caroline: from bloomberg's world headquarters in new york and from right here in london, i'm caroline hyde. joe: i'm joe weisenthal. romaine: and i'm romaine bostick. concerns about stimulus take a bite out of u.s. equities. joe: but the question is, what'd you miss? longine: the fed pose a shadow is cast over europe's treasury markets, holding back yields. as we see boundaries of the

reflationary trade push commodities and small-cap higher, treasury markets are not playing along with the bet on u.s. economies. by theeing held back fed's outside presence. we get a clearer guidance at the fed meeting wednesday? we will debate that. joe, what is abundantly clear, with the two-year yields near record lows and the risk off feeling, the market does not want to fight the fed, even if they believe in a recovery. joe: i think that's exactly right. one of the key dynamics with this market today, notwithstanding, is that even with strong signs of an ongoing recovery and an incredible risk on move in stocks and industrial commodities, 10 year yields have not been inching higher the way people would have expected in this type of environment and today falling back down. we could not even break one, we again.low .9 ifaine: but watch this space

you do get the economic recovery, then a lot of market participants are counting on for next year, maybe we might see inflation? joe: maybe. take fromlet's get a our bloomberg opinion columnist. itlation, is anything we should be working about? -- worrying about? curve look at the yield today, and it has steepened llable market, 8 -- in a bu bull fashion. maybe the fed people are shorting duration on anticipation that the fed might not do anything, but it was an interesting move to see today, because basically, two-year

yields do not move at all. the fact that they moved down two basis points was kind of interesting. joe: what would it take to have a meaningful long end self -- selloff? is it sustained inflation? is it more economic recovery? the unemployment rate coming down? what would it take to create a new dynamic? brian: yeah, that is the big question going forward. as i wrote in my column, the idea that long-term rates would go up would basically tell the fed ok, we are going to target the long end and buy more and try to clamp on it that way. even if you saw a pickup in inflation, you could see the fed saying ok, we don't care about financial pressure and if you have a negative real return for 10 years out, we are basically going to buy the long end and force you to accept the yield that we want you to accept. that's a tough pill to swallow, i think, for a lot of bond

investors. inflation is rising, that means the fed needs to tighten, and this fed is not going to do that, regardless of the inflation price we see next year. they are going to say, this is transitory. we need to see more evidence and it will lead to legate -- negative real rates for the foreseeable future. romaine: do we ever get to a state where the bond market itself can push back on that? do they have the capacity to do that? isan: yeah, i think that just the threat of the fed stepping in and doing something to quash long end rates. it is keeping things very contained. this time last week, the 10 year yield was getting close to that 1% figure and everyone was really excited and getting there takes ready -- i know i was, and because the bond market ultimately settles back into a range, i think you might see a gradual move higher, maybe we will cross 1%, maybe get to the fed willthink

stop any meaningful rise in yields and therefore are not going to challenge it. joe: brian -- oh -- caroline: do they commit to the yield curve specifically? brian: the yield curve control they do would be on the short end, may be out to five years or maturityhe short aspects, i think they will do that to provide additional accommodation, but the question is, what happens in december? thereare for -- are surveys that say it is a 50-50 chance, but i think just the threat of it is doing the job for it. ,omaine: brian chappatta bloomberg opinion columnist, always on top of this. for our viewers, stick with us. we will be looking ahead to the big fed meeting next week, the last one of the year. down, what toit

expect. our guest from the university of oregon is coming up next. this is bloomberg. ♪

romaine: today we are focused on the reflation trade. heading into next week, we get the fomc meeting, the final one of 2020. joe, they are taking a look at inflation expectations. joe: not raging inflation or inflation above the fed's forecast, hyperinflation, but you can see the big comeback in that five year break even after having plunged above

precrisis levels. we are at the highest level since 2019, so you do see this expectation of price pressure in a way that presumably, the fed is happy to see, although in the atg-term, still not even your target at this point. for more on what this all means, i want to bring in the professor of economics at the university of oregon and bloomberg opinion contributor tim dewey. you wrote a blog post examining the fed's big decision next week. i want to start with something expects, some sort of great move that they will shift asset purchases through the longer end of the curve, something on that side. you seem skeptical for now. for i am pretty skeptical that. that is an option and a risk for this meeting, but i get the sense that the fed want to focus on the quality of guidance

before actually doing anything else with asset purchases. what's interesting is, you talk about in your blog how there was a communication error. we knew that jay powell has misguided the market, but do you think there is a purpose to all this miscommunication here, this lingering risk that maybe they are going to cut yields? think they aret doing it deliberately. i think what's going on here, they had a very specific outlook and are concerned about the downside risks. there is a lot of focus on that. for the rest of us, maybe they should be doing something to accelerate the pace of recovery. have notme time, they done anything to accelerate the pace of recovery and have areested that conditions

especially propagated of, don't need to do anything else. they are in a weird spot -- ok, you say we need to be protecting these downside risks, but you are not doing anything else. what are we supposed to take away from that? that's where we get this idea that yes, this is the obvious thing to do, some kind of meeting? romaine: that's what i have heard from a lot of market strategists, they have got to the same idea that this is almost out of the fed's hands at this point. that if they wanted to make an impact, they maybe should have done that the previous two or three meetings. is there a sense that if the fed did stay on the sidelines, didn't really change anything for the next few meetings, that effectively the economy would meet the general expectations that powell has been consistent upon? tim: i think that is likely to happen. i think one thing here, when we think policy acts with a lag. whatever we are going through right now, we can't do anything

about december or january's economic outcomes. what they do now would affect the economy more than in the spring. we have to look around and say well, is this more like a temporary thing we are going through in the winter? if we look back at what happened last spring, there is a good reason to think this is like a temporary thing, that once we get through this, the surgeon the virus and once we get to the vaccine, we will see a rebound fairly quickly from this additional bit of weakness we are suffering through right now. well,serve reason to say we can't do anything now. let's look forward to the spring. maybe that's the time when we can mess around with the asset purchase program and figure out what the economy really needs. joe: would messing around with the asset purchase program do anything? tim: they could try to hold down yields. had this discussion

already, to what extent did they want to sit on the long end of the yield curve. it is evident to me that they need to. we don't know exactly why rates are rising. we have an idea, we talked about the reflation trade. the fed will look at that and say ok, that is kind of a good renter's rate -- good interest rate increases as opposed to bad interest rate increases, which would be an obvious tightening of the financial conditions or some change in the expectation of where the fed is going to raise interest rates. i think they would want to push back on those latter things. i'm not sure they would want to push back on good things, like the economy is improving. don't think they are quashing an increase in yields just to quash an increase in yields, and financial conditions are accommodative right now. stocks are up, the dollar has been weaker, and it is not clear

that you need to goose this market anymore. caroline: but there is continued pressure on congress coming from jay powell. along with all the central bankers, he is begging for governments to step in their. do you think this is why they are holding their ammunition? they want to force congress to move rather than to come in and say what they want to get? i think the fed has clearly indicated they want more fiscal stimulus. you can ask yourself why, and the why is, they are worried what they can do is insufficient to deal with what the economy really needs. again, that gets to the issue of this being a short-term problem for the economy, congress is best able to deal with that short-term problem and can do it much more directly than the fed can, right? you also met this up to the feds concerns that there is a lot of unequal outcomes as a result of this downturn, and the fed

cannot do anything about that, except get job growth going or hold unemployment low. i think the fed is telling congress, do this. it's not obvious to me that if congress doesn't do that, then they have a lot of room to do anything in replacement of that. joe: all right, well we will be watching that meeting next week. professor to tim duy, of economics at the university of oregon and bloomberg opinion contributor. index providers are starting to drop chinese companies affected by the u.s. orders last month. we discuss implications of the life and liberty --. this is bloomberg. ♪

caroline: here's another story

you might have missed while we have been playing out the fed's decision next week. president trump planning and executive order to prohibit investments in chinese companies that the u.s. defense department say applied to china's military. the ban goes into effect on january the 11th, but they announced which shares will be dropped next week, and some already have. money investing flows through the indices, so the index providers become major, big sources of deciding what companies. we see the ftse dropping, the 21, and the msci and nasdaq will be letting us know which they are dropping next week. herewith perspective is the

founder of life and liberty indexes, the 100 e.m. index has no exposure to these companies. first, thank you very much for joining us. on?picture, what is going for people that aren't familiar with this, how much turn is this is this -- much churn creating? >> this is a bigger deal than they delisting bill. ban, whereoutright individual investors and funds will be prohibited from holding any shares in the companies, wherever they are traded, and the global index providers are taking action. the msci consulted with their customers to see what they would do, and typically, customers are going to want their indexes to match what they can replicate with their funds. investorswhat are

wanting exposure going to do? they were invested in china mobile or on the star board, they can look into alternatives in similar emerging orkets, such as samsung others, and those are companies that have done better in protecting intellectual property rights and our years ahead of their chinese counterparts in technology. exposure, tsnl and samsung are in our index. vesting inin emerging market funds have also been more aware of china. we have seen a huge uptick in investor interest. romaine: the china concentration issue is real, and there are alternatives, where if you are interested in a particular

sector, you can look at some of the competitors in korea and other nations, but there is an idea here that some investors want to buy that chinese growth, that growth and wealth we are seeing over there. where is the balance, where you make the trade-off of not wanting to be exposed to human rights and freedom issues out there, but at the same time, want to take advantage of that wealth growth? perth: that's a great question. i believe in the growth in emerging markets, and the danger there with china is that most companies in china, as we have seen recently with financials and even with bloomberg today, having one of their employees detained by the government, most companies operating in china do have to answer to the chinese government, which does have a lot of control in the markets. we typically don't advocate government interference in private markets or media, so we

on theirhem allocations because of that, we have no allocations for china currently and hope that changes, but yeah, it is difficult to find the balance in the market, where a government has so much control. joe: you mentioned in the financial ipo that never happened, the last minute, the plug got pulled on that. how much in your examination of this issue and of course, the work you have done to build your , how much do interventions in the market create volatility and ultimately loss of return for investors? perth: they certainly do. not just things like that, but the long-term out to -- outlook for these countries. betterountries have a type of property rights, better investor protections, better

intellectual property protections and so forth. these are the companies that are going to grow more sustainably, recover faster, as we have seen here, and use their capital and labor more efficiently. been such ag has focus in the last year or so. even the round table with ceos in america saying look, we are just completely focused on profit. but our employees and the general world. are you finding there is more of a desire to get into indices such as yours, and what's the diverse of breakdown of that? do you see a lot of younger investors wanting in? esg is a trend that is not going away. when you look at the esg emerging markets funds, they also have 40% in china. the way that we do esg currently

in the industry is probably [inaudible] the way we do it, we go country speak.so to we look at freedom metrics on the country level, and we do see interests from both young and old investors, not to say that they are old investors, but we get interest from a wide range of investors, because i think some people like me have seen both, grown-up in both a world that has less freedom and a world that has more freedom -- i grew up in china and the u.s.. inple who have seen that history tends to be more pro-freedom. the younger generation tends to be very aware of these issues, like hong kong, and they look into the funds with a little more detail, i find, than some of the others. we do get a lot of interest from across the board. perth tolle, thank you,

life and liberty indices founder. set ofor the next announcement on those chinese companies and the exchanges and indices it currently holds. of course, we will be looking for more ipo's next week. joe: a lot more ipo's. we have the company that owns wish, that big online shopping network, that is going to be over $1 billion. get somee might information on that as well. it's not stopping. incredible see the deals companies are getting. are there any private assets you have right now that could e orretically be ipo-abl stackable or direct list-able, you should have the right now. romaine: you are the anchor of

this show. joe: i can make up any word i want. that's the rule. check out our weekly podcast, miss thist'd you week? this is bloomberg. ♪

♪ emily: i'm emily chang in san francisco and this is "bloomberg technology." coming up in the next hour, airbnb shares closed down 4% a day ever going public. we will talk about this sky-high valuation and the tech industry in general, with the cofounder of linkedin and partner in greylock. plus, makeup talk.