the city ofing in london, i'm nejra cehic. this is "bloomberg daybreak: asia: europe -- "bloomberg daybreak: europe." president trump sees january 15 for the phase one trade deal shining. -- signing. kim jong-un says he is no longer bound by his pledge to halt missile tests. carlosancial times says .hosn returned a week before beirut plans to speak with japan through diplomatic channels.

welcome to "daybreak: europe." a rally in chinese equities, the best start to the year since 2016. you are seeing some green on the screen for the msci asia pacific index. excluding japan, seeing some gains of more than 1% in today's session. in yuan not moving a lot reaction to that cut by the pboc. pretty much in line with expectations. some of it might be to do with easing liquidity concerns around the spring festival. markets closed in terms of the cash market. futures not giving us a lot of direction. switch the board and we do see some green on the screen for the s&p 500. futures on the front foot.

the dollar recovering a little bit from four days of declines. oil on the front foot as well. let's get back to the china story. the pboc has slashed their cash reserve ratio by 50 basis points, unleashing about $115 billion of liquidity into the financial system. the move aims to help make it cheaper for companies to borrow money. pmi stays inring expansionary territory in line with the recent pickup and economic data. in the u.s., president donald trump said he will sign the first phase of a trade deal in january for an and talks in phase two will begin thereafter. joining us now is our guest from credit suisse securities. great to have you with us. happy new year. we kick off with this rrr cut which was well flagged. there are some seasonal factors that are feeding into it, as well.

it is about tax payments that money from the banking sector and also the pboc preparing for liquidity demand during the spring festival period. do you see it as business as usual or something that will help credit? >> it is a reminder that there was a lot going on in monetary terms globally. if you look at liquidity creation not just in china, we look at the euro, the u.s., china, japan -- china has been a little bit of a lagger in terms of joining the party. the u.s. and the euro generate liquidity at a ferocious rate. the chinese are definitely helping this along. this is a pre-existing and currently very strong trend. nejra: what are your expectations for the rest of 2020 in terms of more rrr cuts and other stimulus? william: they can certainly keep going as long as there are

concerns about the world economy impinging on their own. their own domestic affairs, which i think are less easy to understand. economy, there is quite a swing going on. you are seeing this in some of the sensitive leading data. you are seeing it in china's own data. our view is that sometime later on in the year, we are going to be thinking about too much of a good thing relative to market expectations. market expectations are that this is going to continue and there will be a monetary free-for-all. we think about the inverse of last year when people were in a panic about the opposite. we had a big rally as a result. it is only a worry at this stage, but can you have perhaps too much of a good thing? nejra: what would solidify that worry for you when it comes to china specifically? william: i think if you continue to see a pickup -- they need growth. they are not going to jump on their own growth.

i think they're going to be among the more supportive central banks. therefore, i don't think they are going to be in the lead of changing this 180 degrees. we would more look to the fed. i don't think they will be the ones to upset the monetary apple card. apple cart. we think it is the fed or ecb who might start to get cold feet about how strong the liquidity flood has been unleashed here. u.s.-china trade feed into all this? we have not actually had a huge amount of detail from the 86 pages from phase one. is this cause for optimism for you? william: the market mood has been very volatile in this. in a couple of matters. just as too pessimistic

this monetary flood was unleashing. here we are catching up to the news, catching up to the money. we tend to look at things through game theory terms some of the time. interestolutely in the of both trump and xi to personalize it to reach a deal, but perhaps not just yet. if you look at the timing of the u.s. cycle, you almost get a sense that trump in particular is sort of pulling in the rain slightly so that this fits his timing a little bit better, but the trend is clearly positive and both countries are incentivized to reach a deal. if you look at how pessimistic people were, that is probably not fully get in prices. i think it is showing up in some of the better data in asia already. nejra: that moves me to my next question. if we do get some sort of deal, phase one, may be some sort of phase 2, does that impact global growth or market sentiment? william: absolutely.

you know, the amount of investment that has been hadheld, we have really some heavy rhetoric in this scenario. that has definitely held back investment. you have the whole brexit thing. was a real theme back in 2019. the first trade in 2020 is going to be relative to that more optimistic direction. spreads, webriefly, are very tight on both sides. william: this is our problem. inare sort of the gloomsters the room. our house view is about 7% in euro area stocks this year. that relates to a much tighter level of spread. then we look at our starting

level, the returns we expect from the starting level and we end up being a bit more cautious. nejra: william porter from credit suisse stays -- stays with us for the hour. let's get to the bluebird first word news with selena. -- bloomberg first word news with selena. fighters attacked a compound in baghdad earlier this week. the move could ease tensions between iran and washington. israel's prime minister said he will see community on corruption charges. netanyahu is gambling that he will still be the one leaving the coalition. north korea's leader has called for shocking action against the u.s. kim jong-un said he was no longer bound by his pledge to halt missile test and would debut a new strategic weapon.

that adds to donald trump's foreign policy concerns in a politically charged election year. many holidaymakers in australia struggled to escape rural towns as danger and wildfires escalated. 8 people have been killed this week. fires destroyed hundreds of properties in rural towns. global news to four hours per day -- 24 hours per day. this is bloomberg. thank you so much. coming up, a couple of big interviews on the docket for friday. the chicago fed president joins our u.s. colleagues at 4:00 p.m. london time tomorrow. the cleveland fed president joins bloomberg tv, that is at 6:00 p.m. london time tomorrow. this is bloomberg. ♪

"bloomberg is daybreak: europe." carlos ghosn's dramatic escape to lebanon poses more questions than answers. for theay have pressed chairman's escape a week before. includinges abound, that he escaped in a music box with some performers. what are all the different theories about how he managed to get out of japan into lebanon? >> there are some theories. the music box one has been disputed by sources close to him , but tokyo prosecutors are trying to get to the bottom of it. they are searching his house in tokyo. they are trying to find out a bit more about that.

he may have entered lebanon in a second french passport of his. he had three passports. had alll team said they three of his passports. they looked pretty flabbergasted the other day when it emerged he had disappeared off to lebanon. the media reporting that he had got in on a second french passport. other reports saying he used a private security firm's help, which he would have had to had some outside help no doubt, some planning that would have to go into getting him out of such tight surveillance in tokyo, where he had been under house arrest since april. nejra: yes, it is really a crazy story. it has been trending on twitter. there have been all kinds of plays on words and terms of carlos ghosn's disappearance. what happens now? is he a free man? will: well, he is in lebanon now, where he is a local hero.

he will be issuing a press conference next week on january 8. he is likely to perhaps launch more criticism of the japanese legal system, criticizing how his bail conditions, he barely got to see his wife. he will perhaps criticize and speak more freely about his former nissan colleagues and how he accused them of launching conspiracies to oust him from his role at the alliance. you can expect more information direct from his mouth next week. nejra: thank you so much. will davies. hasrts that china suspension late -- potentially a planned cross-border

lifting between the shanghai and london stock exchanges because of political tensions with britain. let's get the bloomberg business flash from beijing. >> thanks. china is cutting reserve requirements for banks. the ratio will be lowered by 50 basis points on january6, releasing about ¥800 billion into the financial system. that is to make it cheaper for companies to borrow money. india is shooting for the moon once more. the country will probably attempt a landing this year as it seeks to restore its credentials as an ambitious state power. that comes after a previous t.r.y. failed minutes before a scheduled touchdown. stern, the men who transformed the nba into a global multibillion-dollar powerhouse, has died at 877. during his tenure, he boosted the revenue before taking over.

of service make him the longest tenured commissioner of any professional sport. thank you so much. coming up, bullish on bullion. we get you the chart that matters next. this is bloomberg. ♪

this is "daybreak: europe." gold has built in the biggest annual gain since 2010. investors assess development in north korea. the details. can the rally continue? >> good morning. i want to start off with what we saw last year. in your 20% rise in gold, the biggest since 2010. that was really led by looser monetary policy, political uncertainty, and also social unrest.

as we kick off the new year, some catalysts to watch out for. the dollar downturn at the end of last year. dollar falling to the weakest level since march. on top of that, we had what you mentioned, the latest uncertainty coming from the korea peninsula. what did kim jong-un mean in his very ominous speech? bit is really goinga to be -- that is really going to be a bid for a haven like gold. nejra: let's get back to william porter from credit suisse securities. what is your prognosis for gold 2020? william: i'm not the gold export -- expert. annmarie hit the nail on the head with the talk of liquidity. i suppose if we carry on like this, the implications become obvious. the question one level down is how long will we continue like this for the liquidity that we are currently seeing? that is going to be the question and financial markets through

2020 with two or three fed cuts still priced into the market. nejra: do you see risks in terms of geopolitical risks and other things that have spurred demand for gold as a safe haven abating a little bit in 2020 or will it be all to do with central banks? william: annmarie touched on korea, so by definition we can't expect surprises. there are always surprises. we know that. the things that we know about geopolitical he i would tend to think are going to downplay. risks, china,le potentially fledgling u.k. foreign policy, hong kong is obviously a potential flashpoint . nejra: let's turn to the ecb. membershe central bank

signaled she wants more precise inflation goals. policymakerthe ecb issued a strongly worded warning to leaders that they must act to prevent the region sliding into a lengthily period of low economic growth. let's get back to william porter . you were saying earlier that the ecb might be one of the first to get cold feet in 2020. talk a little bit more about how you see that evolving and the timing of that. william: we have a long way to go. the world had priced a recession, that is where we are coming back from. we have to be a little bit careful with the ecb members talking about not liking the inflation target because the ecb just finished a review where it reached the conclusion that their inflation target is not perfect, but it is the best of

they've got. having said that, we are a long way from hitting it. they have generated a lot of liquidity. i wonder at what point, is the german contingent going to worry about that? if we do get stronger growth, pmi up to 54 or wherever, you may see a difference -- some of these more hawkish arguments may start to gain a little bit more traction, not a huge amount, but that to me is an obvious risk relative to this current near-euphoria. nejra: what is the risk, that we get no change in policy or see something more decidedly hawkish? william: i'm looking at these asset purchases, 20 billion a month. ratio oft that the corporate purchases would increase. it has. arguably, dramatically. still quite early days. they are buying a lot of corporate's. our expectation is that that

will continue. i think the risk is not that it increases at this stage. the risk is that we start to get more surprises toward fewer asset purchases later in the year. this is controversial in the ecb. if you can come up with an excuse, better economics, strong money supply growth, even if you it, they will be pushing to step back a little bit from these controversial asset purchases. nejra: how do you trade that? in the spread level? do you expect more dispersion? william: that is a very good question. there comes a point when you can overthink these things. you could get swept along in the tide. is one of the key features you may note. it has become a bit of a catchphrase.

you are starting to see this in european retail, that is the classic sector example. you see it in parts of the auto sector and so forth. that means more dispersion. if you do have easy money policy, asset purchases, we have quantified the effect on spreads -- it is fairly large. at the same time, if you are breaking various business models , obviously dispersion is going to rise. it is a real challenge for the whole market. nejra: how would you trade financials against that backdrop? thatam: one of the things we've often talked about in the past is the yield curve. flashing recessionary -- i remember in the middle of the year, it did glow at zero, the three month, the 10-month, etc. -- a steeper yield curve, which seems to be where we are going -- one of the big moves over the holidays was this big moving yields.

as late as december 30. in europe. a steeper yield curve is clearly helpful in that regard. falling bad loan provisions. the financials look to be relatively on solid ground. we still like the risky parts of these financial structures. the thing to do is steer away from the broken business models. get into a working and improving business model, know that credit, then get deep down into the guts of it, and take as much risk as you can in a credit structure you are comfortable with. nejra: does that mean it is not necessarily a story of choosing investment-grade over high-yield us to mark you can find those business models in both. william: indeed. it is more subtle than that. it is really getting comfortable with the credit. accepting that the macro backdrop is probably going to be basically ok for at least the next six months because --

before we have to worry about some of what i'm talking about. finding good working business models, including the financials, and getting deeper into that credit structure. i think that is where the returns are going to lie. nejra: in terms of returns, talk in an absolute level, but also with regard to relative equities. william: we talked about this a little bit earlier. at 1.6% excess returns in european ig. 2.3 percent total returns in european high yields. these are not career making numbers. these are roughly the numbers you expect in two months of volatility. if you look at the historical monthly volatility of the market, that is back two months that we expect over the next 12. actually, the problem is that we got most of them in december.

so, starting from this level, we are actually already looking at lower returns. sayingvely, what we are is that volatility is going to outweigh the total returns this year and that means, unfortunately, if you want to outperform, you are going to have to try to time the markets. always a challenge. big portfolios can't swing so readily. nimblese who can be more , gauging some of the bigger returns we should expect this year, we are going to try to help people do that. it is not just going to be the year that it was last year. unconstrained,s, can continue. nejra: interesting. william porter from credit suisse securities stays with us. coming up, the countdown to the 2020 election. if president trump wins, he will be the first impeached president to win reelection. we will look at key dates and

how markets could react. this is bloomberg. ♪

nejra: good morning from london, i'm a nejra cehic. this is "bloomberg daybreak: europe." china stocks sit near two-year highs. this comes amidst reports that ijing has suspended plan for the beijing, -- beijing-shanghai stock plan. escape theories. the financial times says lebanon salt carlos ghosn's return -- sought carlos ghosn's return.

♪ best start to the year for chinese equities. we get a triple are cut from the pboc -- a rrr cut from the pboc. markets closer, you have no cash treasures trade in the -- cash treasures, u.s. markets in the green. here to discuss is our guest in mumbai, and in london, annmarie hordern. how is india trading at the start of the year? >> good morning to you. ok compared to yesterday, when we were one of the only markets working.

today, we have had support and started ok. it's not a bad start, but i want to draw our attention to one index. houses the index which the majority of media companies in the country. .t had a terrible year today session, the index started lower because the regulator has come up with a cap media companies can charge customers. there are probably bad times ahead. you.to nejra: thank. -- thank you so much. oil with the best year, starting the year on an upbeat tone. what is the move? annmarie: we see wti and brent on the move. to things are behind the move, first is this chart.

we are seeing a downward trend in stockpiles, of course, that will be higher for prices. we need to keep an eye on these tensions in the middle east, most notably iraq. we have this militia storm the u.s. embassy. they have since broken up their encampment, but still tensions linger and that is a question for the supply side. nejra: kicking off the new year for us in markets. let's get to first word news with selena wong in beijing. byand iraqi militia backed iran has broken up is encampment outside of baghdad. this was after attacking the compound earlier this week. the move could ease tensions. he will netanyahu says seek immunity from prosecution on corruption charges. -- it essentially

blocks his trial for months. he is gambling that once the coalition is formed, he will be the one leading it. north korea's leader has called for shocking action against the united states, declaring he was no longer bound by his pledge to halt missile tests and would --n they view a new weapon debut a new weapon. navy toa has drafted a rescue tourists from wildfires. many holidaymakers struggled to escape the dangers your multiple people have been killed in the blazes that has swept through new south wales and neighboring victoria. global news, 24 hours a day on air, on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. nejra? bloomberg. nejra: thank you so much. and thaticially 2020,

means it's a presidential election year. in just over one month, we will get the first results of who could face donald trump for the democratic caucus in iowa. what are the key dates to watch this year and what are we looking out for on the campaign trail? we are justight, about one month away from the iowa caucuses which will kick off the democratic presidential election cycle. i think that will be one of the biggest things you are watching. will winh of february the field down a lot between iowa, new hampshire, and than up to super tuesday on march 3. you will wind up seeing a giant winnowing of this campaign. you only get, about two or three people advancing.

last time, it was hillary clinton, bernie sanders, and that's it. i would really expect to have a great idea of, if it's not the maybeone, the final two three at that point. that if there's a real difficulty in figuring it it out, this process could stretch on for a long time. they have rules that are proportional representation for the full suit win. -- folks who win. that means it is hard to separate yourselves and you are looking towards july and the democratic convention. after that, we will have an exact idea. november 3 is the key. after that, you either have a donald trump who is emancipated from all of the struggles he has

got with a renewed and refreshed mandate or you have a donald trump who is just lost. it will be a major transition for the united states u.s. politicos like say this is the most important election in generations and it never really is, but this one is such a clear choice. where do democrats want to go and who they want to have to lead them? it is a day everybody has circled on their calendar already. nejra: etched on my brain, thank you so much. great to have you with us. a disclaimer that michael bloomberg is the founder and owner of bloomberg lp and is also running for the democratic another nation. let's get back to william porter from ahead of strategy at credit suisse. you reminded me that you were

predicting two terms of president donald trump. like whatlook to you will happen in 2020? >> that looks to be the consensus. the question is whether the democrats can put up someone who can beat him. i don't want to get into who the nominee might be, i just want to say that there is a lesson to be drawn from the u.k.. ,he policies are very different but they react to similar global trends and unemployment has come down a long way in both places. remember the early clinton campaign. if someone you described as hard left when stop against him from the odds would be strongly in his favor, just based on the u.k. experience. nejra: translate this to your market of credit into how, if at

all, an election-year might impact the fed. traditionally, they have been cautious in an election year. is probably enough time to sit on your hands, it's just to say they won't do anything particularly controversial. for my markets, and not taking ,ny political position here there is a strong element. trade has been an issue. if you look at trends in the u.s. and what has played well and poorly, the democrats would like this to be tougher on china. this is just fantasy on my part, but you could see a situation where they renegotiate the deal.

if the devil you know, i'm afraid. about the market is taking the consensus that impeachment has reached an impasse. surprisespoint, the could be in an impeachment direction. but they have gotten comfortable with the idea of the devil you now. from that, prices could be negative. nejra: will beget negative surprises in the economy? >> i don't think so. again, you've got all this money hanging out in the system. you've got fundamentals of a strong consumer. but looking at it from my perspective, we hear less about this now than we did a couple of months ago. we are advancing steadily and one of the things that's happening is the pricing power of labor, and this is a global

phenomenon, is increasing. that means potentially downward prices in corporate profits. and if you wanted to fight against the early euphoria, you could come up with a pretty nasty scenario. a squeeze on profits, less exuberant policy, more trade tension, and brags it really does get into trouble. along with this euphoria but there is always an eye to the future. nejra: will u.s. credit still outperform european credit? william: hour call is they would probably continue to perform in lockstep. we have not taken a strong transatlantic call in that regard. porter staying with us.

leaderup, north korea's the clares is no longer bound by his pledge to halt missile tests. we tell you what you need to know next. this is bloomberg. ♪

nejra: this is "bloomberg daybreak: europe." i am a rich a pitch in london -- i'm nejra cehic in london. china is cutting reserve requirements for banks. the ratio will be lowered by 50 basis points, releasing 800 yuan ofu.n. -- liquidity to make it easier to borrow money. -- stops the return of carlos ghosn a week before his arrest in tokyo. they say the justice ministry requested he be tried in the country but japanese officials did not respond. a flight to beirut for -- he had planned a

flight to beirut for month. to restoretempting its ambitions as a . this is after a launch failed just minutes after touchdown. david stern, the man who transformed the nba, has died. during his tenure, he boosted revenue from 118 million dollars $5.5 billion. is years of service make him the longest tenured commissioner of any sport. much. thank you so has said he will soon debut a new weapon. joining us to discuss is annmarie hordern. sayinge: kim jong-un is

he is starting the new year with an ominous message, claiming he was no longer bound by his pledge to halt missile tests and would debut a new weapon. to sufferfor the u.s. the pain imposed by sanctions. it marks a shift in policy after three meetings with president trump. trumps response was quite muted, saying he and kim had agreed to do nuclear is asian -- nuclear de-nuclearization but it is keeping the world guessing on what he plans to do next. nejra: europe's primary bond market posted a record-breaking 1.3 8 trillion euros of deals as brexit risks, economic concerns, and trade tensions locked-in lower borrowing costs. rallylso enjoyed a credit

fueling total returns. so what can we expect in 2020? let's get back to william porter. we talked about what we can expect in 2020, but what about the primary bond market issuance? william: we have got an interesting situation. around andsticks increases asset purchases, we think it might double its corporate purchases. that is definitely the line of least resistance. the easiest place to buy is corporate's. -- corporates. if you get a recession, it is all over. but if you want to perform between 1% and zero, they will bite more corporate's. they are already going to buy half of new issuance in

investment grade. if they increase asset purchases , they can squeeze and take all new issuance. our market is longer put on growth forecasts. this is deliberate as well. all the excitement about brexit, politics, and all the rest of it , we need to remember the reasons why the euro was put together in the first place. that is working. is going toance continue to be strong. our markets are going to if there isgrow more issuance, it's a moving target, but there is a deliberate policy action. there is also capital market policy. you do see growth from

european issuers but you see reverse issuance slowing. why? inliam: we had a bumpy year 2019 after it almost stopped after a various tax. there is just a little bit of mean reversion. most of these are not ecb eligible. that will mean room for domestic issuers. nejra: william porter of credit suisse stays with us. coming up, how will the next 12 months of brexit impact the u.k.'s supermarket players? the morning call is next. and the chicago fed president joins our u.s. colleagues at 4:00 p.m. hundred time -- blended time -- london time tomorrow. this is bloomberg.

♪

nejra: how will the next 12 months in the brexit process impact the supermarket players? annmarie hordern has all the details. annmarie: jeffrey's certainly bullish on the supermarket. they say that it will be an upbeat trading update with the recent media coverage suggesting the asia process could materialize quickly. they say the stars look well aligned for a strong start to 2020 for tesco. they also have a hold for sainsbury. mostly pretty bullish for the supermarket space. nejra: annmarie hordern with the details on the morning call. porter. back to william

are you bullish on u.k. supermarkets? william: to be slightly while special, at least now the shelves will not be empty. it is a sector that seems to weather storms pretty well. perhaps in contrast to the more discretionary parts of retail, a very challenged sector. i think that is structurally unlikely to change. if you want to stay in retail to some degree and are worried about other systems, it drives them to the supermarkets way. nejra: when you're talking about europe, you mentioned it might be harder to get returns. are you going to have to time

the market and be nimble? william: i think very much. you have to take seriously this imposition of the deadline. i know this comes down to game theory. the game has changed dramatically now. analysis, but our we have basically looked in terms of political games. the u.k. lost the game, whatever has cleavedyour it the union through the irish sea. but we had a critical summit on the 17th of october where, for the time being, it was agreed to go our separate ways in good humor. of -- conscious

uncoupling is the much-marked term, but they did it. can they handle this was is this turn into an acrimonious divorce? that is certainly the most important question. you are quite good at forecasting these things. go?do you think it will we have william: analysis led us to believe u.k. would swerve. the political damage to the eu project is now complete. the u.k. is going to leave, short of something strange happening. that means the eu itself takes a backseat relative to the component nations.

if there is a really messy divorce administrative from the eu side, it is the nation's economies that will suffer. they will push in the direction of conscious uncoupling. who knows, hopefully that works. it would hopefully put the whole thing into a different perspective. nejra: right. that means you are trading assets how? william: bullish the. bullishly. -- who and investors have never lost faith. a lot of them are still by. and the discretionary buyers are returning. i think you look at a situation whether it is normally a trade opportunity. they can probably both do better in that scenario. porter, great to

have you with us. that is it for daybreak europe. the european open is up next. we look ahead to the european equity market open and seeing some green on the screen.

anna: good morning, welcome to "bloomberg markets: europe." alongside matts miller in berlin. matt: the market say the only way is up. the market stopped -- start front foot as markets make gains. the cash trade is only one hour away. matt: new year,