>> eight u.s. airstrike in iraq vowsd one of iraq's -- severe retaliation. oil surges. equities depth as a risk-off mood takes hold markets. u.s. futures are the hardest hit. waiting on the fed. december minutes are out today and they may shed light on what it would take to shift the view that interest rates will be on hold all year long. welcome to surveillance.

i am matt miller. francine lacqua is out. let's check on what is going on in the market. it is a risk-off friday. the second trading day of the year and we see s&p futures down more than 1%. the stoxx 600, the broader european benchmark, down. brent crude futures are rising. oil up more than 3.3%. -- 68.46 abarrel barrel. coming up, chicago fed president charles evans joins us at 4:00 p.m. london time. that is an interview that you do not want to miss. that is not all we got planned for you.

let's get the bloomberg first word news. karina mitchell. >> a u.s. airstrike in iraq has killed in of powerful generals that extended the islamic republic of power. the attack which was ordered by president trump -- director of the future of errani initiative told it could lead to more deaths. >> i am not sure donald trump understands the implications of what he has unleashed. he thinks he is a hero but a lot more people are going to die. >> chuck schumer is insisting the impeachment trial of president donald trump included new documents and testimony. that follows the revelation showing officials questioned the legality -- that extends a stalemate with mitch mcconnell who has resisted calls for longer trial. to get a new

government. that means another socialist march.on since last a final vote in the spanish parliament is expected on january 7. boris johnson's top advisor is looking for widows and misfits to reform the u.k. government. an unusual set of people with different skills and backgrounds. he said they are profound problems at the core at how the british make decisions. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am karina mitchell. this is bloomberg. matt? matt: let's get back to our top story. iran, supreme leader, ayatollah

has warned a severe retaliation after a top general was killed by u.s. airstrike in iraq. the attack was ordered by president trump in retaliation for anaren -- four and iran backed militia. let's bring in our executive editor in the middle east, riad hamade in dubai. we've got annmarie hordern. ?hat is the latest what kind of retaliation should the world be expecting? waiting.test is we are we are seeing more verbal reaction from the iraqi officials and iraqi militias. there seem to be unanimous on the nation of israel. we have seen some reaction from lebanon and hamas and the gaza strip.

as well as expressing support for the iranian position. how are they going to react? the irradiance seem to be thinking -- the iranians seem to thinking. -- they will be discussing the options that they have. the iranians have shown in the last few months they do have capabilities. they have made it clear they are not willing to just take the pressure that the u.s. has been applying on a ron. -- on iran. there are so many attacks on tankers. iran relationships with militias across the middle east may also come into play.

matt: the reaction of the oil market has been clear. they are buying up futures today , but is this a long-term price action? should it be short-lived? >> that remains to be seen. we have to wait and see how iran decides they are going to counter this. right now it is just tough words. action like another they did in september? we are not seeing the kind of reaction on the oil price. the u.s. is less so dependent on middle eastern oil. this year, everyone was talking about an oversupply for 2020. we have shale that you start to pump more supply if needed, but also there's other oil coming online from norway, brazil, guyana. until we see real barrels taken off the market which we do not right now. what you are seeing in the price

is risk premium. there is geopolitical risk that something could happen. we don't have any supplies being physically taken off the market, matt. and riadmarie hordern hamade, thank you very much. we are going to stay on top of the story. i want to bring in ali vaez, international crisis group. we will seethink here in terms of retaliation? no doubt the iranians will retaliate. the question is when and where. the modus operandi would be he would respond. we might see a response in iraq. open, weption is not

might also see a similar action taken somewhere else, in afghanistan or even beyond middle east. there is the risk that the iranians might miscalculate thinking a disproportionate response, something similar to the attack on u.s. marine bracts in beirut in 1983 would be a better option for them, because that would deter the u.s. from further escalation. this is a very dangerous momentum. what is ironic is president trump came to office with a promise of ending the u.s. involvement but what he has done really amounts a declaration of war to one of the most powerful countries in the middle east. >> i want to pick up on your point about president donald trump. why do you think -- what was the u.s. calculation behind the strike? this is a man who has been an operative in the middle east.

why now? he was an enemy of the united states. he had american blood on his hand. there is no doubt about it. what the u.s. army has done was deterringurning -- at iran from attacking the u.s. you know we have seen just in the past few months with the attack on a ramp -- attack on aramco, the kind of vulnerabilities that exist in the region. is a seems to me that this miscalculation of the u.s. side thinking this would deter iran but this has opened a pandora's box. said the state department fairly clearly, i will quote

was actively developing plans to attack american diplomats and servicemembers in iraq and throughout the region echo -- region." they say he was actively planning to kill american citizens. he they would likely say he and his apparatus would behind the attack on the u.s. embassy on tuesday. he and his apparatus are behind has blood group the u.s. classifies as terrorist and the 20. .- and the who see rebels do the irani and's see any link to this general? just do the iranians see any link to this general? general's role in that region is very clear to

everyone. the other u.s. administration's before.ast had him every time they decided from a cost-benefit calculate, it is much riskier to go after him because the consequences would be unpredictable and because it risks putting the entire region on fire. in many ways this could be the middle east 1914 moment, similar to the assassination in europe that led to the first world war. now the risk is the iranians might take an action that the u.s. will feel compelled to respond to. we could be in a tit-for-tat which could spin out of control. it is a fascinating point, but can i ask because in world

war i there were two sides with a great number of countries. who comes to the aid of our as an ally -- aid of a ron is an ally? iran would make conflict look like a cakewalk. -- it is a very powerful country and has a network of partners all the way from the lebanese to hamas, all the way to a rock, syria, yemen. iran has a lot of options. in addition to that, it is the largest and sophisticated ballistic missile arsenals in the region. if it directly targets u.s.

, its in qatar and bahrain has a lot of options which would not be limited with specific geography. this is why it is a reckless action to go after the general because this would not stop the attacks. it would only invite more of it. close to war are we? does this change a proxy fight within the u.s. between the iranians and the u.s. and allies like saudi arabia to a more direct conflict between tehran and washington? is an don't think it exaggeration to say we are in a state of war with iran. the question is whether it would be a limited one or whether it would turn into an all-out account. we are after the second most

powerful person around and that is the most -- that is a declaration of war. i think all bets are off. matt: ali vaez there. he joins us along with our reporter, annmarie hordern, covering this and covering oil. up next we are going to stick with our top story and bring you all the geopolitical and market fallout on the killing of a top iranian general, as ali vaez said, possibly the second most powerful person in iran. this is bloomberg. ♪

matt: economics, finance, politics. this is bloomberg surveillance. our top story, iran's supreme leader has vowed to reap severe retaliation after u.s. air strike killed one of the most powerful generals. how does all of this uncertainty affect markets? should wed be -- what be watching out for as 2020 gets underway? joining us is wei li, blackrock, head of ishares. wei li, what do you think about the knee-jerk reaction today is gold and by oil. wei: i was thinking about during christmas and the first day of trading, sentiment was very strong.

within the space of 24 hours, sentiment did a 180 degree turn. this kicked arises the year we be.ct 2020 to trade headlines are getting better but on the other hand, volatility will be frequent because of the uncertainty in the middle east, but because of the very busy calendar in the u.s. given how strong sentiment is an fundamental-- and has been. recovering, we could see investors using this opportunity to -- matt: are you not concerned about an escalation of the iran-u.s. situation? wei: absolutely. what we have seen so far is that the oil price reaction to middle

east uncertainty has not been as crazy because of the supply from the u.s. also coming to market. until we see tangible evidence of uncertainty impacting growth, we could see investors being skeptical around the event. the situation in the middle east is always unpredictable in the room for escalation is very hard to predict upfront. it is very important to field portfolio resistant -- resilience. we talk about gold. i would throw into the mix, inflation links bonds. which in this case both acts as a portfolio but benefits from -- as oil price stays

elevated from this level. matt: wei li, we spoke yesterday with brenda brown on the program. he says he thinks it is likely we see a resurgence of inflation in the u.s. this year. it is the first i have heard that cake, other than consumers that email me on a regular basis saying the data is all wrong. do you think we will see a pickup and inflation beyond 2%? wei: inflation being underappreciated is perhaps the biggest risk that markets currently are not really looking at. our best case is not inflation run away. also given the structural longer trend of deglobalization, we do think -- and also given how

attractive market pricing is. in the u.s. and across the world , that it does make sense to build a bit of protection against inflation in your portfolio by switching normal bonds with inflationary bonds to some extent. for the hour,t wei li of blackrock. up next, a state of emergency. we are live in sydney with the latest as wildfires rage across australia and there are warnings for tomorrow as well. this is bloomberg. ♪

matt: welcome back to bloomberg surveillance. let's get to another one of our top stories. the death toll from the wildfires sweeping australia has climbed to 20 as authorities declare a state of emergency. joining us on the phone is our bureau chief, edward johnson. what has been the political impact of these bushfires? some people wanted to counsel -- cancel the fireworks on new year's eve. edward: the political impact goes way beyond calls for the scrapped.to be it is been an uncomfortable two days for the prime minister. his conservative government which one statements ago is

ardent supporter of the coal industry. steadfastly refused to put a price on carbon and environmentalists for years have been calling on the conservatives to step up efforts to reduce emissions. these fires have thrown that into sharp relief and the prime minister has been coming into sustained criticism. they came to a head just before christmas when he went to hawaii on vacation. we've got to cut you off, johnson. thanks very much. ♪ whether you're out here on lte

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kills one of iran's most powerful generals, supreme general ayatollah khomeini valves supreme retaliation oil changes -- oil surges. u.s. futures are hardest hit pointing to big losses. waiting on the fed. december minutes are out today and they may shed light on what it would take to shift the view that interest rates will be on hold all year long. you're watching bloomberg surveillance. i am matt miller in berlin at francine lacqua is off. stover 1.5 hours into this trading day here in europe. let's get a check on your stock movers. we moved back over to annmarie hordern. >> we have to start with oil and gas companies. the only sector gaining two gay -- today. it comes after strike on a top general.

he is regarded as the second most powerful man in iran. the fear is which you are seeing in the price of oil jumping, this could be a crisis that escalates and destabilizes the middle east. airlines are the ones not doing well today off of this news. lufthansa down more than 7%. ryanair doing -- airlines do not like the news of higher oil prices. up 3.5%. up 3.5%. matt: annmarie hordern with some of your movers. let's get to bloomberg first word news. >> a u.s. air strike in iraq has killed one of iran's most powerful generals. attack which was ordered by

president trump escalated a growing conflict with iran. chuck schumer is insisting the impeachment trial of president donald trump include new commits and testimony. that follows the revelation showing officials questioned the legality of delaying aid to ukraine. mitch mcconnell has resisted calls for longer trial spain is set to get a new government. the acting premier persuaded a party to help him take office for second term. that means another socialist coalition -- a final vote in the spanish parliament is expected on january 7. boris johnson's top advisor is looking for weirdos and misfits. post,000 word blog dominic cummings said he is seeking people of various backgrounds to work at downing street and he said there are

profound problems for how the british space makes decisions. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am karina mitchell. this is bloomberg. thanks very much. the federal reserve may drop a hint on plans for the repo market and minutes of his december meeting -- of its december meeting. what would it take to shift the view that rates are on hold all year long? wei li of blackrock is still with us. it is all fine and good to say that on the third of january. even fed officials must know that if the economy changes, they are going to have to change and react as well. right? wei: we can review minutes from past meetings but at the end of the day, the path forward is data dependent.

the threshold for the fed to our hike, is cut extreme he high. currency market pricing is basically for the fed to stay on hold, unless something quite dramatically happens. seem the does that same when you look around the world at other central banks. is the ecb on hold as well? ecb -- thehe excitation for the ecb is the room for further rate cuts is limited. even though we have the program, it is incremental rather than significant. have -- iny we european bonds, using government , becauseng peripherals

we think the room for ecb to do more is really quite limited. it is to be passed on from monetary which is challenging. happen?u expect that to you expect the fiscal authorities to pick up that the ?ot -- that baton wei: incrementally we have seen signs of that in germany, the netherlands. the scale of that is not big, it is not headline grabbing. in today's political climate, austerity is unpopular. the directional travel should be incrementally more positive. matt: can you expect central banks are set to control correctly should receive the benefits of that in global

growth? will he see pick up? which assets will benefit? easing financial conditions which are oftentimes outlook.d with growth the fact that growth has not picked up is really because of stop toutting a sentiment from picking up further. we are starting to see trade headlines getting better which should lead to the transmission mechanism from easing financial conditions to that are growth to materialize in 2020, and because of that, we have upgraded our prediction and emerging-market equities. because thesey are the exposures we think will benefit in this cyclical

instance and better trade environment in 2020. matt: wei li from blackrock, our guest cohost for the hour. we are looking today at equity indexes that are falling. risk-off sentiment pervades. you can see crude oil is also attack on ane iranian general in baghdad. you can see brent crude up 3.5%, as is nymex crude. s&p futures are down more than 1%. if you are prepping for the u.s. open in just about five hours day, you can expect a down just the likes we see here in europe. stoxx 600 down .7%. this is bloomberg. ♪

matt: economics, finance, politics, this is bloomberg surveillance. i am matt miller in for francine lacqua. let's get to bloomberg first word news. karina: -- from his dramatic escape from japan. the auto giant and other family members played no part in an escape to lebanon. -- since fling tokyo early this week. he said he is ready to medicate with the media next week. hbo., the former head of his new company will develop original programs. he joins a list of noble names working with apple including oprah winfrey, steven spielberg, jennifer aniston.

next holidays earnings may offer something to offer for investors. posted better than expected sales and forecasted an increase in the 2021 profit. the gains were driven by the companies online arm. tesla has cut the price of its china built model. it will now started 46 hundred -- $46,000. this is the carmakers that's up efforts to lure customers. that is the bloomberg business flash. matt: let's stick with cars. the auto industry underwent some seismic changes in 2019, from incarceration and subsequent escape of carlos ghosn in japan to a tie up between two of europe's largest and oldest

carmakers, fiat and psa. looking ahead to the future, electric battery technology, connected cars will become dominant themes. let's bring in michael dean. lark --rom black blackrock is still with us. michael, how far do the european carmakers have to go? how much pain do they have to accept before the achieve this turnaround and are emissions compliant? michael: we have new european emission inflation coming in in january of this year. neederage about 50% cut we in 2020. the industry only cuts emissions by about 5% in 2019. still a long way to go. more electric vehicles.

there's a big incentive to do that, because if they miss their targets by 5%, they could have to pay 4.5 billion euros in fines. matt: who do you think is going to come out ahead in the race for electric vehicle dominance? tesla has a huge head start, but they do not have the production ford.of a volkswagen or a who comes out as a winner in this race? michael: volkswagen has an advantage. it is jumped in it with both feet. they will have two electric platforms coming out. the ppa platform for porsche and audi. to give you an example, the scale that volkswagen has, china is going to produce 1500 thousand units a year.

volkswagen is opening two new factories and produce 600,000 cars. volkswagen has a scaled advantage going forward. i, what do you think of the automotive sector right now? on a structural basis, it is phasing a lot of the headways. if you look at the flows, deeply unpopular with investors. 2020,ear, you look at there are things that impact the sector. we haven't talked about potential trade confrontation .etween u.s. and europe while technically we could see the sectors presenting better entry points, on a structural basis, we think there are better

sectors and regions sustain vested in. matt: michael, let's talk about the high-end. the luxury carmakers, far-reaching was the top -- for ari was the top auto stock of 2019. will it to do well in 2020? ,ichael: in terms of earnings this is pretty much a consensus. the price is much more limited going forward. about aston martin logons a. we can see a dropping 54%. it is an iconic name. james bond drives and aston martin, but it seems -- it doesn't seem to be able to do

anything right. i know they have this suv coming out. is that going to be the savior of a male -- of aml? >> the stock is down right around 17%. it does have a game changer in 2020. other luxury car companies are showing that there suvs can be success. it is now selling over 5000 units. the rolls-royce has been a success. matt: the bentley bentayga, a success despite the way looks. if you could have any car, what we have the portion 11. the iconic car in terms of

performance. it will be very good. it is the whole package. i would go for the portion 11 turbine. -- the porsche 911 turbine. matt: what do you want? wei: alfa romeo, the old spider. matt: the graduate spider, i like that. uncle dean, just wants to put down the power. -- michael dean, just wants to put down the power. wei li is going to stay with us, our guest cohost for the hour coming up, it is all about the fed. cleveland fed president also joints bloomberg television from 6:00 p.m. london time. do not miss it. this is bloomberg. ♪

matt: canonic's, finance,

politics. this is bloomberg surveillance. i am matt miller in berlin on a day where markets are down. risk-off sentiment pervades after the u.s. attack on an iranian general in baghdad. we can see that oil is rising here, 3.5%. both on the global benchmark. oil producershave up but also everything else is down. boris johnson's top advisor is looking for a quote weirdos and misfits as a part of a drive to reform the u.k. government. in a blog post, dominic cummings said he is seeking an unusual set of people with different skills and backgrounds to work in downing street hinting at a wider restructuring of the civil service. he said there are "profound problems at the core at how the "ritish state makes decisions.

wei li is still with us. wei li, let me get your take on the u.k. economy, especially now that we've got this strong majority in place. are you more bullish on the u.k. now then you are before the december 12 election? ,ei: in terms of the economy there are signs we are becoming more portable on u.k. assets because limiting uncertainty is good in this state for a long time. since having a bit of clarity should persuade some investors .o allocate u.k. equities was a preference and also for credit. matt: how difficult do you expect this transition to be? do you think the johnson

government can get it done before the end of this year? tight andis a very business deadline. stress about that target probably will not kick in until the second half of this year. for the first half of this year, just the fact that we have greater support flows coming back into this very under owned exposure. beyond that, a lot of factors still but what we do take comfort in is the negotiation will be outside of the domestic couldolitical theme and mean less headlines and less uncertainty. matt: we were talking about fiscal spending previously with other governments. certainly here in berlin there

are question surround that. there is no question in the u.k., fiscal spending is going to be an issue. where do you see the biggest beneficiary of u.k. fiscal spending? wei: we do see parts of the economy very domestic benefiting from greater spending but also the fact that it is less exposed to a stronger sterling, stronger cable. in terms of the specific areas of fiscal spending and how that would benefit and play out, we thenow the intention and willingness and ability is there, but how that exactly crystallizes, i think we are still waiting. general, if there is

one thing you are excited about when you wake up in the morning, an idea, strategy that is really going to pan out well for 2020, what is it? wei: emerging markets. emerging market equities and within that, structural basis, chinese assets. we do see china having the inflowsl to attract and so the equities side far it hasn't materialized because of trade and also because of investors, european investors are getting more comfortable with the excess skiing. -- access scheme. it becomes more comfortable and growth stabilizing measures becoming more comfortable about high 5% below and 6% is good growth for an economy

of the size. we do see flows of pickup into .hina on shore assets matt: we are so comfortable with the trade situation, wei li, we have gone the entire hour without mentioning the u.s. trade relationship. that is something that has not happened within the last year. thank you so much for joining us, wei li of blackrock. want to point out that we are seeing platinum futures climb above $1000 an ounce. that is the highest level we have seen that precious metal since 2018. bloomberg surveillance continues in the next hour. tom keene is a new york with nejra cehic. this is bloomberg. ♪

tom: over a decade ago, general

david petraeus calling truly ofl this 2020 the lead iran's force is dead. khomeini seeks retaliation. markets, oil surges, the end stronger, the vix uses -- loses their three big figures. pompeo says iraqi stands on the street. biden says the president has tossed a stick of dynamite into a tinderbox. good morning, everyone. i am tom keene. nejra cehic in london. nejra, good morning to you. extraordinary news. we are beginning to see international reaction to this assassination. nejra: you covered in the cold open from our action from iran talking about severe retaliation. also from the u.s. side, the defense secretary talking about being prepared to exercise self-defense and being prepared

to deter further bad behavior. that since signals there could be more preemptive moves from the u.s. that is a concern. tom: our team looking over all of this coverage. we will give you conversation. --m pleased to tell you right now in new york city here's karina mitchell. >> a u.s. air strike in iraq has killed one of iran's most powerful generals. it extended iran's power across the middle east at was killed in an attack. president trump said soul amani was -- soleimani was planning an attack. to price of oil jumped almost $70 a barrel afterward of the attack. it is set to render some of those gains.

still there's concern the u.s. attack could lead to a wider confrontation with iran. a federal reserve may drop a hint on plans for the repo market and minutes of its december meeting. we may get an idea of what it would take to shift the view that interest rates are on hold all year. forecast rates would be unchanged throughout 2020. in the u.k., boris johnson's government is looking for "weirdos and misfits." dominic cummings says he wants to overhaul the way the government works so he is seeking people with different skills and backgrounds. global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in over 120 countries. i am karina mitchell. this is bloomberg. tom: looking at the data and all

reacting from what we have seen from baghdad. dow futures, -268. flat. get to the yen screen in a moment. there is a little bit of oil. next screen, please. now after the huge melt up we see this adjustment due to what we see in international politics. brent crude, 68.73. yield, that should be right on the screen, a lower yield. nejra, how do you see things in london? today really taking a hit european equities in the red. this act reports u.s. vence marks hit -- this after reports u.s. vence marks hit records

yesterday. european yields are sliding on the safe haven bid. gold hitting a form of high. tom: we will have conversation later with adam most of minas. -- admiral street minas. we are pleased to bring you thomas beckett. simple, he to this -- many talk about it, some do it. sir tom, thank you so much for joining us here. react to the death, the killing of this gentleman? >> there are two strategic points in the first is the american strike was precisely calibrated with regard it was done inside iraq where americans

interests have been threatened. it was precise in its location and targeting. the second strategic point is the level of the u.s. strike. general soul amani -- general soleimani. the resolve against iran has been a question as of late. they have gone straight to the top of the tree in this attack. when it comes to the iranian response, they have a degree of difficulty but they have time. three days of warning has been announced. they have to retaliate. there retaliation has to be appropriate to the iconic status

that is and was general soleimani. what they choose to do has to be relevant to that status. in the back of their mind, they have to factor in americans missed rations. tom: how should america respond to this? "iran is winning the middle eastern war now." the president has been silent. what would be the appropriate next step for president trump? my first point, and the military strategic domain, this was a precise and calibrated response done inside iraq. america, in many ways, has to see with the iranian reaction is going to be. one would have to hope -- you

talk about a polarized debate -- a consideration for the u.s. counteraction. america has got advantage in separates itance from the region. it can calibrate the level of its capability within the region. it has to stay committed to the region. it now demonstrated that it will attack at the highest level. it has to be prepared to follow that through. we are all going to be waiting to see how iran reacts. >> to go back to iran's reaction which you said must be inappropriate retaliation. what might that retaliation look like? can we look to previous retaliations from iran? would it look very different?

>> i think they've got two doions one option is they attacks and mass so that attritional.e the second one is they do something much more noticeable with much more media value and strategic impact. to the aramcock facilities in saudi arabia, something of that status, perhaps even against an american target. iran has to take into account toricans demonstration attack at the highest level. tom: everyone has been rereading .he article about mr. soleimani

there is talk about an attempt to assassinate this saudi ambassador. that didn't happen. in early 2008, the iraqi president handed a cell phone with a text message to general petraeus. you should know that i, mr. soleimani, with respect to iraq, lebanon and afghanistan and indeed the ambassador in baghdad is a coups force member. the individual who is going to replace him is a quds force member. they go on to say "after the on the grave of khomeini i have an authorized a bullet against the u.s. none of the americans believed him. general petraeus wrote that soleimani was truly evil.

how does saudi arabia react to the reality of the article eight years ago? how do they react to the present reality? do they defend the saudi have to attack iran in certain ways? beregionally, my guess would taking comfort in the fact that american is -- america is demonstrate and resolve. there was concern that america didn't seem to be willing to respond. this should reassure them that america is committed, but on the other hand, as we see, the region did not appear to want to have an all out war. what they want to do is

see how it plays out. my judgment would be saudi arabia does not have the strategic capability to attack decisively against iran. it would probably be defensive for now. tom: we will always member this will rememberns this day as the death of osama bin laden. is the trump approach different from the obama approach or is it at the end of the day all the same? >> there are undoubtedly similarities. say but there are similarities. berently the concern would whether -- in every military strategic situation, there is a

reaction/reaction counteraction and one has to hope that the u.s. administration has decisively how it is going to -- what it's counteraction would be to whatever the iranian reaction will be. it has to be strategic. -- within a geographical boundary, then i think that will prove to be an error. tom: sir tom beckett, thank you so much. coming up, we will drive for supremeversation with allied commander. this is bloomberg. ♪

nejra: i am nejra cehic tom keene. bevan's.s, james welcome. carry on the conversation that has rocked markets with the u.s. airstrike in baghdad killing qasem soleimani. we were talking about the significance of this figure being killed by the u.s. what does this tell you? >> the thing to remember, the saudi's once said you need to cut off the head of the snake. when they were talking about iran and in many ways this was the head of the snake. soleimani he was -- soleimani was the man who drafted foreign policy for iran. one thing that i think we need

to remember is until very recently what many military analysts had been commenting on was the very careful calibration of iranian provocations u.s. in response to the maximum pressure strategy of the u.s. pulled out of the nuclear court. you had the attack on tankers without a drop of oil being spilled. you had the very high-profile warning of what iran can do, quite risky, but nevertheless done against saudi oil assets. now soleimani who was the architect of all of this has been killed. how will policy reform related going forward? will it be as carefully calibrated? it is a question to ask. nejra: will be more

unpredictable or dangerous? 2019 wasn't without geopolitical risks. does this moment today feel different to you? james: we have seen so many laws, markets have lived for it. i expect 2020, we should expect heightened volatility. soare so used to -- we are used to markets not being well behaved. tom: james, thank you for joining us. james, i look at the mill the we have and it -- the melt up we have. to news likeapt this? if you are a long-term investor, how do you adjust to these shocks? james: the biggest risk is that we fail through fair value in 2020. in the case of the s&p 500, i would expect to be around 3500 points. any pullback could give more

headroom. i would say it is a sign of good news because it creates a stable foundation for long-term equity investors. if it continues to charge ahead on the back of ample liquidity, then we could see a classic melt up where prices go well past fair value, which point we sow the seeds of destruction of the bull market. heard sir thomas beckett speak about how this gentleman is a hero across different societies in iran. how does iran coalesce around a supreme leader as they perceive it with this assassination? james: the first point is on the was muchthat soleimani more than a military commander.

the only equivalent i can think was a moment when david petraeus had a personality much larger than his job. if you can imagine that was the man who had been killed, that is how many iranians will feel about it. it seems odd but to iranians, had done was keep iran safe by taking the fight outside of iran. with the major enemies being isis and someone but many iranians, think the u.s. it is similar for americans thinking the u.s. taking the fight outside of the u.s. khomeini remains the supreme leader. , he is theleimani

regime that he also had a personality. nejra: is there any prospect of de-escalation now? have we got to the point of no return? the point that tom beckett made it was exactly on the money which is the choice now -- this is unique that the supreme leader is attending a security council meeting. andchoice they have to make tom was exactly right that they will take the time making it. it is, do we find an appropriate response, let it be signaled that this is all we want to do? or do we express our anger and escalate? mark champion, think so much. james bevan stays with us for the hour. coming up, we mustn't forget it is the day for fed minutes.

president at 1:00 p.m. new york time. do not miss that. this is bloomberg. ♪

karina: this is bloomberg surveillance. --that flew former nissan didn't say the plane was

illegally deployed using falsified records. and asis investigating detained seven people including four pilots. shares that apple begin the day at a record high. they cross the $300 mark for the first time. there is increased optimism. services. pods and tesla has cut the price of its china model by 9%. model base price is over $46,000 after subsidies from the chinese government. that is the bloomberg business flash. nejra, tom. tom: want to keep you on track. foreign oil companies are evacuating staff from iraq according to allison maria. many different outlines -- many

different headlines. dow futures, -267. in oil, beginning surging. nejra, up a little bit in the last moments. nejra: the yen, gold, bonds favored by investors today. we are seeing a little bit of holiday trading in some of the reactions we are seeing may be greater. this is reverberating across markets, tom. tom: the conversation on this death and iraq. ♪

tom: "bloomberg surveillance," welcomes all of you worldwide over this news from baghdad. profound death for iran.

the international reaction. we had him of ccla, on for a quiet conversation on what to do after a great bull market. i want to speak, quickly, about how long-term conservative investors must react to the day with the fed turns and becomes more restricted. is that something to fear? james: it will be a concern. i don't think we have this in the cycle whatsoever. theainly not the side of presidential election. markets look ahead. there are people ahead of the game in terms of corporate earnings expectations. i find it difficult to get a number of more than five percentage points this year and next year, s&p 500 earnings growth number.

reconcile withto the premise that we will face a year of low economic growth with margins elevated. tom: the heart of the matter, particularly for quiet investors, corporations adapt to the cards dealt. they clearly did that, 2018-2019. adapt to corporations all the cards they have been dealt? they will. james: it is not an issue as to whether corporations can adapt. what will drive corporate earnings growth? if we expect real growth, inflation around two percentage points, i get nominal growth around 4. i can add a percent or a percent and a half. that gets me to 5.5%. the street is looking for over twice that. that is a bid i cannot get my

head around. nejra: we also get the u.s. ism manufacturing. 10 year yields bottoming? james: what i find fascinating about it is it is clearly affected by sentiment, which has plummeted. i suspect a big chunk is the inventory cycle. we had a big buildup in inventory that flattened growth numbers early on, then the unwind, inadvertently suppressing numbers. that is beginning to finish. i am expecting a slow but steady improvement in the manufacturing lead indicators and a pickup in the 10 year bond yield. tom: thank you so much for being with us. iran and baghdad. isorter: the supreme leader vowing to retaliate for the u.s.

killing of one of the country's top generals. american airstrike, iraq has killed qasem soleimani. president trump authorized the attack in baghdad. the pentagon said he was developing plans to kill american diplomats and troops throughout the region. oil prices jumped. deadly wildfires in australia have ended the political honeymoon for the prime minister, scott morrison. the handling of the crisis has stoped criticism over judgment. hawaii an holiday to day after declaring a national disaster. fires have killed 20 people, 28 missing. a warning from the u.s. to argentina's president, alberto fernandez. trump administration says the early foreign policy moves may jeopardize the imf, and may compromise investments, in shale oil and gas deals.

global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm karina mitchell, this is bloomberg. nejra: thank you. we have the latest on all the moves in the oil market following the escalation of tension. what is the scale and context? reporter: we are closing on $70 per barrel. 4%, yesterday, we have not seen this since september, since the attacks on the saudi aramco facilities. this is a big move. premium.tical risk this is not the same market we had 5, 10 years ago. it is not a massive move given the fact that analysts say this could trigger a war. the world is less dependent on middle eastern crude. everyone was talking oversupply,

most notably u.s. shale. no oil facilities or production was hit. surprise side, nothing was changed except for fear in the market. worries that this could destabilize the middle east and the market, generally. tom: thank you. headlines out on these matters. chancellor of the republic of de-escalation is important. the oil minister in iraq saying 4 u.s. citizens working with exxon, leaving as well. a cacophony of headlines. oil and international relations in value. what are your thoughts when you heard this news?

excuse me. is it enough to destabilize oil? >> good morning. happy new year. when the news was breaking, for me, the big thing was we have seen constant, even upticks, the attacks in saudi arabia, u.s. -- this is very clearly the redline iran has breached. if you were to attack u.s. personnel or u.s. interests directly, then the u.s. gets involved. that is the biggest take away over here. that is why there was retaliation. if you see the defense department statement, it specifically talks about the december 27 attack and the attack on the u.s. embassy. that is the first thing to bear in mind. of course, the broader issue over here is -- does the u.s. get sucked into the region again?

how does this unfold? clearly there will be retaliation from iran. i don't think it will be soon. they will take their time. nejra: great to speak to you, amrita. when we look at this change in wti and brent, is this the market pricing fear and uncertainty around and risk for is a supply risk being christ in? -- priced in? >> the initial reaction is what does iran do? another attack on saudi arabia? it is a bit of both. it is more of a geopolitical fear initially. i disagree with the statements about the world being awash in oil. brent, wti, they are very backward. it is telling you how tight the crude oil market is at the front.

we have had refining clients calling all morning from asia -- they are struggling to get crude oil, particularly the heavy crude quality that iraq exports. if there were to be a disruption to iraqi production, the oil the world needs right now, iraq is the last place. we have lost iranian crude. that is what the market is scared about. nejra: how high could that take oil prices, if those fears were realized? amrita: if you genuinely lose iraqi production -- i don't think that will happen. happen, wellto above $100. you're talking 3.5 million barrels a day of oil exports being taken out. tom: brilliant, what you're telling us. the dynamics between heavy and

light crude. long-term charts. excuse me, i have the plague. i thank you for putting up with it. 200 day moving average, brent crude. $108 per barrel, long ago, the great collapse. breaking up to the $70 level. what is the catalyst in the microeconomics of things, stuff, oil that would get us to break out of $90 to revisit 2014? what is the thing pros like you monitor? : demand was week last year. the trade war, the economy. -- weak last year. things seem to be turning better. if you get demand surprise upside, which no one is expecting, everyone is bearish, if you get demand surprise, suddenly supply losses become,

oh my god, there is a dearth of supply. u.s. production is slowing down. norwaye got new oil from . the u.s. compensates. opec cutting further and you have sanctions in iran and venezuela. tom: university of london, international relations -- how do you expect saudi arabia to react to this? that, versus sunni, i get but as you dovetail in opec, we perceive it as saudi arabia. how does saudi arabia and aramco as a product, how do they respond to these events of the last 24 hours? amrita: after september, they will make sure every facility is properly taking care of a guarded. the reality is, after the u.s. did not step in to protect saudi

arabia in september, the saudi's irates have tried to de-escalate. is ontire region absolute alert. this is the last thing they wanted. it is going to be an interesting next week. tom: thank you so much. we will have this on the podcast later. just outstanding. much more to come. david westin. i will speak with the admiral on television and radio today. look for that. stay with us, worldwide. this is bloomberg. ♪

london, tom keene

is in new york. apple topping $300 for the first time. shares appear overextended and overbought by the most in a decade. james bevan is still with us. do you hold chairs? james: i knew you would bring this painful subject up. i sold a year ago on the basis i determine along with the team that the fundamentals have become detached from pricing. i worry this is a speculative shift up in the price of apple shares, not well-founded in the solid fundamentals i need to observe in order to justify deploy capital. nejra: they are expected to release the next generation of iphones capable of operating on 5g networks. want to get in now? james: i completely get the story.

my concern is the earnings growth required to justify the current share price fully takes account of all the potential good news, in terms of new iphone delivery but also of app sales and peripherals, they have delivered on. i still feel the share price is well ahead of events. tom: bring up the chart again. brilliant chart. fan disclosure, i am not a of support resistance analysis. it is on a wide access. longbrilliantly shows, convexity of apple, second derivative and the acceleration of the given stock. james bevan, you are a pro at big companies. what do you do at a big company when the second derivative takes off? james: this is potentially a fabulous buying opportunity when one observes the market

re-determining what future growth profile at apple looks like. my concern however is this price movement is not justified by fundamentals. reprice.ng i don't see the underlying fundamentals to justify that. tom: let's get away from the sick stock everyone owns. if i'm not going to buy apple or amazon, etc., etc., what do i buy in large blue-chip american companies? number one has to be jp morgan. extraordinary powerhouse of the financial sector, capable of delivering strong earnings growth because of their very clever management of cash and liquidity and credit. over the years, they have made multiple acquisitions where they have not yet reaped to the benefits of sufficiency. that will be the next card.

nejra: what i find interesting of your view on u.s. equities broadly, you find them attractive from valuation perspective. i don't hear that often. what are you looking at? averages.ple look at reasonably misleading. people should look at single stock valuation and the dispersion single stock and the opportunity to buy good, quality companies, relatively low valuations is absolutely there in the states. the other issue is if you adjust the sectors, it is absolutely clear the u.s. has led the world in a number of very strong departments of which i.t. is one, global banking. -- the eurozone banks depressed valuations at the moment. isig sector risk for 2020

the french banking sector. they have borrowed a lot of money, lent it to asia in the only hope it will work out. it could go horribly wrong. tom: brilliant on the big company conundrum up 29% last year. we need to do another data check. we will do more of these on tv and radio today. futures, dow futures, this is a new leg down. curve flattening. euro turning. dollar-yen. second board. a 1.07 toeed to see show the angst. brent crude, near $70 per barrel. much more to come on the events of baghdad. this is bloomberg. ♪

karina: bloomberg business flash . wall street increasingly pessimistic t-mobile will complete its takeover of sprint, given the offering price is at the highest point since the deal was announced in 2018. the justice department have greenlighted the transaction. 13 states have gone to court over it. the world's largest luxury conglomerate will close its doors in the hong kong shopping district. mall inr of a shopping hong kong reportedly refused their request to lower rents. the best news for the manhattan real estate market in two years. sales fell by 1.2% in the fourth quarter, the smallest year-over-year decline since 2017.

that is the bloomberg business flash. nejra: thank you. james bevan, still with us. we were talking about how you sold apple to early -- too early. what was your best decision of 2019? you still beat the benchmark. james: to lay out strategic perspective for the year, low-inflation, low growth, avoid u.s. recession, central banks, and up with positive global context, not panicking into supporting bond markets when yields drop, people worrying about yield curve inversion and the risk of recession, not then charging into cyclicals with no evidence. we have had relatively low turnover, steady returns. now that you see

inflection point, u.s. manufacturing cycle bottoming out for example, are you looking more at value for how are you translating what you learned last year to 2020? james: i am trying to pull down the valuation of equity investments held in portfolio. i see a lot taken on trust. i would rather have low valuations to have less risk. i want to remain exposed to secular, rather than cyclical growth. we are in for a long period of low growth. one of the big issues were markets is at what point do zombie companies, companies that do not justify their keep, what point do they throw in the towel and say, i should go out of business? survivors make more profit. tom: futures with a new leg down. what is the new level on correction? is the correction 7%, 6%, traditional 10%? 10%.: in terms of of

that should give way to a relief rally, another recovery. on that basis, i will remain invested, try to raise cash. unless we see a material escalation in global conflict, which i suspect is not yet on the cards. tom: thank you so much for perspective today on market given the tumult in middle eastern affairs. now, leg down, no question about that. 45, the dow.ive, the vix, three figures as well. $63.78. crude, we have not heard from the president but we hear from the senator of massachusetts, senator elizabeth warren with a carefully constructed tweet, 5:20 a.m. this morning.

we are going to see a lot of this this morning, aren't we? nejra: did reaction from the globe. all the headlines. severe retaliation. investors are trying to work out if this is the point of no return and how that could hit risk assets. we are still in holiday season. coming up, jim bianco joins us on the show. this is bloomberg. ♪

tom: over a decade ago, general david petraeus called him truly

evil. the leader of iran's foreign terror force is dead. president trump has no comment yet. leader calls this rogue adventurism. oil surges. the vix moves near three figures. futures deteriorate. polarized washington reacts. secretary of state said iraqis dance in the street. former vice president says aresident trump has tossed stick of dynamite into a tinderbox." this is "bloomberg surveillance," from new york and london, good morning to all of you. good conversation coming up on these important events in international relations. the first thing we want to do right now is look at a chart of the deterioration in markets and get to data checks which react to the killing of qasem soleimani.

lou circle. melt up. to december 20 valuations with further deterioration. let me go into the data check before we get the first word, the latest from baghdad. -50, dow futures, -400. no higher prices and oil. -- in oil in the last we minutes. brent near $70 per barrel. on how tight the heavy crude market is. yen, strong reaction. how do you see markets this morning? nejra: oil market reaction is interesting. the highest since september when we got the attack on the saudi facility, which suggests not a huge amount of supply risk is being fully priced and yet. european equities down.

yen, the haven of choice in terms of fx. gold, the preferred haven today. yields fall not just in u.s. but yieldurope, 10 year bund heading quickly to -30. tom: congressional reaction in a bet. city, it was karina mitchell. karina: targeted u.s. airstrike in iraq has killed one of iran's most powerful generals. qasem soleimani lead powerful militias that extended a rents power across the middle east. he was killed in an airstrike. he was developing plans to attack american diplomats and servicemembers throughout the region. the supreme leader is vowing severe retaliation. $70 peres spiked, barrel afterward of the attack, since a rendering gains. no production affected.

there is concern the u.s. attack could lead to a wider confrontation with iran. the federal reserve may drop hints for the repo market in the december meeting and we could get a view of what it would take to shift the view of interest rates. forecast rates would remain unchanged through 2020. fed minutes released at 2 p.m., new york time. global news 24 hours a day on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. i'm karina mitchell, this is bloomberg. tom: thank you. mark champion with us in london today, our senior middle east reporter. comparing tweets. emily wilkins joins. truly in the white marble trenches in washington. want to go to senator elizabeth warren and also senator rubio of florida as

well. extraordinary. "our priority must be to avoid any costly war." the senator from florida, particularly verbose on twitter through the night. "fiction. trump is desperate to start a war in the middle east. fact. opportunitiesral to justifiably respond to iran and did not." emily wilkins, help me with the distance between republicans and democrats when they do not have a microphone in front of their face. how far apart are they actually? democrats ares following with what elizabeth warren is saying. qasem soleimani has american

blood on his hands but they are worried how much this will escalate the situation. rubio and other republicans, including lindsey graham, says this is a justified attack. tom: a history to this when we were less polarized. scoop jackson and howard baker would be on the same page. that is not the case, emily wilkins, in washington. is there a middle ground on capitol hill given these events? emily: there could be. at this point, lawmakers are not here today. they are still back home in district, wrapping up the holiday break. we will be watching today to see how various senators respond. with washington, it is very partisan now. you have seen overlap when it comes to foreign relations. we will be looking for that today as more and more senators and lawmakers weigh in with thoughts.

nejra: good to speak to you. can we expect the president to take a more confrontational tone and be more likely to escalate this conflict as he starts to feel the pressure of the election year? emily: president trump, at this point has not made any statements. the only thing we have seen is a tweet of an american flag last night. trump has previously stated, before he was president, there were a couple tweets going around last night of trump saying, accusing then-president obama of wanting to start a war to help his reelection. that was something said in past years. we have not heard any statements from the white house. tom: mark champion with us, brilliant. what i see permeating, all the literature i read, is the belief, fundamental within the shiite, that america will always

blink. butica can talk and bluster always, america will pull back from the middle east conflict. is that a valid theory by iran? theoryt is certainly a that some of america's allies have begun to believe in the middle east. it was one of the things that crept in during the obama administration. caused concern. it was one of the reasons they were so happy when donald trump was elected. he made his first big trip to the middle east, saudi arabia. they were delighted. there have been concerns, especially after the iranian strike on saudi oil facility, trump was actually following a similar policy to

obama and that when he said coming into office he wanted to end the wars in the middle east, that he meant it. tom: images coming from iran. the first we have seen from very different from what secretary of state pompeo was talking about, iraq, dancing in the streets. mark and emily, it is so important, within the shiite construct of iraq and iran, how divided are the shiite in iraq from the shiite in iran? is there a great divide? are they all on the same page? question, very good very tough to answer. they do feel affinity.religious affinity . that is important. they are not on the same page. we have seen that recently with protests in iraq, which were against the regime. -- the flag being burned

iranian flag being burned because people saw them as supporting the regime and interfering in both the shiite population and arab, or is obviously in iran, this is a persian population. there are significant differences. very good question. it is impossible to parse precisely. theseith my ignorance, are incredibly important images from iran. 600 miles from tehran, to the northwest. captures the geography of iran in the afternoon. nejra: mark, we have talked about escalation and the killing ofe of the

qasem soleimani. is there any prospect of de-escalation? is it just about waiting and watching? mark: we will have to wait and watch. he is a very popular man. one has to remember, even people who don't like the regime, often like him. the reason was he took the war abroad and kept iran safe. in the middle eastern context, if you think about the middle east with bombings and all this sort of thing, that is what iranians see when they watch tv, and they did not have it at home and it was because of him. they felt they owed it to him. tom: emily, you are congressional reporter, wired into the dynamics of washington. is the pentagon and the president on the same page as they went into this action? emily: at this point, sounds

like they could have been. you saw the pentagon release a statement last night, certifying it was the u.s. strike that wound up killing him. at this point it seems like there is a strong communication between the white house and the pentagon. we will look at that going forward. for yourk you perspective. coming up, we move forward with the conversation. the formerjoin us, supreme allied commander for nato. this is bloomberg. ♪

tom: "bloomberg surveillance," good morning from new york and london. following the headlines and fallout from the killing of arguably the number two military force in iran, qasem soleimani, for years known by america for foreign insurgency. his death has caused international outpouring. we will have that for you throughout the morning. return to the markets with jim bianco, -- jim the this is a fed melt up in the markets. you are not sure it is the fed driving stocks higher. what is it? there is no one indicator. think central banks, easy

money and the fed pivot of 2019 to do business has helped push the market up 29% for the year we had with the s&p. the story of 2020 will be what happens when they reverse? how to the other central banks react? we saw a little bit of that in 2018 and the markets did not take it very well. that remains open. tom: you are too young to remember nifty 50 buffer certain we have the nifty 8. are you focused on the glory stocks driving this market higher or do you find value in stuff with a center tendency? jim: i remember the nifty 50. i am focused on the faang stocks. they have been at the central point of this market. u.s. stock market, 31% technology. european stock market, 7%.

that probably explains most of the difference between returns and the u.s. way,ology will lead the probably on the way down whenever the market peaks. interesting isso rather than asking the question, what happens to u.s. equities if the fed is on pause or dare i say hikes after the three rate ask what019 -- if you happens when they and purchases and reposts in the second quarter -- you are drawing parallels with y2k? jim: everyone calls this not qe. they are trying to say it will not effect financial markets. we had an example 20 years ago. we were worried about y2k. we were worried everyone would run to the atm's, take out money, because computers would stop working on december 31. stuffed full of cash

to meet the need which never happened. that excess liquidity, reserve, helped push markets to the march 2000 hi. it was not the only reason. when we withdrew the money, markets had convulsions in the spring of 2000. i am afraid if we try to do something similar in 2020 we might have something like we had in 2000. nejra: will that convulsion just be a buying opportunity? more records yesterday on all three benchmarks. jim: the way markets work typically is they run ahead of fundamentals. you cannot justify market prices today with the known fundamentals. it is kind of like a quarterback throwing a 50 yard pass. he throws it to the empty part of the field hoping a receiver will run underneath it. the market is going to the empty part of the field hoping fundamentals will run under it. if, by some are, we see earnings -- by summer, we see earnings,

if we see a big rebound in the economy, we are ok. if, by summer, we don't see that, then the market will have problems. it is ok for the market to run ahead of the fundamentals. they have to catch up. they have six months. tom: very important to note the green bay packers are 13-3. thank you so much. he will continue with us through the hour. data check now. -43. -50 earlier. dow futures, further curve compression this morning. 4%.was out twice over stay with us, our coverage on the events of baghdad. this is bloomberg. ♪

tom: "bloomberg surveillance," good morning. pictures north-northeast of dubai and very far south of tehran. miles south of tehran and another hundred miles

is the firste place -- the birthplace of qasem soleimani. this is where he was from within a large geography of iran. really i watering images of mourners. reverberating across global markets, not just in oil, 4% wti and brent. today, hitovement highest since september. is this a market supplying risk already? will: concerns that this will escalate quickly, iran will find ways to retaliate and we have seen how oil is being used as a weapon in the region with the iran,, the u.s. blamed on tankers in the persian gulf and

other parts of the middle east. traders are fearful that will start again. there is a fear this, which is an extreme action by the u.s. will lead to an escalating regional conflict. nejra: how tight is the market? will: quite tight. , demand for above oil now. ago, weed to a decade have in build stabilization as oil price goes higher, likely to see more activity in production. more u.s. oil in the markets. that is a factor which is limiting the rise today compared to what you may have seen in previous eras. tom: who needs iranian oil? the quality of their oil, the character, who needs it and where does it go?

as inmost goes to asia, the majority of persian gulf oil goes to asia. they have blends which are diesel heavy, much demanded by asian oil refineries. oil is beingranian exported now because of sanctions. asia has not been buying it for a while. the concern here is escalating conflict, retaliation will stop other barrels getting out of the persian gulf. tom: our managing editor. data check here with a bounce in the markets. tehran.rom kerman and -42, dow futures negative 3440.

yen strength. all of this normal. reaction is within the band you would expect oil up percent. .- 4% nejra: 10 year treasury yields down seven basis points. yields drop in europe as well. fx, preferred safe haven in gold also catching a bid. mr. unique character of qasem soleimani within iran. the former lieutenant general of the u.k. was with us earlier, and he made clear this gentleman was different. this is bloomberg. ♪

tom: "bloomberg surveillance," welcomes all of you worldwide. extraordinary morning.

theing back to l.a., killing of osama bin laden, many of the characters of that moment. that in chicago on the equity markets. melt up and axios has a headline, the team talking about america's war footing. how does the stock market do given the definition? jim: usually not well. the natural state of economy of markets is to expand. things,start breaking when you talk about war, you heighten the chance of breaking things. we have not broken anything yet. there is fear we will break things. one of the leading causes of breaking an economy is high oil prices. 4% move today will not do it. if this is the start of sustained higher oil prices,

that could be problematic. we will see if it is. we don't get much oil from iran so it is not that we have lost their production from sanctions but whether it destabilizes the rest of the middle east causing high oil prices, that could be concerning. tom: what do you do if you are the vast number of americans somewhere someplace owning index funds and they are big, fat and happy after 2019? themmost people owned through a 60-40 portfolio. 60% equities, 40% bonds. 40% is doing well. 10 year treasury down seven basis points and that is helping to buffett any loss. look at losses. back to levels we saw in the market last week. it is not like from a technical perspective we have done any real damage.

the best course of action is the one most popular now. 60-40 portfolio, the idea that you want to have bonds and stocks in your allocation. nejra: i showed a chart yesterday that showed how well that portfolio did in 2019.2020 could be different. bonds still the best diversifier? should people look to safe havens, yen, gold, cash? jim: it will be the best unless or until we get a return of inflation. if you see inflation come back, usually people like to say stocks are the inflation hedge, they are really not. they appear to be in early stages. when you get inflation, you get equities and bonds going down together. we have not had inflation causing that to happen for over 20 years. it has been a long time. i don't see inflation that leads to initially, over the next couple quarters, probably beyond

that, so i think bonds will continue to be that hedge. if we get inflation, if inflation comes from energy, all bets are off. tom: thank you for the strategic view. the admiral joins us in a bit. right now, narrow but broad, bull, faang apple bull, one hell of a 2019. i want to rip up the script and forget about the wonderful research note. skyg stocks melt up to the as mr. weinberg would say. there is a point where it ends. these the kind of events that can give us faang angst, first quarter? dan: when you look at the events, you can see risk off in

the near events. it comes down to the fork in the road. what do you do? risk on 2020. tom: our control room is so busy with headlines from baghdad. we have shown a couple charts about the convexity of apple. the curve up you get with acceleration. do you sense the faang is a regression to the mean or do they as a general statement have the ability to overshoot down and below the regression given the shocks? dan: i would be surprised if they overshot. tom: there is so much energy they can only go back to the moon? dan: the fundamental thesis this year, goes higher, because of the growth. ultimately, there is scarcity of growth in the market. 5gn you have 20% growth,

super cycle, apple, you ultimately see buyers in weakness. nejra: great to speak to you. the chart shows apple, the most overbought in a decade. previously said he would not want to buy now because the price is so divorced from fundamentals. you are saying it is not? dan: our thesis in the last for years is a rereading in apple, not just because of services but because of the install base and what i view as 350 million iphones sold in the next year-and-a-half. we are starting to see the paradigm changing for apple. no doubt, stocks, record high. you can see some blowback. -- whenr the next year you have macro exogenous events like today, it presents opportunity to own names in terms of general faang, where i

still see that means go up 25% this year. this morning's events don't change that for me. themes youthe key are betting on over the next few years, 5g and the cloud? dan: that is it. that is why microsoft and apple have been our favorite large-cap. 5g, you look at super cycle, you have names, qualcomm, chipmakers benefit. microsoft continues to be front and center on the cloud. you will see paradigm changes in terms of more cloud names, not just getting re-rated, but ultimately acquisition. events like today, it comes to risk on risk off. you can see some shake off with small-cap into earnings. golden opportunities in terms of the names priced right. tom: we have to go just because of the news. thank you so much for your

research on technology. the events of the last one he for hours, a game changer. we will drive for perspective on that with the former nato supreme allied commander, with us in moments. this is bloomberg. ♪

tom: "bloomberg surveillance," good morning from london and new york. data check before we speak to the admiral. futures rolling over, not through the lows for the day. -44. dow futures, -353. nejra: european equities giving

up gains of yesterday. month high and gold near a six-year high plus safe havens and money moving out of risk assets. tom: birthplace of qasem soleimani, killed by american forces in baghdad in the last 24 hours, only 300 miles north of the gap of the persian gulf. the responsibility of the u.s. navy to keep that open, they do that with nato and others. we now speak with james tribute is, sailingok the north, we are thrilled author could join us. navy respond in the persian gulf this morning? >> three ways. number one, we will float more ships into the gulf.

we typically have 20 their but because of the potential of iranian response, we will add defensive capability. we will give the president options, offensively, everything from tomahawk strikes to aircraft coming off the ships, coordination. number three, we will work hard to make sure the iranian navy does not fight to close the straight of hormuz. it is busy in the persian gulf. tom: so much of this, admiral, is based off the iraq-iran war, shiite versus sunni. what the iranians learn is you cannot take them head-on. they lost millions, hundreds of thousands of people at minimum against saddam hussein. how fearful should our listeners be this morning to the terrorist attack response of iran?

>> we ought to be very concerned. this is often called asymmetric warfare. you got it right. iran will respond by expanding the threat surface. they will attack u.s. assets in iraq, our soldiers in western afghanistan, they will probably go after troops in europe. i would not be surprised to see them attempt assassination of a very senior admiral or general. they will certainly attack or look at attacking our ships in the arabian gulf. the one i worry about the most,, above all is cyber. they are quite capable in this round to launch a significant cyberattack against our financial institutions, our infrastructure, our educational system. they are highly capable in cyber. look for horizontal escalation by iran. is the u.s.al,

preparing itself for a prolonged conflict? is there any prospect at all of de-escalation from either side? strikehis point, this which has killed qasem soleimani, and let's begin by saying he is an evil man, the cardinal richelieu of this iranian regime, he is clever, he has killed many americans, many of our allies. tactically, it is a good thing he is off the chessboard. strategically, i don't see what the plan is to step up and have a coherent response if iran lashes out in a big way. that is what ought to concern us. what is happening now, the pentagon will be developing offensive options for the president, developing defensive means. frankly, we need solutions not just military but international with allies, interagency working

with other elements of u.s. power, our coordinated with the private sector which will be at risk. all of that leads me to believe we need to develop that kind of strategy. we have not done so. we have work to do on this morning and i will close by saying the president has got a big day ahead of him, simply picking up the phone and calling our allies, partners and friends, developing a strategic narrative and pushing the agency to develop the kind of strategy described. nejra: what role will saudi arabia play in this? issaudi arabia,, of course, diametrically opposed to iran. people in riyadh today are happy he has been killed but they are very concerned that they could be in the line of fire between iran and the u.s. obviously, the oil fields were attacked a few months ago.

they are dependent upon the flow of oil and natural gas in and out of the strait. it is a nervous evening in riyadh. tom: we are seeing the political response. , i am making a joke there, but admiral, there has to be a political response. many in congress are saying we should have been advised, etc. what actually happens when there is an event like this? does anybody talk to anybody in washington? what actually happens behind closed doors in the situation room? >> in the situation room, tom, as you well know, the executive branch, that is where hopefully the ideas of strategy i have described are coming together in a well-run administration. that would be moved over to the congress, there would be notifications. i was surprised to hear the

speaker was not notified. that is not a political statement. you know me. i am a centrist, a registered independent. we need our branches of government to work together here as surely as we need the various elements of national power interagency work. tom: there used to be a time when scoop jackson would trot out with howard baker and say, we are all in this together. cannot happen this time around? -- can that happen this time around? >> i don't see it from this crisis. the overlay of everything we have talked about, we have impeachment proceedings and an election in 11 months. coordinationood between political parties are low at this point and that will make us even a higher degree of difficulty to construct effective strategy. tom: i want you to go back to the fletcher school. you are sitting in the classroom . you are thinking, dr. kissinger,

west balian system. this is nothing to do with this. it is basically foundation, religious war going back to the iran-iraq war. how does anyone in the western world believe we can intrude on the ancient battle between shiite and sunni? >> this is the right thing to think about. in fact, when i was at the fletcher school i often said, in the international relations, there are two streams of activity you never want to see cross. one is the one you mentioned. the religious animosity, sunni, shia. the other is roger geopolitics. iran wanting to dominate the region geopolitically. it is like ghostbusters. you don't want the streams to cross. we saw them cross in the christian faith during the reformation in the 1500s which crossed geopolitics between

england and spain, creating 100 years of war. let's hope we can avoid that in the middle east. we wake up to a dangerous moment in global politics. nejra: admiral, when you take into account what we heard from mark esper and general mark yesterday, how will the u.s. balance approach from here between being defensive or preemptive and offensive? >> we will begin by putting emphasis on the defensive side. the next move in this chess match will come from tehran. we will increase missile defense, cyber protections. we will flow troops into the area. we will have ordinance and ability to build up offensive flowing in but initially it will be defensive. then the president will be presented with options for his next step.

we are going to have to wait and see what the iranians do next. let's hypothetically say the iranians try to close the strait of hormuz. this is where the navy will step t. and reopen the strai there will be a move and counter move process going on, defensive first, offensive options available. tom: i will not mince words. you have an ensign in the navy in your daughter as well. speak to the families out there with family deployed worldwide, not just in the middle east, but asia, the pacific rim, wherever. it is our military ready to defend our forces to provide them with the maximum protection given the thrust iran is capable of? >> our forces are indeed very capable. they are alerted by this. the element of surprise is not in the benefit of iran, that is

a good thing. let's face it. we have a massive threat surface. hundreds of how thousands -- hundreds of thousands of troops in asia, europe, latin america, the middle east. it is a big area of threat. it is a time when all our military forces are deployed and all our families need to be very aware of their environment and very careful to recognize we are in an extremely dangerous perio. tom: thank you so much. the admiral will be with us later on bloomberg. much more to come. the news flow at 6:50 a.m. wall street time, the secretary of state speaking with china officials. they are discussing the events in baghdad as well. much more, this is bloomberg. ♪

karina: this is "bloomberg

surveillance," with the bloomberg business flash. the charter jet company that flew the former executive from japan said it did not know he was on board. turkey is investigating. detained seven people. tesla has cut the starting price of the china billed by 9%. the base prices over $46,000. the world's largest luxury conglomerate will close a store in hong kong shopping district, according to the south china morning post. retail sales plunged at the start of protests. the owner of a shopping mall reportedly refused the request to lower rents.

that is the bloomberg business flash. nejra: thank you. u.s. air strike killed a top iranian commander, reverberating across global markets. we have been talking about it throughout the show. u.s. futures down more than 1% after all three benchmarks hit records yesterday. risk assets taking a backseat after a bullion start to the new year. yen, preferred safe haven of choice in fx, two month high. oil jumping. brent nearing $70 per barrel. id. also b is this geopolitical risk or real fear of supply risk? european equities, down day. read on the screen, european equities. 10 year bund yield down seven basis points and gold hitting almost six year high.

running to safe havens and markets today. "bloomberg surveillance," continues on radio. a lot more discussion on the geopolitical risk alive and well. have we gone past the point of no return? what does it mean for global assets after a fantastic year for equities and bonds? next.eport is the euro dipping below 1.12. this is bloomberg. ♪

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that's what iran's supreme leader promises after u.s. airstrikes killed a top iranian commander. the u.s. attacks drives up and money runs to bonds and stocks fall as the new year brings a new world of geopolitical conflicts and the role of central banks in a world of strive. central bankers and economists meet today as the fomc minutes are released. does the conflict for iran change the stance? we hear from the president. welcome to "bloomberg daybreak" on this friday, january 3. i'm david west season to in for alix steel today. let's start out with those markets and the story is the same across all of them. equities are down. you can see s&p futures are down. 44 points roughly. this is true across the board with equities here and in europe as well. in the meantime, bonds are on a buy. u.s. 10 year are up.