind of thing but most deems are small, most companies are small and do we see that particularly in the tech space? when you say everybody wants to get into technology do they want to buy small tech startups or hardware or what are they looking for? bill: i focus more on volume than value in terms of the m & a markets. it's true, the headlines are focused on the tiffany's transactions of the world and notice what's happening with chrysler and peugot. i focus on volume because that's the life bled that keeps markets alerging and helping technology go. i think of the descriptive companies. think of a wal-mart and the transaction involving india and

e commerce, involving a way for to move to the particular approach and you think of ford and volkswagen and their as massive a lience. helping them with scale and be more relevant globally in each area the company could have gotten stronger and preparing themselves for autonomous vehicles and these are destructive and none of these ompanies want to end up with photo. alix: who is doing the deals? you look at the lead, obviously you have the top five investment banks but the boutique banks are moving up quite a bit. what's your read on that? bill: brew boutique banks is important and the leading quartet of banks are very aware of the banks and their roles in transactions. big store for 2020 will be

private equity. alix: selling or buying? bill: buying. i think private equity will be aggressive in the marketplace and even if there is a slow down that occurs. ey'll move forward after eight or nine years ago and they moved forward with some of the strategics pulled back and more methodical in their transacting. and others moved forward and took opportunity. there will be selling on the back end of their fun life, if you will, there will be acquires in a significant way. michael m.: what do we see in 2020. we saw them at 10%. bill: the valuations are important for the sectors going forward because things have become very expensive. 's a coral area to how we've

been and our clients are bidding on assets, eight multiple -- 10 sometimes mull table. things are price by but still condemned because they see their peers doing the same. it depends on the sector but thinking in the 10% premium and more range won't surprise me at all next year. alix: thank you for stopping by, bill curtin for topping by. we'll have much more coming with emerging markets and where to put your money. this is bloomberg. ♪

voif you're watching bloomberg daybreak. it takes a lot to keep nike owners happy. shares hitting a record high in market trading the stock is lower. nike sales rising 10%. the c.e.o. mark parker says the brand is connecting deeply can

consumers everywhere. next month he's stepping down. tesla is bucking a downturn it the world's biggest electrical market. last month in china new car registrations soaring 14 fold and gives tesla some momentum and is preparing to begin deliveries from its new factory in shanghai. and debt is soaring to unheard of levels in developing the ies according to world bank emerging markets wracked up trillions in debt. they've been on a borrowing trend and the fastest in history in part due to low interest rates. total is now at 170% of emerging markets g.d.p., 54 percentage points higher than in 2010. that's your bloomberg business flash. alix: still with mike and i is michael kushma of morgan stanley. where do you in emerging market debt, there's a lot of it? michael k.: emerging markets

have been a fragmented investment universe because in a lot of money and various issues, a lot of politics and places. we've seen a lot of issues recently in the last couple having here chile was problems sharing in prosperity even in countries relatively calm and low yielding we've had political issues that have risen there and obviously argentina had a radical change in political fortunes and south africa had a change of leadership the end of 2018, brazil had elections 2018, turkey has a constant in the mainstream of challenges. it's been a very difficult market in the sense there's to take hold heme of and in 2018 it was the negative emerging markets in a big picture sense in the sense that a dollar was stronger and fed was raising rates and treasury yields were rising and

the perfect trifecta of fundamental variables hit ago merging markets. this year a lot of it dissipated except the dollar which refuses to go down. we had thought that emerging market effects for exchange was the place to be because it lagged behind but it's lagging behind again this year. looking at 2020, emerging market currencies are more of the undervalued of everything else aspects to emerging markets because they haven't participated in the rally we're seeing in the local debt markets or external hard debt markets but e.m.x. has lagged. alix: we might get a good read on the dollar in minutes' time and third quarter g.d.p. coming up. this is bloomberg. ♪

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eco-data. we are seeing stocks up higher's attempt of 1% and asset classes, you are looking at bonds being sold off. definitely moderated 29 basis points. and you see the cable rate continued to decline to tens of #. the dow dropping. this is the third read on third quarter gdp. if you take a look at personal andumption, that is 3.2% core pce which we will get later at 10 a.m., also coming in in line with estimates. aside from personal consumption, everything is steady as she goes. have our guest from morgan stanley with us as well. it's like budget bewitching. mckee, my right -- mike

looking at the numbers, no one is inspired by the third-quarter gdp, but did anything stand out to you? business spending was not as bad as we thought. read, -2.7 in the last when the economy made up a little bit for it. it did not make up for it a little bit. littleentory build was a smaller than in the second report. at this point, steady as she goes. theas steady as she goes in third quarter, but this is, as you said, old data. alix: michael, michael mckee brought in the inventories. we have the news about boeing. first quarter read versus third quarter read? michael: we got an inventory

built in the second half of the year because boeing kept producing, so we were getting the kind of production that was being stuck in inventory and that is why we had to reverse and the first half of the year and it's likely to be a sizable drag on growth in q1. the ultimate production for three months will take half a percent of gdp growth in the quarter and if there are downstream effects on suppliers, it could be close to one percentage point. is going to inject a lot of noise into where manufacturing is in the first quarter. michael m: that's especially true, michael, because you do not know what the suppliers to boeing are going to do. that's right. anyone who looks into boeing knows there are precise adjustments.

the longer this goes on, the longer production is halted, the more likely you will have suppliers.effects on there is uncertainty. what downstream effects it might have. bea minimum, we might looking at shaving growth estimates by half a percent. and if by some reason it extends into the second quarter or longer, they will multiply. the real numbers will be personal income and spending figures at 10 a.m. we have dismal retail sales. is spending going to make up for it. -- going to make up for it? michael g: i think we will get a in term ofincome, .4 nominal spending. we had that flat reading last month, as you mentioned. we are looking for a decent

number in line with consumption that should moderate off that strong 3% number we just saw in the third quarter. a rebound, but not overly strong. at the headline level, probably 2%.een 1.5% and it's bouncing around that range. still consistent with the recovery, but some slowdown. issues withe some the camera. so, steady as she goes, etc. at what point do you need to protect against inflation? when do you do that? that's a great question. we think inflation breakevens are fairly cheap. they are under appreciating -- >> that's a great question. we think inflation breakevens are fairly cheap. they are under appreciating.

the assets that has lagged behind in terms of performance this year. treasuries have lagged behind 10-year markets fx, and treasuries may actually look effective if they keep selling off. howink it's interesting chips have a black behind despite the cyclical strengthen the economy. the things that has like behind the general behavior of the markets. we have actually seen in a story or two here that the bond market may have to brace feda fed's rate increase -- rate increase. we have not seen that for a long time. any expectation that these fed could get closer to the

inflation rate in 2020? i think so. i think the upside of the story is built around what we are seeing across the course of this year, which is the beat has come on personal spending, the households are spending more than people thought. the positive break even story would be that continues to happen. tot labor market continues be robust. the savings rate was elevated. asset positions are strong. there is no reason why, if we get rid of these downside tensions, that may be the economy can grow closer to 2.5%, but this is the time of year where the fed says we would like to make up a little bit, if we could. if inflation comes up later today, there is glide path. have shiftedts

from potential downside risk to not only we should be thinking about where the upside risk could come from and how we benefit from that. alix: this is a question for both of you. --there a time -- does that is there a turn though? first of last for the the year? you have the 2020 election risk, etc. michael g: yes. i think -- alix: is he back? we don't know. i was asking, the backup of the that strengthsee if we are having the potential reverberation of the slowdown in lending as well as the 2020 elections? michael g: it can last the whole year. the fed is engaged in this review. it is likely to end up with the

makeup strategy. the more you get into the second half of the year, i think, we prefer to stay on the sideline for the presidential election. i think the most the fed could ands change its language communication around the middle of the year so it will appear more balanced and perhaps move forward with the potential rate into 2021. it would change the messaging. i don't think they would hike next year. you would need a very, very strong outcome and that doesn't seem to be in the cards. --kushma el cushman kushman, same question to you. boeing story, there are things happening that disrupt your ability to predict accurately what will happen over the next several quarters.

, think it will be cleaner except for the presidential elections. we do not have any idea how that will play out with the candidates on the democratic side. , central-bankant strategies, but also in the midst of reevaluating how they we havetion targeting, 30-plus years, the mantra of central banks was to reduce inflation. they successfully did it. maybe they overachieved in the end. now we need a global makeup strategy. to growgdp is going stronger, which is a reverse of the previous first 30 years. be -- wel banks will do not mind if it goes up a

little bit. that is what they communicate while being consistent with the inflation strategy of not letting it go too high. having a little is ok, but more than a little bit is not ok. -- what is that about? we will discuss this. guys, thanks a lot. happy holidays. we want to give you an update with what is making headlines outside the business world. viviana hurtado is here. speaker nancy pelosi aresenator mitch mcconnell at an impasse over impeachment. mcconnell is digging in and says the house has no leverage to dictate terms on the trial in his legislative chamber. the next of your of the head of the country' financial watchdog. andrew bailey will replace mark carney. he spent three decades at the boe, but his views on monetary

unknown.e largely and the movie version of "cats" is actually a dog. ahe boston globe" calling it disaster. "my eyes are burning. oh, god, my eyes." that is a quote. it is now in the so bad it is good category. double news 24 hours a day, powered -- global news 20 hours a day. i am viviana hurtado. this is bloomberg. alix, that category. so bad it's good. alix: it hurts my soul. michael m: it may be the new"ishtar." do you remember that? alix: no?

it had warren beatty. mummy,"s it like "the where it is so bad you hate it? michael m: no, it was just bad. alix: will have more on how the markets disappointed -- we will have more on how the markets disappointed with these susquehanna markets research analyst. and you can keep up with the charts on the show by going to dtv go. this is bloomberg. ♪

viviana: you are watching "bloomberg daybreak."

the energy company expects capital expenditures to be near the lower end of the $24 billion billion range. the next frontier for apple appears to be outer space. bloomberg has learned apple has a secret team working on related wireless technology. the goal, find new ways to beam data directly to his devices. apple is in the early stages of the satellite project. ceo tim cook has shown interest in the project. that means is the company priority. that is your bloomberg news flash. alix: thank you. we are looking at two companies this morning. first, boeing. and our guest will join us right now with a two prong report. this is about 737 max reduction. announced thatg

they were halting the 737 max production. that is not a surprise. the expectation was boeing would give a specific timetable, and it did not do that. it left it very open-ended and i errors a system is saying we are completely stopping production as well. there was some thought that they supply chainese running. you just need the jobs. it's very difficult. you can read -- you can ramp up at 52. it is a significant jump. this is -- as you mentioned, this has enormous spillover effects. we are looking at ge making the inches. you talked about the expectation that boeing would get back up with a 737, but we do not have a timeline for the shutdown.

why are people talking about, well, by midyear the should all be gone? definitely will not be gone by midyear. i think we will see boeing still clearing out the jets that they have parked by 2021. some analysts say they will not be done with that by 2022. i mean, this is going to take a really long time to work through . and when you see them making this production cut, that just stretches out the timeline. this is an at the earliest date and there's a lot of room. alix: especially in europe. into orbit --raft there's difficulty in doing that. they were successful in launching it, but they did suffer applications in orbit. now they are going to headline are boeing and nassau reviewing -- nasa are reviewing

the tests. news for it's not good boeing. the hits keep on coming. successful with its launch of a similar capsule. it's just another black eye for boeing. you are not seeing them following through here. this is more there area of area ofe -- their expertise than the company like tesla. they thought that maybe there was a way to make this work. alix: all right, thank you very much. down, and same poser, a research analyst at susquehanna, joins us on the phone. what is your reaction? sam: the stock has run up a lot lately. they had a very strong quarter with the north american apparel

business. the gross margin missed by a fraction. however, the overall business is exceptionally strong. it was down 1%. it's still poking around at all-time highs. and you know, we really think the long-term outlook looks exceptional. it's interesting also because with all of the controversy with the nba and china, we still see strong sales . it does not seem to have hurt the brand. day, ifthe end of the you have a 15-year-old kid, i do not think they are paying a whole lot of attention to all the stuff we are paying attention to anywhere in the world. alix: fair point. would be the next catalyst for nike being at record and the market seems to have a low threshold for any kind of minor miss? what is going on is

they raise their guidance pretty much to the amount of the revenue beats. they are digital and all the direct businesses are growing exceptionally. -- that business, it's harder to predict, so as we go into really the third quarter, game inba all-star chicago, which will be a big deal -- and they will go after that, so we will probably see some activity there, also generating business around their direct market, as well as when we get into the fourth quarter, championships nba and the olympics, which go into quarter of 2021, there's a lot that will accelerate their direct business

which runs higher margins, which, we think makes it harder for them to predict, but we are very confident we have that in their back pocket. alix: sam, i appreciate the insight. mike mckee, it has been a pleasure. michael m: i enjoy the interview. alix: ditto. and i will show you my hat. you will be jealous. nikee going to look at the buyback. do not forget to turn your car radio to bloomberg. this is bloomberg. ♪

alix: time for technically speaking. we have the bloomberg equities plot. i could listen to bill all day on tv . at nike --ng

reported after the bell last night, but stocks had a big on earnings, still in a strong technical position. looking at the five-year chart. the trading range, still had a good 2018. they have the support of trends since 2017. and with amazon we finally saw some of the faang stocks recapture their eyes. bill: what is interesting about amazon is nothing. it is the only thing stock not above the 200-day moving average. alix: all right, bill, that does it for me. ♪

jonathan: the countdown to the open starts right now.

come up, closing up 2019 with 10 year treasury yields, looking ahead to 2020. candidates take aim at china. boris johnson is looking to drive his brexit bill through parliament. good morning. this is your friday morning price action. we are looking to a straight week of gains. the dollar stronger against the euro. aretreasury market yields at a single basis point on the u.s. tenure. looking ahead to what could be a year of two very different halves. >> the gains will be generated in the first half. >> the first half of next year is when we see the acceleration. >> fundamentally driven, central banks are flooding the economy with liquidity. >> stable rates,