Data check. Stocks them to be advancing. Dollar, treasuries, both slipping. The dollar is edging lower and treasuries are rising as janet yellen said she will step down when her term ends in february. I also wanted to talk to you about the turkish lira, you can see it at the bottom of your screen. It hit a record low against the dollar. We will get plenty more on your market moves. Now, lets get straight to the bloomberg first word news. Sebastian u. S. President donald trump is designating north korea a state sponsor of terrorism. The regime to additional sanctions. North korea joins syria and the sedan on the u. S. Terrorist list. This will impose sanctions on north korea and related persons and supports hour maximum Pressure Campaign to isolate the murderous regime. Sebastian janet yellen has said she will step down from the board of governors wants her successor is sworn into office. It widens the scope for donald trump to shape the Central Bank Leadership for years to come. Jerome powell was number needed to replace janet yellen. Ceo has told antitrust. Nforcers Randall Stephenson left the door open for negotiations to find a way for the deal to pass federal muster, but reiterated he would not sell cnn to appease washington. There has been a lot of reporting and speculation whether this was all about cnn and frankly, i dont know. But nobody should be surprised that the question keeps coming up because we have witnessed such an abrupt change in the application of antitrust law here. The bottom line is, we cannot and we will not be party to any agreement that would even give the perception of compromising the First Amendment protections of the press. So, we need a recruitment so, any agreement that results in us forfeiting control of cnn is a nonstarter. Sebastian the Washington Post is reporting that eight women said charlie rose made unwanted sexual advances towards them. The Associated Press is reporting that pbs is halting production of the program. Bloomberg has suspended the show from airing on Bloomberg Television and radio. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im sebastian salek. This is bloomberg. Francine a german chancellor Angela Merkel has signaled she would prefer to hold new elections, rather than leavd the minority government. Angela merkel i have no plans for a minority government at the moment, so we have to wait. A new election is one way. A minority government is another. Much to do, with so that is something that will be thought of carefully. I dont want to say never, but i am skeptical and i think new elections would be the better way. Francine our German Government reporter joins us from berlin. Good morning. Does michael think she would emerge stronger from the election . Does merkel think she would emerge stronger from the election . Reporter the question is not necessarily about her emerging stronger. The asp would probably benefit from the election scenario. Ist would also mean the cdu probably going to lose some votes. Francine tell us about the german president. Yesterday he spoke to the press, or he had quite a lot of meetings behind closed doors. What is his role in the Coalition Efforts . Birgit the focus is on the german president. He is now in the position he has to see whether forming a government is still possible. He is the one holding talks with and also with the social democrats, which are his party, whether he can convince them to be responsible at this particular moment in time, and whether they can actually turn around and say, i would like to try it again. Francine finally, markets have been kind of muted. How do they move from here . Markets probably watch this now very closely. Particular interest is probably how long this will take because we have now a situation where there is effectively no functioning government at the top of europe. So, the longer this is dragging is obviously in security, which markets dont like. Francine thank you, birgit jennen. Foley joins me now. On friday there was a little bit of a gasp in the market. There was no coalition and it all broke down. The euro moved quite significantly, but now retracing the gain. Jane it is quite surprising, in some respects. If we go back to the Asian Traders yesterday morning, we see a natural reaction. Yet, as soon as the European Reaction started, it fought back. Most people would agree that the sooner a government is in place, the better. The general coalition is very strong. We have more data expected to come through this week and in that circumstance, when we have a able economy, perhaps the economy can carry on in a good sense for a while. If we look at other countries, we situations whereby we might have another government for a while and the economy carried on. That is allowing investors to take a look. It has not changed the fact that the economy is strong and inflation is low. I think this explains some of the volatility we saw yesterday. Make ae jane, does it difference to brexit talks . Doesnt make a difference for the trade dealing . Very interesting with respect to brexit talks. Sources said that allegedly merkel was concerned about pushing too hard. A brexiteer could come in, which could make the tone of the brexit talks perhaps more comfortable for everybody. From that point of view, it was considered merkel might be a sof tening and so, yes, it could affect the brexit talks. Francine what about ecb policy . Does it weaken her position, so . He changes he policiesr a bit jane you could say it is a little bit more than just her ability to affect policy. There is a lack of trust within the party. I think it will be very interesting to see if the president can overcome some of these issues and persuade some of the potential parties to come together. With respect to the ecb, i think they will continue to focus on the economic data. Francine jane foley stay swith s with us. We will be speaking to the ceo of the Analytics Company that uses artificial intelligence. This is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. Heres sebastian salek. Sebastian bnp paribas has fallen in the ranking of banks. The Financial Stability board shows that citigroup fell one level in the rankings, meaning the extra Capital Requirements will be 2 of assets. Bnp paribas fell as well, forcing it to face a surcharge. France and the netherlands have won the contest to host two londonbased european agencies. The eus Banking Authority will move to paris and the medicines regulator will move to amsterdam by march of 2019. The two cities emerged victorious after a series of secret ballots. Nestle is amongst the companys exploring a purchase of hains celestial group. The food you want the switzerlandbased company has a market value of more than 42 billion. Representatives for hains celest ial did not immediately respond to requests for comments. After earlier forecasting it decline. That is after the collapse of rivals removed excess capacity in some of its biggest markets. The Budget Airline says pretax , held down by the weaker pound. Paschi has come out. Ryanair has taken some capacity out as well. We have benefited from air berlin. So, its all very good news for easyjet. We have come in at the top end of guidance this year and the forward outlook is good. Sebastian that is the Bloomberg Business flash. Francine Philip Hammond is the parent to develop one of the most could go budgets in recent times. The chancellor is under pressure to curb spending when he outlines the plans tomorrow, but with little economic flexibility and conservatives arguing amongst themselves, he has a tricky balancing act to head. And of course, hanging over everything is brexit. Foley tos now is jane talk about any currency moves, future or past. David, lets kick off with you. What exactly will be in this bud get. It is difficult, but he will try to present some optimism Going Forward. David yeah, a budget is always a balancing act. This one does seem particularly challenging. You have got, as was mentioned, the brexit. Remember, Philip Hammond was very much against brexit. He is one of the more proeuropean people in the cabinet, yet it falls to him to take on what he describes as the mess. Forecasts are for a deterioration of public finances because of bexit. At the same time, you have a Resurgent Labour Party who are leading the polls. Hes got to come up with something to try to change that narrative, to try to capture the attention of the public, win back the voters they did not win last november. They are trying to encourage young people in the house publicsector pay another huge issue. We have had demonstrations. Teachers had their wages capped for a long time. Is he going to loosen that . We know he is fiscally conservative as well. How much will he be willing to loosen the Purse Strings . Thats going to be the key question. Francine i imagine he will focus on health care, but is this the most politicized budget you have ever seen . David well, if you remember the budgets of gordon brown and going back, i think, there was a deeply political event. Its a political opportunity for the government to try to finally make progress. We have had setbacks with theresa mays government now. Tomorrow is an opportunity for the government to actually make some political headwind. Remember, last year, they do intend to unwind. Remember, George Osbornes shambles. We had the increase in the insurance tax rate. You can be sure the detail will rapidly, andr they will be looking to exploit any weaknesses at all. Jane, what does this mean for the pound . Jane there is potential there. Hammond is not indicating he will be doing huge amounts of spending. Teh june we go back to election, which was a big shock for theresa may, we had the young people coming out and voting for labour. Perhaps this budget is about trying to regroup and take back some of the young votes. Whether or not we can see a significant change for growth and Interest Rates on the back of this is highly debatable. If we do, then sterling will lose. Latestwe will get the rbr at therom the beginning of the speech. And what does the independent analysis show for the u. K. Economy . That will be key, too. Francine are we still talking about the possible income Tax Deduction for students . David i mean, who knows. Its possible. There could be a range of packages to entice younger voters. These things will probably have to be more or less fiscally neutral. It will all be in the fine print. Francine what is one thing that sterling wants to know right now. This is a divorce bill. It seems to be complying with what the eu is expecting. Will be pound significantly rally . Jane it certainly can rally. This is all about trade. The pound, or sterling at best, is one mode of trade talks. Theres already been a delay. They have been penciled in october with a delay in december. If we dont start in december, they will be a lot of vulnerab i ility. Francine so, sterling will certainly be encouraged in the trade talks. What about productivity . Wiser. E are non the the we know there are several issues with respect to productivity. Again, that is one. That is related perhaps to quantitative easing. We know the demographic is there. We know there is productivity that is pretty low. That is something that must change in the u. K. That probably means that earnings will be low for a while too, suggesting the bank of england will be slow to hike Interest Rates. Francine jane foley stays with us. Up next, the turkish currency against the dollar. I have a great start, looking at liquidity for the central bank of turkey. This is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. The turkish lira has risen to a record low against the dollar and investors dismiss the Central Banks latest measures to support the currency and call for higher borrowing costs. But is the only way down for the euro . Jane foley is still with us. How far can it go, lower . Jane i think for now, it can go lower. Its quite possible we will be up against that in the next week or the next couple of weeks. I think the big story here is, will be central bank raised Interest Rates . Bankll be centrathe central raise Interest Rates . If they dont, in a way, that affects their credibility even more. They are bowing to the pressures of the president. If they do, that will help rise some of their credibility. Were to hikeey Interest Rates, that would try to win back control for the labour. Francine theres an auction today. Jane they are certainly trying to help companies right now. They are taking measures. But i think, generally speaking, strong signal to the market. Francine im showing you my turkish chart. Again, can this get uglier . Jane well, it is pretty ugly. I would hope we approach a new term high. Again, if we look at emerging markets as a whole, they have had a pretty good year. Global growth is strong and that should be supportive for risky assets. I think if the central bank does take that control, it can come lower. Francine jane foley, joining us this morning, senior strategist at rabbo bank. Up next we speak to erkin adylov , the ceo of behaox. We will look at how this kind of insight can be the future. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. First word news. Sebastian at t has told antitrust and orchards you will see them in court after the Justice Department walked the company to buy time warner. They will find a way for the deal the past federal muster and reiterated he would not sell cnn to appease washington. The speculation of whether this is all about cnn, frankly i dont know. Nobody should be surprised that the western keeps coming up. We have witnessed such an abrupt change in the application of the antitrust law here. And we will not be party to any agreement that would give the perception of compromising the First Amendment detections to the press. Any agreement that involves us forfeiting control of cnn is a nonstarter. Sebastian that is your first word news. Francine weve got breaking news at the u. K. We were just talking about the budget. They are meeting to walk the line and try to keep everyone happy. We are getting some public finances. Is a lotc sector higher than expected. It is at 7. 5 billion. This is out of the budget. This goes back to what sterling could or could not do area it plays into how much the chancellor has two spend. Coverageave plenty of from the budget tomorrow. Town, theya small have managed to make a career. He works on his parents farm. His parents would sell a home to pay for a oneway ticket for them to go to a university in hawaii. Their, it was comanaging 1. 5 billion. On his own he went with the londonbased startup company. They use software to monitor employees and how likely they are to do anything wrong. Of he joins us on surveillance. First of all, you have an amazing life story. We will talk about that later on. Youre building a company like no other. How did you have the idea of giving the tools to a bank to monitor every step of their employees . Erkin its more than monitoring of employee behavior. We are doing something called people analytics. When we come in it, we are giving an opportunity for the bank to make money out of their own data. You can make the type of insights of your data you could not get before. For theghts ares red compliance teams and commercial insights. This makes your sales team better. Francine lets say you have a Trading Floor and you analyze everything. Have for one trader, you tens of thousands of data points. If francine how fast you talk on the phone . Erkin what you say in the phone and how you say it. It picks out words and your tone and pitch of the voice. It classifies things like questions, speech rates. It takes email. Andcan recognize sentiment places where people have seen. It gets even more interesting because then you get into chat. It turns out there are different chat but forms traders use. Francine it gives you a profile of the type of trader you are. Erkin it gives you the profile. Its going to give your relationships, how youre communicating with them, what are the best practices of communication. It brings to the fore what you have been talking about. It is going to for the first time see what is going on on the sales floor. Lets say thats 2000 people. It can summarize every single discussion going on on the sales floor and give you a summary of the top 10 topics being discussed right now. Francine where do you draw the line . Wheres intrusion . Erkin when it comes down to is who is at the other end of the. The recipient of that information is a computer, i dont have a problem with it. Its the same thing happens with netflix and amazon. You have a problem with him watching you so long as there is no person on the other end of it. Regulatingre already , they record all of this information and unlike us, there is a human being sitting at the other end, which is intrusive. Francine whys it so important for banks . Is it to find rogue traders . Erkin the way it works is if you take all of the digital footprint of the human being and you look at it as an individual, you can apply something called people analytics. Thats about recognizing different dimensions of human being. Humans are not onedimensional. They come with a bunch of relationships and opportunities to make money. Its allowing you to understand the need of inner dimensionality in a human being. Clients that are hedge funds based are doing that. They are understanding behaviors of their traders. It helps to make better decisions. In the testing was done, it allows the traders to make better decisions. Francine how do the banks or Financial Services, what do they want out of you western mark you . Are there focuses they want you to enhance . Erkin the key thing is most of our clients are up with a come why it case. Most of them start off and say can you bring all the data in one place because we would like to search it and be able to interrogate. The second task is weve never been trained by the fbi, weve never been trained by the police. We dont know what we are looking for. Can you help us . With one click, the can download every single logic they need to be looking for or every model that is going to be helping them understand the data set in front of them. Francine like what . Does it say Francine Lacqua, a little bit too much of a risk taker . Erkin what it does is says these are a bunch of phrases and keywords that historically people said that led them to breach compliance rules. Its always going to be empirical and back tested. We will give you the list of keywords and a list of behaviors and things the system should be looking for proactively and flagging them. Francine this is very useful for regulators. We are working with some of the regulators in terms of the systems. More importantly, its going to be more valuable for the Financial Services institutions. Of it has driven a 99 reduction in false positives. They can this become . When you look at the directors, can you prevent scandals such as the diesel emission scandal or things like that . Are you limiting to Financial Services. Erkin we are actually engaging some of the corporate out there. Given the scandals we have seen, from a culture and conduct respective, this will be relevant for every institution in the world. Francine had you scale up from here . Erkin hire more people and raise more capital area that is what we have been doing. At the moment, we Just Announced last week that citigroup is one of our investors worried we are also backed by one of the premier Venture Capital firms. The investments of august 2 expand the firm. Some of the investment we will be putting into play will be in something that enables. The world has been growth has been so phenomenal, we need to be training our own people. Moreine i have a million questions. He is going to stay with us. We are going to talk about his outlook for the u. K. In a post brexit world. This is bloomberg. Francine this is bloomberg surveillance. Lets talk about the markets. Mark shares are up by five point or percent. Were of aorecasts decline including the u. K. Based airline. Profits of the year ending september 30 have fallen by 17 , in line with the guidance it gave in october. Chairs are rising today. Sebastian mentioned the lira lowering to an alltime low. He is calling for high farming. 11 currency is depreciating versus the dollar and 20 versus the euro. President erdogan said the central bank was on the wrong path using high rates to tackle inflation. These are the emerging market currencies. There is no contagion. Is falling, that emerge in emerging market are rising. This is best run since june 20, the highest since october 31. Theresa may won the backing of ministers on both types of her divided cabinet to offer the eu more money to break the brexit deadlock. They agreed to give the European Court of justice role guaranteeing the rights of eu citizens in the u. K. After brexit. Sixth days up for a against the dollar. Bitcoin does is impinging on gold as the store of value. Bitcoin has plenty of supply, which proponents say gives it an antiinflation quality. In 2017. S are down this is a wonderful chart here buys six ounces of gold. He said one in 10 said they would rather own bitcoin than gold following a nuclear war. How wonderful. Francine but can you make race looks out of bitcoin . That is the key question we need to figure out. , weve beenck talking about how Data Analytics have the power to transform companies. Thank you so much for sticking around. I was right taken about how you analyze all of these things and how banks can find rogue traders. Something about how you analyze. Erkin this is going to be the case. People are different. What good is when we analyze humans, we analyze them as individuals. That is the power of artificial intelligence, it can pump all the data in and understand individuality. Francine i was reading up on it. Algorithm, if you were a trader and a genius trader, would they have spotted him . Erkin most likely, yes. Thats how confident we are. Francine how can you be sure of that . We do a lot of testing. We do a lot of experimentation. There are data sets we have that allow us to do a lot of testing and back testing and making sure the algorithms are fit for purpose. Francine we are talking about your latest round of hunting. Is it too soon . Mass, as we gain enough we will be looking to go public. Its too early to talk about that right now. Francine what needs to happen . Is there a level you want to be at in terms of revenue and sales . Erkin i think its more about Product Market that then what we want to achieve is a company. Clearly, being a Public Company is of interest to us. A private company, being a private company allows you to move quicker. We want to be executing on that strategy before we come to the public market. Francine are the u. S. Banks willing or interested in your product . Do you have more reticence from the european banks . Is there a cultural difference . Erkin its quite interesting, why they want to do this. Once interesting about the what they are coming to us for his saying can you transform the way we make money . Can it help us find deficiencies and effectiveness . Thats the main driver of why the banks would want to come to us. Francine we speak to a lot of hedge funds. They invest in artificial intelligence. That crunches the data that surrounds them. How is that different . Do they go handinhand . Are they different ways of looking at things . Erkin ultimately, its a very different type of data. Specific to your organization. That is a competitive advantage were able to harness. Its very specific to your organization and your people. The type of use cases we have seen are very different across the institutions we have. Francine will brexit hurt your revenue stream in the u. K. . Believe in any of that. If anything, we are bullish about the british economy. I have made britain my home for the last 12 years. This is where i chosen to set up. We have no reason to believe are my basis going to evaporate. We see the evidence that the capital city of london will be the Financial Center of the world. Francine thank you so much for coming on. Defiant ceo is back after his Company Becomes a target of the Trump Administration. Details on that next. This is bloomberg. Francine good morning, everyone. At t says it is prepared to go to court over its proposal merger with time warner. The Justice Department sued to block the bid. For more on this, our Global Business executive joins us. Thank you so much for coming on. What is the next step in this . Pretty ugly. At t is looking for an evidence of white house information. Trump is complaining about cnn. It doesnt help the government case. None of the state attorney generals have signed on the case so far. That could change of course. It looks and feels like at t does have a leg to stand on. What does that mean . Francine is it because they think they will lose . This is unprecedented. Its not a typical too much concentration merger. This is a vertical deal. If the first time in 40 years government has challenged a vertical field. People are not really sure what is the basis for the case. The government is maintaining its going to be bad for consumers. Francine how have the Companies Handling this . Randall stephenson at at t has been very defiant. They reported a few weeks ago the government was saying loblaw some of this, put it in a separate the. So far, at t has said we are not selling cnn war direct tv. Thats the basis of the deal to begin with. They have handled it with a lot of defiant. They are going to push forward. Francine what has the Market Reaction told us . Investors have been wrapped to expect this. In their earnings statements, they said this is going to go through worried the head of the antitrust division has said we think this is going to go through. Something has changed in the market has priced in some uncertainty. What you see today is a lot of that mean baked in. Being baked in. Completelythen transformative for at t area they would be the biggest entertainment company. This was like a landmark deal. Coming after the fact that stephenson did not get to mow tmobile, this is a bit of a blow if this doesnt go through. They are trying to get this done i april. Francine thank you so much. Bloomberg surveillance continues. Tom keene joins me out of new york. We will focus on the turkish lira. We are looking at an option in turkey in the next couple of hours. There is a lot of talk that they might have some of this. We will talk Central Banks and janet yellen. This is your market summary. Its looking a little sideways. The dollar is slipping. Treasuries are attached higher after the European Central bank said they might make small adjustments. This is bloomberg. Francine taking began ball. European equities struggle. Angela merkel says she is ready to face voters again. Pricing risks. The turkish lira regains some ground against the dollar. The u. S. Versus at t. The Justice Department takes down the 85 billion bid to buy time warner. This is bloomberg surveillance and imFrancine Lacqua in london. Tom keene is in new york. We have to spend some time talking about brexit. Tom there is a lot of interest in international relations. What i would point out is the movement in the spread market. Its absolutely original. Francine i think we have a chart on that. Lets get straight to the bloomberg first word news. Taylor as you were mentioning, it is antitrust tuesday over here. At t is telling the Trump Administration, we will see you in court. The Justice Department has filed suit to stop the 85 billion takeover of time warner. Randall stephenson says the suit take the idea of antitrust law beyond the breaking point and is vowing not to sell cnn to appease the administration. Chancellor Angela Merkel a says she is open to having new elections. Merkel made it clear she plans to serve out her fourth term and would rather face voters again, instead of governing germany without a majority. And russias president plans to call President Trump today about the situation in syria. Putin had a surprise meeting with syrias president yesterday. Intervention has given the assad regime the upper hand. The Washington Post reports that eight women said charlie rose made unwanted sexual advancements towards them. Haltinge, pbs is distribution of the charlie rose program, cbs has suspended him and bloomberg has suspended the show from airing on Bloomberg Television and radio. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Tom equities, bonds, currencies and commodities. It is a four day american workweek. The euro is south. The weaker euro. The 58. 92 is absolutely extraordinary. The difference in yield between the 10 year and two year is plummeting. Theres no other word for it. The two year yield is higher. The vix 10 showing better, firmer equity markets. I put in the euroswiss and the turkish lira, we will go to our Benjamin Harvey in istanbul in a moment. Francine this is what i am looking at. European stocks seem to be struggling. Bonds across the region here are following treasuries higher. The European Central bank is said to be likely to makes knowledge us mens guidance on Monetary Policy next year, making a little bit of an impact on the euro. The turkish lira, hitting a record low against the dollar. The central bank tightened liquidity. Tom the belyly of the yield curve. A general convention, five to seven years. This is the five year, 10 year s pread. The difference in yield has flattened. Ive never shown this on air. Heres the beginning of the financial crisis, always associated with economic slowdown. Then we have a much steeper curve. This plunge is remarkable, down 25 basis points. Look at any number of different spreads. This is just past the belly of the curve. Its one snapshot of what is going on in this late november. Francine tom, i did something completely different and its thanks to hillary clark. Let me bring you over to my chart. This is the two embassies. On the one, the blue line, its basically the u. S. Conditions for the bank total assets. Its justell, ferraris. This plan goes back to everything we have been talking about. Tom very cool. Francine it is very cool. Now, yellen. The current fed chair believes the current fed chair will leave the fed wants her successor is sworn in. This is making it trickier for traders to that on the trajectory of the Worlds LargestCentral Bank Next year. But what will the president s touch mean for the Central Banks and markets . Have you. Asure to thanks for coming on. Are you worried about fed communication or policy . These are a lot of changes in a complicated time. I am worried about what you and tom discussed earlier. The curve is flattening. Its likely to continue. If the 10 year rate in the u. S. Continues to back up, that will have a huge effect. The cost of money increases incrementally, it will put much greater pressure on risk assets. What is happening with the turkish lira is largely idiosyncratic, but you are raising the cost of capital. So far, it has not picked up aggressively. The back end is really important, the 10 year is really important, the 30 year is really important. So, we expect further flattening and that is a condition under which assets continue to grind higher. If the back end continues to move up francine what would it take for that to happen . Bhanu he would need the fed not to get much ahead of the curve and you would need core cpe to show strong signs of a move up. You would need to see not just a reversal, but a rapid reversal. Barring that, if you dont get that he will probably get a further flattening of the curve. The two year is likely to see the book of that. The bulk of that. Francine let me bring you to my chart. Basically the recession, i like it. Is inflation lagging . Bhanu yes, and it will pick up. The phillips curve is really only broken in the u. S. , and that is because of reasons specific to the u. S. If you look at japan, if you look at the satellites across where, these are places we have found the phillips curve relationship again. Wages are increasing and inflation is increasing. We are not expecting inflation 2 this to go to year. I think the part of inflation that bears watching most closely is housing. It has the clearest phillips curve relationship. Tom i totally agree with that it is right where i wanted to go. If we go to a ubs level of a little higher inflation, is that on the back of Service Sector inflation, or is it finally an end to goods deflation . Bhanu the Service Sector is where we are likely tom i agree. Bhanu but the goods deflation is a little bit too moderate. The dollar has stabilized and that has an impact on cpi. I think disinflation is likely to be lesser than it has in the past. What really matters in terms of foreign prices is the dollar against the renminbi and the mexican peso. These have been broadly stable. Sinflationgree of di is likely to stabilize. And this is not new, by the way, tom. Look at this chart over a 30 year period. Look at goods and services prices. The price of a television that nowd to be hundreds is 60. If you look at the texture of investment, its very largely Services Investment on one hand and energy on the other. Business equipment spending has not picked up, and that really matters both for the u. S. Economy and the growth of the foreign economy. Tom this is a chart we have shown many times. Here is the goods disinflation, the goods deflation, the chronic sentiment, which it says will stabilize. For me, i am looking at the Service Sector dynamic. Weve got this first whisper of it, dont we . We have a little bit of a movement out of the Service Sector. Can it break out over 3. 2 . Bhanu well, for that, you would need both housing and medical Services Inflation to pick up substantially because those are the two big parts. Housing we think will pick up. The reason data tells you there is greater pressure in the u. S. In terms of housing. But medical inflation is reasonably flat. That is why it is likely to improve from here. 1. 75 likely to pick up to 1. 8 , but not more than that. Tom that was a terrific walkthrough of the market right now. Maybe we will touch on what that means for the banks this morning as well. Bloomberg daybreak, look for the former United StatesDepartment Treasury secretary. Listen in for that at 7 00. From london, from new york, stay with us. A busy day. This is bloomberg. Taylor this is bloomberg surveillance an d im taylor riggs. Citigroup fell in the latest rankings of banks that pose the greatest threat to the financial system. P paribas also felt in the rankings. Francine thank you, taylor. If you look at citi, and i guess the way the fsb looks at these, i do know how significant it would be on the share price, but it will definitely impact how it impacts the capital. Tom still, a very technical article. You really wonder where this is going. I would argue back to finance 101 how do these banks adapt and adjust to curb flattening . You really wonder how they just forward, given the curve flattening on top of these issues. Francine youre right. Its technical but the bottom, easy way of its planning this is fsb calculations, we have this ranking of global regulators. Lets move on to the emerging markets and troubles for turkey. The turkish lira fell to an alltime low against the u. S. Dollar. My chart explain the difference between turkish bonds and some of the major competitors, if you want to call them that. It has taken losses since the central bank tightened liquidity for the lira. There is a concern about the banks independence. We are now joined by our istanb ul bureau chief, Benjamin Harvey. Earlier on, we heard there was not that much encouraging news that would support the lira from now on. When do we hear from the central bank . Benjamin well, we heard from them today, but the central bank is really pushing what investors are pushing for. And that is a major increase. They are trying to control theliras decline they are trying to control the liras decline. Francine it is very clear that the president will hit out the Central Banks policy. Will he do it again, and is that what spooks investors . Benjamin well, he gave a speech today. This was in the middle of a market meltdown. This has been a pattern for a long time in turkey, when investors push for higher Interest Rates, the government pushes for lower just rates and the central bank is left in between and ultimately, raises Interest Rates by some dramatic amount, sometimes in an emergency rate decision. Tom lets bring up a chart. This is the dollarlira back in the 1990s with a huge depreciation and the triumph of mr. Erdogan, providing stability of the lira. In 2008, up we go with the currency depreciation. What does this mean for the businesses of trueky . Businesses of turkey . The food business, the banking . This is a major issue, especially for turkish corporates, which have a massive pile of Foreign Policy debt. I think it is about 200 chill in dollars now. I think it is about 200 trillion now. It is starting to get to a level where people are worrying about massive defaults. Tom another major idea here is the two rate market of turkey. They have an interior yield structure and then they have another yield structure. Is that two rate structure about ready to collapse . Structure,wo rate you mean exactly . Tom the domestic yieldless structure and then we have the foreign market they deal with as well. Is that structure strong today . Well, as i said, turkey is very highly dependent on foreign borrowing. Its finding that more difficult. Costs are going up on both sides. So, yes, it could be. Francine Benjamin Harvey, thank you. Ets get back to bhanu baweja. Couple questions for you does turkey have further to go . Contextet me pause for cn and tell you this year has been fantastic for emerging markets. As ate that, em currencies whole have lost ground in trade weighted terms. Euro has appreciated substantially. Within that, turkey has massively underperformed. Why . When you think about the massive current account deficit, it is not being financed by equity flow. It is being financed by bank borrowing, and that is what is changing. Those banks are no longer happy to finance the current account deficit. The turkish lira needs to weaken further. This is before we speak about Central Banks falling behind the curve because of inflation. They have a very clear growth mandate from the industry of finance. At this level in turkey, it is not clear why this is that much better than mexico, or even china. And with their low savings rate, i dont know why investors would come to turkey. Tom we spoke to a great ap academic on hyperinflation yesterday. Is turkey in a control the depreciation or even devaluation . They are beginning to be elements of a runaway depreciation. Here. S a real stress om wheni remember him fr he was consulting at the indonesian government. That kindink were in of a situation, though turkey is the one place in the em that has committed the original sin of borrowing tremendously in u. S. Dollars. There are many other places that have increased their exposure in u. S. Dollars, but not to the extent that turkey is. I dont think we will see hyper inflation. Inflation is already really high. Tom very good. Let us continue with bhanu baweja. We welcome all of you in london, in new york. This is bloomberg surveillance , good morning. Tom there is so much going on this morning. Germany, the budget in the United Kingdom and of course, what is going on in washington. Right now, the markets and the dollar with bhanu baweja. Bhanu. He bbdxyx index, i love the math underlying this. It is a stunningly wonderful chart. So many people have told us that the dollar will roll over. Will it . Bhanu at think you have to understand which currency we are talking about. Against the euro, it is likely to roll over. Its reasonably undervalued and the u. S. Is on that measure overvalued, but the key point is it will create a dispersion within the different constituents of that wonderful chart. Against the yen, because the boj is keeping the Balance Sheet much wider, it will peak in mid 2020, the dollaryen can push up. Is whichkey point perspective do you look at these currencies from . Emerging markets, even in these terms, have depreciated, so that will continue next year. Tom we will have to leave it there. A fascinating time for the u. S. Dollar. We will continue with a lot of politics coming up, on these historic higher shortterm yields. Stay with us from london, from new york. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Francine good morning, this is bloomberg surveillance. We are getting breaking news out i understand this is one of the gentlemen saying there is some signs that there is a tight labor market. Goingtarted the committee straight on wages. I imagine they will go to productivity shortly but i hear consistentlook is with moderate tightening. So we are keeping an eye on that. That is significant. It is supposed to be like this. The news flow is extraordinary. Now is at him in, doing a lot of work across justice and m a and the corporate space. Heres a look at the telephone. Live news. To the as the president involved in this because he doesnt like cnn . He certainly is. This is a conspiracy. That is getting a ton of attention across investors. And they have already said that if this goes to court and they will disclose all of the comedic issues between the white house and justice. They have been very visible with the outrage. Ed so far they havent given any indication of where they think this is going. And they are allowing Randall Stephenson to lead on this outrage. I suspect they are on board with that and i suspect they agree with at t that this is a winnable case. There is no underlying merit to what the department of justice is doing. They said the guy in charge or their change tune at the last i think they do believe there is interference here. Francine there are no attorney generals that want to pick up the case. Why is that . It looks like they dont want to pick up the case because they also feel that vertical measures usually should go through. This is something that had been looked at for a long time. No one raised any red flags and at the last minute, the department of justice came out swinging. This is almost unheard of. Usually there would be some behavioral remedies but forcing them to sell significant assets possibly directv, a 50 billion deal at at t and time warner. Think this is why attorney generals are struggling to get on board with this. Francine this is also a vertical integration. The department of justice talked about consumer interest but at look atcture, we to this. When will this be resolved . Six months or years . Know that they are pushing for a quick resolution. There is no reason to drag it on. But you do have the department of justice who are keen to delay this so they can build a strong case. It looks like at this point that it is unlikely that we will see a settlement on the court steps, just because of the language coming out of the respective camps. Meaningfully harmful to u. S. Consumers, illegal but on the other side it is at t say that essentially this is a breach of an american citizen and then writes. Tom this is a phenomenal article on gadfly and it gets right to the point, saying this is the desperation of telephone. Telephone has a good chance of winning in court. If this deal is killed, at ts entire Video Entertainment strategy goes kaput. The company made a 67 billion dollar bet on directv, a satellite business, that has lost hundreds of thousands subscribers. This is a big deal. How can the Justice Department asagainst a vertical deal opposed to a horizontal transaction . Ed hammond it is without precedent for the Justice Department. And one of the fascinating things here is that it speaks to a lot of deals that we are seeing. And are being talked about. Should the Justice Department look at things on a concentrated basis . Give the company too much power . Or is this a question of power . E it was would be a great example of that. Theybought whole foods, so do not cause injury to power but the absolute power gives them the ability to determine the width market goes. And you have seen that in the way that other growth has suffered. Tom this is so important. This justice is Department Action is very different from what we have seen over the years kodak, polaroid, microsoft or the others. Is that right . Hammond even if you look at the recent things that were blocked on Health Insurance mergers or staples and office depot. Companies with significant overlap. We think as recently as a month ago, both companies were being guided by the Justice Department that this would be going through. Tom ed hammond, thank you so much. Mergers and acquisitions reporter here in new york. We will have much more on this. I look to Bloomberg View and bloomberg gadfly for the beneath the headlines information. Britain expects taxes to rise after the u. K. Leaves the union. Expect to a poll, 16 tax hikes. Be unveiledill tomorrow. There will be increased spending. Families in saudi arabia are looking for ways to protect their assets from the anticorruption. Matter, the to the head of the federal Communications Commission will get rid of the Net Neutrality rules. Givewould be blocked to Service Global news, 24 hours a day. Powered by our more than 2700 journalists and analysts, in more than 120 countries. I am taylor riggs. This is bloomberg. Francine Angela Merkel has signaled she would prefer to hold the new elections rather than try to form a minority government. Afterde the comment hours the conversation collapsed. I have no plans for a minority government. Is one way and a minority government is another. This is something to be thought of very carefully. To say never. I think new elections would be better. Us is with francine joining us now is bhanu baweja. With this affect policy or Something Else . This is quite difficult for the German Government to say anything as they are in an interim. As far as brexit is concerned, it is unlikely to have position changes because all of the moderate parties have big disagreements that have made Coalition Disagreements example the for criteria remains the same and it will be ok. So that remains the course for the moment. On the eurozone form we are in a holding pattern. Am trying to understand what can the chancellor do to get a different result . Or is it just that it will be the same result but she has talks ahead of the parties to identify a coalition . Charles a bit of both. It is difficult to predict difficult results. Germans are frustrated that they have to answer the same question a second time. However, there has been a lot of disappointment in the behavior theres a feeling that they have overplayed their hand. Wherere is a scenario Angela Merkel gains points. Pool that they fished was nonvoters. Is this all about immigration . Will the chancellor budge on this . Has already. Shes going to the electorate with a tougher line on migration already. And i think that may not be as much of the weakness as it was in the september election. Tom and look at where we are and this idea of the one word, austerity. And the United Kingdom still under austerity . Charles there is one exception, germany. Surplus. A 1 of gdp if they manage to get a government together they will try to spend that until they get the balance budget. Most other european economies do still have deficits and they are worried about the debt. , there is in the u. K. Little room to the new for. Political fatigue with austerity, it isnt a popular idea anymore. It used to be popular about not passing it on to future generations. I think people have had enough of hearing that. They actually want to see spending now for current prosperity. Tom have you turned her attention to capitol hill where republicans are grievously worried about the debt im kidding, a little prethanksgiving humor for you. Coming up, we will talk more with Charles Lichfield as well. Stuck in the car, nothing to do . Terrific news flow, bloomberg coasttocoast. Sirius xm. Francine this is bloomberg surveillance. Brexit andabout focus on the chancellor. Philip hammond is scheduled to deliver one of the most difficult just in modern times. He is under pressure to increase spending when he unleashes his plan tomorrow but with little and opposition and conservatives arguing amongst themselves, he has a tricky balancing act ahead. Us is Charles Lichfield and bhanu baweja. How political is the budget . Very political. If you look back, the reason it the completely was because electorate was sick of austerity. I dont think that means Philip Hammond will reverse course on the budget, he has a lot less headroom around his targets. Half, we think. So we think he will probably stick the course. He will offer up some of the ways and take away as well. So it leaves him broadly neutral. Relative to the past budget where he allow deterioration, which is likely to come from the weaker forecast. He allows that to sit there. Francine this is a chancellor that is more on the austere level. So it is a political play to get those voters back to conservatives after the student election. How much money will be focus on housing, wages and health care . Of themtle bit on all and they are the three key things. He has already touted housing. And lifting the pay cap slightly. At the broad story remains that this will be a budget that the School Public five minutes is look a little bit worse. The big story is the down break of the economic growth. Specifically the productivity growth forecast. Francine air in the middle of negotiations. The chancellor says, look, it is not as bad as it could have been. And offer hope. Is that the main message you are expecting with the budget and does it play into brexit negotiations at all . Charles it plays into the. Omestic negotiations the are all brexiteers in government, they have to be, but he wants to keep a close relationship with the European Union for the future. So this budget is seen as a danger to him. And one opportunity for those who oppose his strategy on brexit and want to see more ambitious relationships enacted, it is an opportunity to undermine him. I think the way europe sees it isnt as important. They are looking at the expenditure over the next couple of years. There is not so much domestic Economic Policy in the u. K. I dont think he will i dont taxeshe will slash completely. Tom i know you have done a lot of work on the domestic housing income. Fix thebudget going to United Kingdom housing that i perceive in london . Im afraid my earpiece isnt working. He is talking about housing i dont know whether you are trying to buy a house in the u. K. . How does this deal with housing . And making it more affordable . The u. K. Has a chronic supply problem and the answer in this budget wont come. He will lift planning restrictions on the greenbelt and brown belt and that is the biggest answer to the u. K. Housing problem. He may actually announce little and firsttime buyers. You have to think about that in demand policies. They are only going to lift policies and make prices go faster but there isnt an answer to the supply issue in the u. K. Tom the basic idea at some point is that a weak sterling is a wealth to structure. Structure. K prices to decline because of that. Over the last 12 months, there has been more stability. Next year, we are expecting through 20182ll thousand 19 as a result of the u. K. Not moving. The Crucial Point that you were discussing was productivity. We think that because of week productivity, growth will be 1. 1 . The forecasts have been optimistic. We think 1. 1 next year. Strong,data has been reasonably in recent days, it is likely to weaken from here, keeping the boe on hold. That doesnt mean the sterling is going to collapse but it means the backhand is unlikely to move as much as it can in boots and u. S. Treasuries. Francine thank you so much. Charles lichfield and bhanu baweja. Coming up tomorrow we have live coverage of the u. K. Budget. We will be live from westminster and we speak with a former chancellor. Francine this is bloomberg surveillance. Lets talk china. Has triedr that china to reduce its debt burden if you look at some of the things they have set their sights on, the Pressure Point is shadow banking. We also have rules against assetmanagement products. Lets get straight to our head of strategy. We need to talk about micro. Are trying to address the debt problem. Are they doing this affect the way . Recently the problem has been shadow banking and they are addressing that. Debt levels are not changing massively and they are very high but china is shifting its debt to the banking system, lending to corporate and consumers. Consumers can lever up for three years without there being a problem. Wes the shadow banking estimate it is nearly the size of the chinese economy, that is the part they are trying to bring back. I have been trying to reduce that for a long time and it hasnt had as much of an impact on gdp but it is beginning to have an impact on the physical activity in china. On fixeding an impact assets. Francine this is just a slice of the pie. Bhanu and so far they have not tightened aggressively. The chinese back end has moved up a little bit but it is that you want to be looking at the front end. In china are very unstable. This is deleveraging. Youre not really putting the huddle to the metal and you are globallowly that strong will go lower. What is difficult is if it will go lower and that is where we will know whether china will deleverage at all costs. I am skeptical on that. I can china is using a window of opportunity. This will be a long process. Tom thank you so much. Bhanu baweja, thank you for the briefing. We continue this discussion in the next hour. On a tuesday, it is a rug will to see markets that are quiet that they are not. Particular the on the spread market and we are thrilled to as well. George for a theor riggs will bring us news as well. There is the remarkable 10 spread. This is a wow statistic. York and a beautiful london, this is bloomberg. Tom this morning, yield curves are crushed. Longer maturities. , the curve hour flattening. In germany, the 1930s beckon. Chancellor merkel cannot form a government. And the president does not like cnn. Does that have anything to do with telephone and time warner . Good morning. His is bloomberg these are huge events. Moment for germany, isnt it . Francine this could change the margins and policies of Angela Merkel. We may not find out straight away but if she is calling for elections, we need to talk tax she willwho and how convince them to have more votes for the party. Tom one of the things to touch on. Taylor riggs. Taylor at t is telling the Trump Administration that they will see him in court. Says thisephenson stress is the idea of antitrust laws beyond the breaking point. He is vowing not to sell cnn, and wants to know whether the deal was influenced by trump or not. Angela merkel says she is open to having new elections to break an impasse over forming a government. She made it clear she plans to serve out her fourth term and she would rather face voters going without the majority. To call trump today about the situation in syria. Trump had a surprise meeting president assad yesterday. And the Washington Post reports say charlieomen rose made unwanted examples unwanted advances towards them. Cbs has suspended charlie rose and bloomberg, which has a production and distribution arrangement with charlie rose has suspended the show from airing on Bloomberg Television and radio. Global news, 24 hours a day. Powered by our more than 2700 journalists and analysts, in more than 120 countries. I am taylor riggs. This is bloomberg. Tom lets go through the data check quick. So we can get to our esteemed guest this morning. All you need to know is right there. This is sharp and abrupt curve flattening. This is the vanilla spread, if you will. A higher twoyear yields relative to the 10 year. Onto the next screen. If you would. This comes in nicely. Lets get some holiday noise. The turkish lira out. Great to talk to ben harvey in the next hour. Francine european stocks are pushing higher. That is following a rise in treasuries after the European Central bank was likely only two made small adjustments to the guidance of Monetary Policy next year. I am also looking at the euro and the pound, because we get the budget tomorrow. And as you mentioned, the turkish lira is hitting a low dollar. The spreadsre are different in the bloomberg and you can bring them up, maybe i will show that later. There are like 30 different available. And heres the financial crisis and economic here. Wn, down and up we go and down, down we go. What you need to know is that bill gross runs money. Provides strategy. They are on the same page. You call this a warning . Because we have a flatter yield curve coming down and a lot of people are saying yes, yes, yes, yes but he or not going yeah, yeah are you . George no, im not. It tells you something. I think most importantly, especially for people in the world of fixed income, it tells you about the amount of money you can earn by lending long. And it gets increasing death gold it gets increasingly difficult for a fixed income investor. Kerry asrve flattens, a mainstay of your portfolio strategy, becomes harder and harder to come by. Our biggest concern is that what it ultimately does, it starts to pull investors back towards cash. The lasted has spent decade trying to get people out of cash and into other things. As the curve flattens, regardless of why it happens, it goes back the other way. This is like a morning briefing for global wall street. Down near zero with the twoyear and the 10year are the same field. Bill gross told me that, do you strategy 50 and a zero, a flashing sign. Executive more challenging. Above 50, you can explain that away. Things are ok, there is enough carry in the trade to keep doing it. But as you approach zero, it becomes a lot more challenging. Tom here is 50 basis points and down to zero. Fast. Getting there, francine i like your chart. It is Inflation Expectations that have to rise, not necessarily inflation . George there is a component that is a part of what the curve is signaling. There are Inflation ExpectationsGoing Forward for we have a big factor of the central bank , especially on the long end of the curve. Has been a that driver of why it remains so anchored. If you look at the 30 year, youre talking about maybe 35 or 50 basis points on the range for the entire year. The historical average on the 30 , as treasury, that to me ,he long end stays anchored bringing up the front end is the only relief. Francine what happens to give indications in the fed in 2000 18 and can it create volatility in the market . George i think it will be tricky for many reasons. As you mentioned, the fed signaling that we will likely patients. O be they can still go relatively slow. Earlier. Gue was on we continue to expect this. To the extent that inflation begins to pick up, it becomes a little bit problematic. Is releasing that volatility the biggest risk that the fed faces. Questiony is a big right now. What happens with respect to tax policy, a big concern. Any release of that could push drive up the and cost of funding for a whole host of issues. Index, if we are quiet on wall street, coming down of the crash, explain to our audience why we are so quiet if the one year, the twoyear and the short are moving higher and higher . It has been pushed down because of the central bank intervention. The 20 trillion of new money that has been pushed into the system over the last decade has helped to push down volatility. That is the key linchpin. It is driven by Central Banks involvement. As it starts to release, you should expect it to creep higher. The pace of that is hard to predict. Tom we have a lot to talk about. George bory with wells fargo. Coming up, a finance and political briefing. The former treasury secretary, debbie treasury secretary ambassador. Nextt m kimmitt in the hour. Taylor this is bloomberg surveillance. The german Utility Company has told shareholders to reject 9. 5 billion takeover offer. They say the offer does not reflect the companys true value. Is the says that now time for talks between the two. Nestle is among the Companies Exploring a purchase between celeste deal, making organic food. Theyre talking about buying all or parts and it has a market value of 4. 2 billion. Are reuniting to start a Credit Investment fund. According to people with knowledge of the process, they are hoping to raise at least 250 million for private Equity Managers and other investors. The equity firm has been expanding in credit investing this year. Francine , tom . Timecode there is too much to talk about in washington. Much of it has been pushed aside. By a remarkable judicial action. Joining us now from the white house is Kevin Cirilli. Mr. Hammond. By he joins us on a vertical integration. Lets go to the heart of this, right now. Telephone and time warner dont have much in common. And hammond they dont. Very little in common. Overlap. Uld be no real certainly at bloomberg and the market generally expect judge step in here right away . They go into court and everybody is lathered up and we say no, we are not going to do this . Is that feasible for the at t manager . And hammond it is feasible. They were trying to get the attorney generals from other states to do it but they cant. Tom they cant. Hammond because it looks like a terrible case. They said there is no case here. It is nonsense. Nothing solid. Francine thank you so much. Lets go to Kevin Cirilli who is outside the white house. What does this mean for trump . Who is blocking the deal . Kevin the white house yesterday try to signal that this is not ,nything to do with politics despite the president s complete assertion against cnn. The reverend of justice has taken a cautious approach. He has suggested that when this goes to trial, it will be bad news for facebook, google and Silicon Valley. The idea being that this vertical merger is a signal for them to play catchup with tech titans. Tom Kevin Cirillis giving us the political line from washington. Are the titans on the side of at t with this . At hammond i think businesses generally are on the side of at t. This will be a bigger conversation on content. You are no longer talking about concentrated power but you are talking about absolute power. They have so much market clout. Tom well said. Is this about Anderson Cooper . Will blitzer . Is this will blitzers fault for having this discussion . Kevin i remember on the campaign trail went candidate andp was in pennsylvania delivers remarks at gettysburg that he hadlly said concerns about the at ttime warner deal. The department of justice in this particular case isnt being directed by jeff sessions. Commission below him. So maybe if the president wants to suggest he was directly involved in this, that is one thing. If there is conversation to be had about the merits of that. But on a granular level, it is happening from inside. Tom with this happen under the Obama Administration . Kevin a great question. Right now, from a business , this will have severe implications for Silicon Valley and should the department of justice lose this, it could invocations as far as mergers as a whole as we move forward. Cirilli, early from washington this morning. Sleeping under bushes on pennsylvania avenue. To me, this is absolutely fascinating. Litigation, i remember that day on the bloomberg monday single headline came out, the Justice Department drops lawsuit against microsoft and there was silence. Is it like that at all . And hammond it is unprecedented. Look at nbc. That went through. Potentially that would even have been more harmful. But the doj has decided that there are things they dont like. And trump publicly said he didnt like this deal. Before he was even elected, he said this deal would not go through. And guess what, he is in the job and says he cant do it. Tom at hammond, thank you so much. At hammond, thank you so much. Ergers and acquisitions today this is an important conversation. Quite good on the american fiscal candidate. She is on a committee and that is around noon today. Vonnie quinn would one be to say noonish. Francine this is bloomberg surveillance. Lets talk chairman a. Angela merkel has signaled she would prefer to hold reelections rather than transform a minority government. She made the comment hours after the talks collapsed. For aave no plans minority government at the moment. So we have to wait. A new election is one way. A minority government is another. In a country that has so much ado, this would be something to be thought of carefully. I dont want to say never but i am skeptical. I think new elections would be the better way. Francine for more on the situation in germany, lets go to matt miller who joins us from berlin. He to speak to you. What is Angela Merkels next move . How do she gather more support . what she is really saying is that new elections are a better option than a minority government. But many people in her party, including the chancellor herself in a meeting with top leadership , have made clear that the First Priority really would be to form a coalition government. President , with the we are looking at video of her walking out with shine my are there. And tomorrow today he will meet with other members of her party to try to talk them into going back to the bargaining table and come out with a coalition. So what Angela Merkel is saying is that if that doesnt work, rather than try to go it alone, she will hold new elections. It seems they are shrugging off the political disarray. Why is that . Examples ofe seen countries that have done well with caretaker governments. Netherlands, spain, as well. So i dont think investors are terribly concerned about germany because we are in such a great price. We have record no unemployment and record high business confidence. Growth of 2. 3 right now. Forecasted to be at 3 for the year. Terriblyors are not concerned about the breakdown in Coalition Talks and if you buy peripheral bonds, italian bonds or spanish bonds, you are doing really well. Europeaner on immigration has left the possibility of going into government. Tom if there is a new election and it is about the next boat or new vote, who does the chancellor have to have vote for her . Is it munich . Dresden . What kind of german has to vote for her the next time around . Matt she needs bavarians to come back to her sitters to her sister party. That isht party why they have taken a little bit of a slant to the right, trying to come to the afd and win back some of the more conservative voices. You so much. We appreciate it. George, we have to be quick. This chart is extraordinary. We have never seen this. Lightate is higher with a up here that we have all noticed. Germany cannot get it started. What does this signal to you . George it has to do with the cash differential rates at the front end. There are ongoing political turmoils. Is one thing we did mention that he europe benefits from an accommodative central bank. And to the extent that there is stuck inthe ecbs neutral, for longer. And i think yield differentials keep opening up and the fed remains largely hawkish. They dont have a lot of room to move. Tom lets leave it there. The two year between germany and the United States. George bory from wells fargo is with us. Stay with us. Bloomberg radio and bloomberg daybreak, listen. Tom exceptionally busy morning. We welcome you to bloomberg surveillance. Right to our first word news here is taylor riggs. Taylor writtens expect tax taxes to rise according to a 69 ca tax hike after brexit. The in government unveils a new bill tomorrow. Saudi arabia is looking for ways to protect the assets from the anticorruption check down. Rich saudis who have been implicated are talking to banks and lawyers about restructuring their diseases. Thatll make it harder for just their businesses. That will make it harder for authorities. The Trump Administration has. Een handed a victory according to a person briefed on the matter, the head of the federal Communications Commission will propose getting rid of metric Net Neutrality rules. Campaign the Trump Campaign manager quick paying legal bills to the sun just to the sun to the sun donald trump jr. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Moment tois a good look at our tax cut proposals. Washington with a Bipartisan Policy Center, steve bell joins us. Shop is founded by howard baker, tom daschle, mr. Dole and george mitchell. That is an eclectic group. What is the bipartisan analysis of the massive polarities that we see in this bill . Number one, the senate bill is going to be very different from the house bill. Number two, the deficits are understated and that is going to cause a problem down the line. Number three, the distribution tables, who gets how much are probably going to be skewed toward the upper income people because of some the business and taxes. Tom within this, the heritage you represent. Now ifp the chart right you would. This is the Bipartisan Policy Center headache. We are rolling over on our deficit to gdp and you can migrate out here to 4. 5 or 6 or 7 and as you know, steve bell, we really have not been there before, have we . Steve since the end of world war ii, we havent had deficits rising at this rate and we havent had the Large National debt that we have now. What we want to do, maybe early next year, have a growth to extend the ability of treasury to issue sovereign debt. That is going to be a more difficult vote because our estimates internally are that by , we will be back at the 1 trillion debt deficit for that single year. Goldman sachs has by fy 20. We have a certain difference of opinion because we think that spending on the various disasters are going to be higher. We are either three or four years ahead of a trillion dollar deficit. This is a serious problem. It is going to affect votes on the tax bill. Francine there was a great bloomberg story saying there may be quite a lot of tax loopholes in this bill. Is this what you see . Steven there are also some gimmicks and loopholes. The senate bill says lets delay taxes and tax cuts for businesses by one year until 2019. On the other hand, lets terminate tax cuts for individuals seven or eight years into this. Those are and heres the thinking, it is quite simple. Everybody thinks that seven or eight years from now congress will vote to extend those tax cuts for individuals across they do not do it. We have had this before. The bush tax cuts ran to this and we had socalled extenders. Francine what does it mean . Capital gains would be extent would be excluded . Steve yes, but there would be a lot of other things that would be excluded. Escort for individuals who have llcs. And i amnteresting sure it is going to become a political issue, the president s empire is built on interlocking llcs. It is going to be interesting with the democrats say, mr. President , how much does this you . Rom 35 to 20 benefit i think youre going to hear that on the floor of the senate. It is going to be another renewed call for what are your taxes. Tom help us with the collective memory and start with the senator from mr. Tennessee, mr. Baker. See overt of people the weekend is there is a little bitty thing here. Theres a little bitty thing there and another little bitty thing over there. Does the senator in the heat worry about the Little Things are are they going to look at 60,000 feet . Steve most of them, 60,000 feet. They are so desperate, it is a most frantic to get something done. They are thinking that this will really help them in 2018 in the elections. I have a democratic friend that said, you guys think passing this is going to help. She said, we think so but we think it is going to help us. Tom what is your recollection of previous battles including 1986 . Tot can you pull forward 2018 . Steve in 1986, we had three or the years of declaration of 86 tax act. We had mr. Packwood who is the chairman of finance and they had agreed on most things in advance. What you had was a bipartisan agreement. Taxes should be cut and it should be substantial reform. You dont have that kind of bipartisan agreement now. I will only remind everyone one of the reasons the Affordable Care act is in trouble now was that it was pushed through on a oneparty basis. I think Big Decisions like this senator baker but this Big Decisions need to be bipartisan. Francine george, if this goes through, say there is a tax reform. Does it help with inflation . Does it help with gdp or neither . George there are a couple of implications. Mildly stimulative. To the extent you can cut corporate taxes. Maybe a couple of tenths of a percent. The fact that some of these may expire in a relatively short horizon, five or six years out for some of the individual tax cuts. Then the true Economic Impact is to look at certain. As it relates to inflation, it is uncertainty, you would be adding some stimulative measures to the economy of the Economic Cycle is it relatively advanced in doing pretty well. The other big implications, the funding of deficits becomes a material issue next year. Not only because the government has to fund a lot of money but the end of buyer needs to fill in for the fed who is already starting to step back from the markets. Those Funding Dynamics are very material when you need to go cap in hand to raise more money. Francine what needs to happen for the Trump Administration to and fornimal spirits actual ceos to put money somewhere . Steve have to believe that these tax cuts for the businesses will pass. Most of the benefits will go to companies that are domestic and are relatively smaller. Big multinationals very rarely pay 35 tax rates. The thing here is maybe mediumsized and Small Businesses will get a big boost. I think that is where the imps is is going to be. Thats where the emphasis is going to be. Where the emphasis is going to be. Continue. Ll conversatione between those who think we will see growth with tax cuts and those that say maybe not. The chairman of the president s council of economic advisers. This is bloomberg. Francine this is bloomberg surveillance. Im taylor riggs. Toyota is one of workers at its kentucky factory to cut costs or space uncertain future. It can build a camera in japan and make more money selling that car than the one built at toyotas factory. According to a video obtained by bloomberg, toyota is not planning to close the plant. The Worlds Largest university is go to outsource management as part of its portfolio. Harvard is in talks with bain capital to run a portion of its real estate investment. The schools endowment has improved mediocre results for the last decade. Citigroup fell in the latest rankings by global regulators. Authorities recommend that citi s capital surcharge be cut. That is your Bloomberg Business flash. Francine taylor, thank you so much. On to brexit and the budget. Philip hammond is prepared to deliver one of the most difficult edges. Guess difficult budgets. Difficult budgets. With leto economic flexibility and conservatives arguing he has a tricky balancing act. Now. Merritt joins us the concern is basically he has a mediumterm public finances are going to be great but he still needs to find money for wage, health care and housing to make sure that he doesnt get abandoned by voters. David a really difficult balancing act. This is the governments chance to get some positive headlines for a change. It is been a while since we have had anything positive about ms. Mays government. Theyre going to be trying to pick up lost ground that they have been certainty gain any of the younger voters. We are looking for measures on things like housing, for some buyers. The Public Sector pay, they have had their wages held low for a very long time. Will there be an adjustment to that . We have had some Public Financing numbers out. The budget deficit has deteriorated slightly in the last the oh. Why . The effect of brexit. Mr. Hammond never wanted brexit to happen. He wanted to remain. He wants to forge a very close relationship with europe. He still has to deal with the physical constraints of brexit. Francine where does he take the money from . David he is known as a conservative politician and yet there are all these demands to drop austerity. That is how they think you might be labored at its own game. The conservatives have staked their reputation on this austerity on bringing the Public Financing back into order. Francine we also hearing from david davis. He is speaking at a conference in westminster saying he is in favor at getting an brexit deal and they have made Real Progress in talks. When do we find out what that progress means . David we have been waiting this week for more news on the financial settlement. The divorce bill. Ms. May came out and said we are willing to pay 20 billion. There were reports that the government had agreed to up that amount the 40 billion. That number has not been confirmed. A spokesperson came out and said the numbers are still in negotiation. They are tying the number very closely to the condition of having a trade deal and having this transition period. We still dont have that much clarity. Tom david, i understand there is not a legit compare and contrast between a country like the United States and the United Kingdom. There is a protestant ethos of calvinism. In america, there is the idea that deficits are bad. The United Kingdom has done better. Within the budget debate, how big a deal is that, weve got to be frugal, weve got to get back to a calvinistic place . David this is the heart of the matter. When we saw the elections for when David Cameron came to power in 2010, when he beat gordon brown, the argument was all about this big question. Austerity versus spending. The budget deficit having ballooned in the budget crisis. We have to cut public spending. Otherwise the u. K. Ends up like greece. Ever since then, that argument seems to have been weakened. The public is tired of austerity. You are seeing a lot of traction , the argument that we have to raise public pay. Austerity has been biting that for such a long time that that argument really has gone down the charts. Theirhas started argument, we got to spend more. Tom what is Governor Carney like . David he has said the biggest risk to the economy is brexit. In the last big report, they are watching very closely for this deal to get some sort of proper agreement to avoid the cliff edge scenario. Otherwise, they do try to stay out of the fray. It is such a political issue. He is very cautious about what he says. He isready attacked probably on the fence. Tom brilliant thank you some much. We are with george bory. We will come back with an important chart to keep you motivated. Tv , trading wells fargo has nodded off. What can you do . You can come over here, look at a previous george bory section and bring it over with steve bell. You can steal that chart on deficit in gdp to kill your 11 00 a. M. Meeting this morning. Tv , dont leave home without it. This is bloomberg. Francine it is francine in london. It is bloomberg daybreak americas with david west and in jonathan ferro. David, what are you most looking forward to today . David i will tell you one thing, we have mike no, wellknown Macro Hedge Fund manager. He wants to go to bitcoin another cryptocurrencies. He started a 500 million fund. How much of that 500 million has gathered and why it may be a bubble. How about a single best chart to give us a view of 100,000 feet. How about the ancient big picture and to bring it down to where you in bill gross are concerned. Heres the eisenhower. He we go. Poker and the great moderation. The breakout and you are talking about a slower economy. Cap we broken the great moderation . We have a Double Bottom of the chart. Yet the watch that very closely. That would suggest we are bottoming out. It is the monetary creation we have seen over the last couple of years. Growth is picking up globally. Tom the media wants what does it mean for january . Im looking at what it means for 2023, right echo george theres just right . George theres the mediumterm and theres a longterm. Bond yields are low, durations are long. A lot of dollars are at risk and the bond market. A Record Number of dollars are , myisk of Bond Investors clients need to watch this very closely. We are clipping a little bit of coupons. Even in the world of high yields, youre not clipping a whole lot of coupons. Picking the right companies in the right spots on the curve and minimizing your capital loss has to be the top of the list. Francine george, tom needs to leave to go to radio so we send them off. Good luck, tom. When you look of biggest distortion among investors, is it in the bond market . George the bond market is behaving in a rational manner. In the carpet bond market we have had a dislocation in highyield. Theres a difference between Investment Grade and highyield. Highyield is a short duration of assets. The curve is flattening. People are generally worried about the potential for market to market losses in the front end of the curve. If you look at the long end of the curve where rates have been very stable and returns have been impressive, kind of money remains firmly anchored out at the long end. That is the here and now. That is the way the markets are being set up. As we go into next year, that could be one of the bigger risks that if bond yields go up, market to market losses start to flow through. We are encouraging people to move down the curve a little bit and not be so fully wedded to the very long and duration position. Francine i have a chart but i did not adjust it. This is the amount of treasuries held by china. We also put belgium and their. There. Es belgium in what does this chart tell you . Beene number one, it has planning. It has been declining. There is another angle to the story which is the National Holdings to government bonds. That has been rising dramatically. It is a move from treasuries into nongovernment debt. It is basically the ongoing story. We saw it a couple years ago with traditional retail oriented investors. It steadily progressed to government. Francine george, thank you so much. Coming up tomorrow, stay with bloomberg for live coverage of the u. K. Budget. We will hear from the u. K. Chancellor, Philip Hammond. This is bloomberg. Alix political problems at t prepares for a battle in court. The Justice Department goes against the bid to buy time warner and running with the bulls. Goldman sachs joining the running list of banks forecasting another year of gains to bull markets. David welcome to bloomberg daybreak americas. I am david west in right here with alix steele. Jonathan ferro will join us later. Alix it is risk on. It is a risk on field to the market. Yet u. S. Equity futures turning higher. The dow futures are up by up about 52 points. Eurodollar flat on the day. Not a lot of action here in the u. S. The action overseas in the european bond market strong buying in the periphery. Yields moving lower by three basis points over in spain