Feel the fed chair seat. Will bring you the latest from vienna. Matt i am looking at the futures here, take a look at equity index futures. We can see the percent missed price on the bloomberg showing a negative open for the ftse, slightly negative on the dax and positive on the cap. It is a mixed trade if you look across the entire european sector. Take a look at treasuries. I have a threeday chart and we can see that they are trading flat. Yesterday the yield rose six basis, points. Investors selling off treasuries six basis points. Investors selling off treasuries. When they have that cash, could they use it to go into some of the value stocks that were so popular in the u. S. Yesterday. To see how that makes broke down. Banks in focus ring sold, rippling into the Asian Session. Some of the more tech heavy markets under pressure through the Asian Session. Ofope does not have a lot tech. That could be something of an advantage. Yesterday the ftse sold off, that was a pound story. Markets selling off more broadly around the world. Equities and a presser yesterday. Focused on what has been happening in the tech space. Lets talk about what is happening elsewhere in terms of the commodities story. It will be an interesting day. Opec is the focus. We will take you to vienna and get the latest on what is happening. The bloomberg quantity indexes down but crude is trading up. The metals. S in weakness creeping and so watch the mining stocks. Of what isthe focus happening in the oil market and trading up. Opec and russia are ready to extent the Oil Production cuts until the end of next year to ensure global stockpiles keep falling and prices maintain gains. According to delegates all opec members and russia agreed the cuts should last until the end of next year. Committeetes said the charged with overseeing recommended extending until the end of 2018. Credit suisse has said it plans to boost returns to shareholders and pay half its net income and share buybacks on special dividends. It had of its investor day the Bank Increased its target for Wealth Management and connected businesses in the asiapacific. The mentor confirmed its target for the Swiss Universal Bank. And Capital Markets and Global Market businesses. The u. S. Has demanded china cut off all oil exports to north korea after the countrys latest missile test warning that washington will take action if china fails to do so. Nikki haley said donald trump had called chinas president xi to discuss the matter. Your Senate Republicans have voted to begin debate on their sweeping tax overhaul bill that would cut rates for businesses and individuals. It touches off a process that could induce an upanddown vote. If they can approve a bill they will have to hammer out a compromise in legislation with the house which approved its own package of tax changes earlier. Chinas official sector engaged in and increased to a near fiveyear high. To 50 1. 80ose november. Nonmanufacturing pmi climbed. As foreign and domestic demand helped push the effects of campaigns to clean up the environment and the financial system. This is bloomberg. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. U. S. Tech shares slumped. Wiping 60 billion off their combined market cap. That marked the worst day for the fang stocks since the facebook ipo. Shares down 90 4 billion this week alone. Lets go to mark cudmore. Bloomberg mliv strategist in singapore. Is this profit taking or are people selling the Growth Stocks that have done so well to rotate into the value stocks that have lagged behind . That is the main catalyst for why this has gone so far. Great year, some of the winners are more vulnerable. Events on the risk the horizon. Some were saying, speculation of how Net Neutrality would work but it does seem to have got of a position squeeze and the most popular positions are the one that got hit worse. I do not know if theres anything more to read into after that. Guy is there a buying opportunity . I remain worried by stocks going to year end. It will be tough for the next couple of weeks. I remained bullish in the longer term but the correction can go further. Still anceiling is underestimated risk. Everyone is presuming we will get by and get a fudge solution. It is vulnerable this time of year. Everyone is distracted because of the tax debate. Betweenthe discrepancy what the fed is talking about for next year in terms of hikes and what the market has priced. In the last months of this year we will be it will be tougher. They will be volatility. If equities finished higher it will be marginal with a lot of volatility but there is a risk they finish a few Percentage Points lower. Abouteveryone is talking the tax issue hurting tech stocks because they pay so little and profittaking but concern that cannot last forever. I am looking at the s p imap. They have lower tax bills in tech stocks. I do not think that can be it. I am wondering when i look at the gainers, who is benefiting from this rotation . Financials under telecoms the second bigger biggest gainers, is that what people are going into . Telecoms have had a few negative news flows and they have been cutting prices. A rotation from those that were most favored to least favored. The consequences are real. We have seen that in asia today where the tech dependent stock market got had badly. It sets the mood negative. The consequences are real. I do not think we should underestimate how badly this will hit sentiment for the rest of the week. The rest of the week will be tough but i do not think we should try to interpret it of some big thing on the tax deal. Guy has sterling got legs . We saw yesterday the story surrounding the bill being settled. My sense this morning is there seems to be progress on the irish issue getting to take shape. Doeskind of momentum sterling have and how far can it take us . That ade is a market it trades like a market that wants to go higher. It seems like that is the case. They will go that way. Getting some kind of fudge. I cannot believe they will go into this meeting and not agree to with trade talks. The eu want trade talks to proceed. It does not suit them for the u. K. Economy to get screwed by this brexit. It suits them for the u. K. To squirm. The u. K. Is not benefiting but they do not want the economy to go into a tailspin. It benefits all to proceed with talks and it is a shock to if not enough progress has been made. Thats proceed with trade talks. Sterling has likes the next couple of weeks. The brexit issue does remain difficult. Well get positive news on monday and the market is not happy until we hear that confirmation. That is why from monday on words or trading into monday, sterling has likes. Has legs. I have to ask about bitcoin. Bitcoin,chart showing bitcoin cand one buy. Right now, it is eight ounces. What i find amazing is the swing. 25 noted that it was a range. Why does bitcoin trade in such an incredible range . It is not exactly a penny stock. They have a 150 billion market cap. Why is it so volatile . Mark spreads her white and liquid. You have a market where people are buying and holding. It is not liquidity. This is about believers buying in and when it pulls back, they buy more. You had was a psychological level that triggered some sell offers. People are not used to this. It is a market in trades and wide spreads. Everyone is buying their bitcoins and storing them at home, it is not liquid. I do not think that comparison to gold is entirely valid. Gold has real uses in industrial purposes and it has a core anchor value which is valid. It has key properties. Real properties. It is not imaginary. As joey. S valued bitcoin is something imaginary. I do not think the comparison to gold is valuable. Gold is going higher. A lot of people want to buy an and while in the markets we feel like this is the saturation play, we are at the front line. Itn it feels like saturation is seeping into the mainstream. People want to buy this. This can go higher but it is not a valid currency or asset and it is nothing like gold and i am not a gold. Heard that never before. Hitting your enemies over the head and building a house, wow. Mark cudmore joining us from the mliv blog team. You can follow them and their construction techniques. That will be a firm focus this morning. Has started the empty seats in the fed. A monetaryor is economist and former rector of research at the richmond fed. He does have a phd in economics. Trump. Two more spaces to fill even if goodfriend is confirmed. Joining me now is kathleen hunter. And what is the significance . Kathleen trump is looking at adding his first year potentially without legislative achievement. One of the big things he has , he and he points to this did get the new Supreme Court justice confirmed, he has been able to remake the fed and this is part of it in terms of his. Omination power that is the broader lyrical story. This is the next step of trump using the nominations process to make changes in how the federal government looks. Guy what comes next . Someone who has been critical of yellen. Powell when he testified was pretty clear that he is is overarching message was i do not plan to change a lot, the situation is stable. It is interesting in that context. Pretty easy time getting confirmed in the senate. This is something trump is able to do. Matt he spoke of in front of the congressional subcommittee in march, he said the fed had failed to secure its credibility because it is not getting its not goingtarget, after it aggressively enough. Can we see that he would be more hawkish, more dovish, or do people tend to change their actual activity once they get on the fed . Kathleen there is always a little bit of potential change in terms of how folks view things. He has a long enough record that we are able to get a sense of what he might want to do as a fed governor. His previous statements are pretty telling and we will have to wait and see what he is confirmed to see how he operates. Matt what is the latest on donald trump and theresa mays their spat that they were involved in, what is the deal . Was then theresa may first world leader to come to washington after the election. There has been this, they dangle the idea of a donald trump visit or state visit. What is going on here is trump and may are putting their own inward looking interests first. Hemp is with these videos retweeted yesterday, appealing to his base and some of the harsher elements of his base. Theresa may is in a precarious soition and the u. K. , heading into next week with brexit developments, i think she is saying what she feels like she needs to say to build her support at home while he is doing the same. The special relationship while it is important is not as important right now to these two leaders as building up their base of support at home. Matt thanks so much for your time. Kathleen hunter talking to us and donaldowell trump. With u. S. Oil production climbing to the highest level in more than 30 years, we will bring you the latest from vienna and opec it just looks to extend its deal to cut out that on its side. Goldman sachs chairman of and ceo will join us at 2 00 p. M. U. K. Time alongside michael bloomberg. Tot interview we do not want mess. 2 00 p. M. London time. This is bloomberg. Guy welcome. Opec and russia are ready to suspend their Oil Production cuts until the end of next year. According to delegates in vienna that were attending todays meeting. They took back control of the oil market from shale producers. The job is not yet finished. The meeting next year and will give it flex ability to alter the policy through an extension should that be required. Easy decision . Arehere both sides concerned and they have done a good job. The russians have been helpful in terms of what they have said publicly. The question is what is the details and that is what we will see today. Is this going to do to the price of oil and what does it do to the shale producers is the important question . Was baked in an a ninemonth extension. Aey may announce it as oneyear deal. They will reset the clock for january and say that is the start of a new deal. That might allow them to bring in next are companies. The market is long. We could start to see the beginnings of that this week. In terms of for we go next, that will take us to the june meeting between now and then. We will look at compliance. Guy this is when life gets interesting. Compliance will be one of the big factors next year. How do you exit from this . How do you convince the market dry whenatching paint in reality it is not . Stewart matt mentioned shell in that is their problem. They can come out of this deal. You can have a taper program. Shares go gangbusters because they are 65 and above. Thenxpand production and hedge production. Guy how does it work . In terms of how the russians see it, how does opec see it, the mechanics of this process will be interesting. Stewart most of them are worried about prices being too high. They learned their lesson from 140 oil. It is causing a big headache. They are thinking about if we 60, 65, 70, that is when we want to start signals to the market. They are confident we have been guiding the market for the better part of 40 years, we can keep doing that and that is the exit strategy. Showing a cool graphic on opecs top Oil Producers. Type opec go. You get this chart that shows the breakdown of the producers. I went to ask about a nonopec producer. The shale producers have been drawn in. You said opec is feeling the pain from 140 dollar oil. Is that pain in terms of how many competitors they have attracted into the market . If prices are high and they have been relatively high recently, doesnt that encourage more shale producers to get as much out of the ground as they can . Stewart i think it does. There is a constituency that is more cautious. This industryg should not go out and spend billions. We have lots of prospects, lots of drills but uncompleted wells, we should make the most of those. You have that element that will go for it for 65 a barrel. The signals have been that they are hedging production rather than talking about aliens of dollars going back into expanding production. We will see more barrels but it may not be quite on the scale we have been expecting the last couple of years. Matt thanks where coverage, Stewart Wallace is the executive energy editor. Joining us in our new london bureau. We are moments from the open of trading. Lets get your stocks to watch. Credit suisse is one to watch after it said it is going to try and pay 50 of net income in dividends or buybacks as a reward to shareholders that have helped it raise 10 billion swiss francs over the recent years. That is a goal for Credit Suisse by 2019. Maybe 2020. Speaking of goals like that, aviva came out with a similar goal saying it will pay back 50 by 2020. Of its eps the british insurer trying to reward investors as it has stronger cash flow and earnings. We see a couple of companies that are looking to give some money back to shareholders. What happensok at in the mechanics of the ftse 100. We have a reshuffle coming through. Two things to be aware of. We have a bunch of exdividends. On then find this function. You and up with a list that looks like this. And up with a list that goes like this. Ing is going ex dividend. You have technical factors into the market which will be germane in terms of the market open we are about to see. The market open is four minutes away. Chart red chart than we saw in the u. S. This is bloomberg. Guy welcome. Lets talk about this market open. A bunch of factors you need to be aware of. Eurodollar not doing much. Keep an eye on this. Overnight, we did see the fang selling, which started in the s p. We did see money coming out of the, rotating into some of oil stocks. Oil clearly a focus on what is happening out of vienna. That deal will be extended, but you kind of need to meet into the details. Get the full picture here. You will get the details later on today. About the wei screen and the fair values kicked out of europe. Europe does not have a lot of tech stocks, which could be an advantage today. London looks like it will open a bit lightheaded. Div factor. Big ex it looks like it will open absolutely flat. U. S. Futures catching a little bit more of a bid right now, so it looks like we will recover from yesterdays losses. Here we go. Here is the market open. Lets talk about the details. We are with a flat ftse 100. Lets be honest. 3 . 73. 83. Down by. 2 . We open thought we would open around. 3 . The cac 40 is expected to open in positive territory. Dax expected to open reasonably flat. I bet opening up by. 1 . Opening up by 1 . Lets go to the imap and figure out what is going on here. At the moment. You can see that in the middle of the screen flashing red green. Cannot make up its mind. Lets look at some of the key sectors. Financials reasonably well bid this morning. Off aes just coming little bit. Selling coming into the energy s morning despite what is going on. Elsewhere, industrials a little bit better bid. The market generally, apart from the financials, are on offer this morning. The financials holding this market up reasonably well. Credit suisse is going to be a big factor into that story as well this morning. We have this today. It was here yesterday. Talking to investors, giving them an update. The financials look reasonably solid this morning. Break it down from a stock point of view. Matt im looking at the mov screen right here. Although they have only been open for 1. 5 minutes, we can see obvious trades. First off, you see of you at the top, saying it will boosted by back ratio to 60 by 2020. That has been an issue that i think, to some extent, has boosted insurers all week. Aviva adding some index points xx 600. Sto unilever, theis, biggest stocks here, broken down by index points. You see some of the banks as well. Unicredit rising, bnp paribas pricing. That is part of the rotation we saw yesterday. If you take a look at the losing side of the screen, you see asml right up at the top, so we are going to see some tech stocks. Europe does not have a lot of tech stocks, but you will see some of them taking a hit today. One thing europe does have is chip designers, so im thinking of asml etc. ,ou see one of the banks, hsbc down here, but not a lot of other banks, lloyds, there. ,cb p, total, Royal Dutch Shell as far as the Oil Producers on the losing side of the ledger, but keep in mind how big they are. If you look at it in index points, even a 0. 3 move tends to be on the top 10 as far as losers on the day. Lets move on to our next conversation. Our next guest sat down and is giving me an interesting comment. Healthy living and high real estate wages. Low unemployment and declining deficits. It is one of the reasons they are optimistic about it happening. This is the interesting tidbit have already had. This is romanian gdp. Definitely looking like it is accelerating. Now. Uest joins us very nice to see you. Thanks for coming to see us. Is that number real . [laughter] real, but itits depends on what it is made of. We are a lot happier about gdp growth in the Czech Republic and slovakiahy a and because it is accompanied by productivity gains. Romania is good. 8. 8 . It is very much governmentinduced, higher wages for Public Sector employees, and it is consumptionbased. Whats worrying is the fact that we still have a current account deficit. All in all, its a great number. We are happy about it. At a headline level, it is pretty impressive. Numbers in western europe, we are looking to see at the moment. There is no danger of overheating here, is there . Guest no, i dont think so. There was danger of overheating in the 2000, 17 on growth, and the growth was not real, and it was borrowed growth. Now, in most of the Eastern Central european countries, it is real growth, very healthy, euro growth in slovakia, and there is no overheating yet anywhere. Real estate prices are rising a bit, but gdp growth is healthy. Real wages grow. Unemployment is coming down, and the main reason why this is actually happening is a very simple fact that is that central and Eastern Europe, overall is substantially more entrepreneurial than western europe. Matt as we see stronger growth across europe, here in germany, where i am sitting, everyone is pretty pleased with it, how does line . Elp your bottom you have a lot of difficult issues to contend with, for example, the low rate environment. Guest of course, particularly in germany is doing well. It is good for central and Eastern Europe. It has a very strong car manufacturing industry, and if or germans buy more cars export more cars, it is great for poland for the czech your, forfirst about hungary, for any country in central and Eastern Europe. But if you look at companies in the Czech Republic, they are also gaining a lot in terms of qualities, so they have not become a replacement for the volkswagen or the audi. Germans are now going out to buy quality, and there is a lot of smes growing in our region that service some of the larger production facilities we have in central and Eastern Europe. The economy is really, really doing well. Matt yesterday, i was talking and he said Bank Profitability is improving. Obviously, the ecb watches that closely since a lot of banks ceos complain about the environment. It does not seem it is not set to improve a time soon, the rate environment, although they have curtailed their qe. Would you like to see some changes in ecb policy . Know, i am oneu of the interested parties in the ecb policy. Of low Interest Rate policy the ecb, zero Interest Rate , itcy does not help us does not help our clients, but it does help some other entities indebted southern european states. It does good for a lot of people. It does no good for our clients on both sides. Number one, i do not believe that the low Interest Rate scenario really helps growth. We do have growth in countries that are not in the eurozone and have substantially higher tax rate. Interest rates, and those growth rates are substantially higher in the eurozone, although lending rates are substantially higher, and it certainly does not help the average Central European who has maybe a couple of hundred euros to invest amongst. There is nothing around that we can buy because state bond yield zero savings. Life insurance is yield zero. Bonds that corporate would be available are being chewed up by the ecb, so there is nothing left for the average citizen in our region to actually invest, and if you talk to the ecb, what should they do . They tell us they should go into etf. Czech farmer. Or a guy im getting the impression you are not wildly impressed with what going on in western europe right now, from your perspective. Do you get a sense that that is replicated across a lot of people . The impression that is given at this stage is there is a pivot happening, that a politically, Central Eastern europe is diverging from what is happening in western europe, and economically, there is a sense that may be central and Eastern Europes best Economic Opportunities lie to the east and not to the west. The relationship with china, asia, the pacific story, is going to start to develop and move forward from here. Guest there is a lot to it. If you look at what they do, they are definitely very, very much engaged in increasing trade relations with the east. They find a lot more with china,s vietnam, indonesia, and those states than what they find with western european states, but still. And a lot of the industry depends still very highly on the ,evelopment of europe overall but they are mitigating that fact very much by strongly , butg into the far east the real difference is, i think, something else. In central and Eastern Europe, we do not yet have very wellestablished social welfare systems. We have lower wages. Substantially lower taxation, and much more flexible labor markets. If we decide in the Czech Republic to close down 50 branches and we have to lay off 300 people, we do it within , and everybody, everybody who loses his job with us gets a job somewhere else immediately, and some of them actually get jobs at higher pay than with us, which would give us to think. If you do the same thing in austria or germany, it takes you a couple of years. It is hugely expensive. And its very difficult to find that youthe people have to lay off. So you are much more hesitant on doing it. Because you dont want to create unemployment. In central and Eastern Europe, you just go about and do it like that. Guy is there a divergence . Is the divergence getting whiter economically, social wider, economically, socially, politically . There is clearly a Political Division that is emerging between what some of those capitals are saying and what is coming out of places like berlin and paris. How do you see that developing . The addendum to that is how does it affect you and your business . Business, given that 85 of our 60 million clients are in central and Eastern European countries, it is good. I actually think the biggest the for us would be that ecb or brussels tries to harmonize central and Eastern Europe sooner than later. It tries to impose on those countries countries being recipients, saying you cannot undercut us in terms of taxation. You have to go up with taxes and move faster into becoming a western european welfare society. They are not yet there. Gdp per capita in the Czech Republic is still half of what it is in austria. You have to give them another 25 years to adapt, and those 25. Ears would be hugely important if europe tries to force these countries to adopt faster, you will see a lot of resistance, and you could see those , enlargingnifying it, and moving away from the european current. Matt we already see a lot of european resistance. I look at the success of the Freedom Party in austria, the success of the afd here in germany. How do you square that with the sort of mainstream desire or assumption that we are moving towards thinking Union Banking union, deeper integration in europe . How do you see those two ends playing out . Guest i think they have very little to do with it. Development of right or left populist movements has a lot to do with the migration issue and nothing else. Economic policy, they do play a minor role. In principle, i would say that they are, like all populist a veryts, not really positive factor for the development of the economy because everything that goes growthl, opportunities. I dont believe that in our region, we have some form of populist movement in all hugeries that they have a impact on economic policy, or at least, i hope they do not have it. Matt what do you think, speaking of impact, about basel three or basel four . It looks like we will get something in a matter of weeks. How is that going to affect your business . Guest it is not going to affect our business at all. We actually do not care whether it will be 70, 72 point five, or 75 . Like most banks in our region, we are very highly riskweighted asset based, and lots of our assets are riskweighted, so actually, basel four only really has an impact on those banks who have very high amount of securities in their portfolios, so they have not very fortunate ratios. They get hurt. The output floor for banks that are real economy banks like we are is not important at all, so well care. Guy interesting to see how this shows up in pricetobook. Deutsche is trading on. 5. That shows up in the metrics in terms of the real economy and what is going on. I have got to ask you this question. Are you a bitcoin believer . [laughter] andreas no, im not. Guy why not . Andreas im not because i believe that if it gets stronger, it will be taken over by the Central Banks, but my kids think im really stupid. Guy ok, so its a generational thing, do you think . Andreas i dont know if it is a generational thing. They could have made a lot of money. Did not allow them to invest in it. They dont like me. Know, in aeve, you way, it is fascinating. It will make Central Banks lose control and they are not going to let that happen. I think at some point, i may be at 25,000, 30,000. Somebody will say stop. Guy it has been great seeing you this morning. Thank you for coming to see us. Im sure your children are quite with the bitcoin story now. It would be interesting to see it ultimately how it unfolds. Andreas treichi, thank you very much indeed. Up next, ubs says one in six cars full will be elected by 2025. How will this factor into the volkswagen Brand Strategy update . We have been talking about what is happening. Time, the Deputy Governor joins us for an exclusive interview. We will get her take. Looking forward to that conversation. This is bloomberg. Matt guy with 20 minutes into equity market trading here in europe, with the big clock on the floor, taking a look at the screen behind me, and europe is doing a big fat nothing this morning. It is basically just a sea of gray. Basically, if you are up by less. 1 , you get painted grey. Europe has been painted grey this morning, but in some ways, thats a result, because the s p had a pretty decent selloff yesterday and finished flat. Asia kind of followed through with the tech story and you have the chinese data as well which was something to bear in mind. The bank story overshadowed that. Europe is sitting there doing nothing at this point in time, waiting for a sense of direction. London is down a little bit more than most. A bunch of exdividends in the market. That is a factor to bear in mind. Financials are generally strong, but look at that. Matt. Nothing to see here. Absolutely nothing. Its amazing. Norway is the only standout story, matt. Loggia, and also a very nice place to hang out, i should add. Let me switch gears here. That plan was not intended. Volkswagen due to give an update on the strategy goals for 2025 including profit improvements, cost savings, and new models. What do you want to but they are electric . Within eight years, one in six cars full the world will be electric. I think they mean fully electric. So what is volkswagen going to do to compete with the likes of tesla . Joining us now is chad thomas, bloomberg Germany Bureau chief, but also a car aficionado, former car reporter. What do we expect out of vw . Strategy on the volkswagen brand specifically, and thats very important because the brand is at the core of the company and accounts for one third of sales. It is not as profitable as, say, the audi and porsche brand. Investors want to know what they will do to increase profitability, first and namesake at this key brand, and we are likely to hear a lot about their electric strategy for the volkswagen brand, and that is important because the brand drives them to strategy for the rest of the massmarket brands within the group. So thats what we are likely to hear a lot more about today, this afternoon, when we have a strategy session. Matt they have occasionally in the luxury sector. I think you covered them when they had that out, and that was a competitor. Y a can they compete with a model s or would they go against more of a model three . Would gois likely they against more of a model three. It seems volkswagen has pulled idea that the brand has to be a luxury brand. They have portia, audi. Those brands are working on their own electric models, and that is where you will see the real competitors probably for this highend tesla model. They do need to find a positioning for the volkswagen brand in the electric car sphere for sure. Guy chad, people get very excited about kind of we are going to produce an electric car. Is that the reality of the situation here . Is this going to be much more incremental than that . I just simply increase gradually the amount of electrification rather than simply going with the big bang approach which provides all kinds of problems . If i want to meet my co2 standards, i just put a little bit of electric in. I dont completely do it. Is that how volkswagen ultimately will make this change rather than simply being producing everything with electric . Chad volkswagen announced just a week ago they were going to spend 40 billion on this effort. It is a whopping sum of money and it has the advantage of the Worlds Largest carmaker, 12 brands. They have the economies of scale , and they are late to the program. They say they are all in to read on the other hand, you look at the likes of bmw, and they say they are going to take a more gradual approach, and they talked a lot about how they are outfitting the factory for the more conventional engine models. No one really knows for sure when this is going to take off, if it is going to take off, so it is a question they are grappling with in the industry. Bmw is a pioneer and they had been in the past. They want to tailor their factories more easily. Chad, thanks so much for covering this for us today. We will hear more at 2 00 p. M. , 1 00 or 2 00 p. M. This afternoon and you can watch your bloomberg for any headlines that may come across. Lets get your midcap movers. We see a sea ofchad, thanks gra. I expect there is a lot more going on. Lets bring in nejra cehic for that. Moves im focusing on the downward today, starting with the daily mail. , so then downgraded drop you are seeing, more than 25 of that at the moment is the most since 2001 for daily mail, hitting its lowest since 2012. But moving from papers to pubs, it seems brits are drinking less. U. K. Consumers are spending more cautiously, tightening their belts. Ost cuts on track the stock is down the most since the beginning of september. 44 million euros. This company invest guy down 3 . Up next, talking about filling the empty seats on the fomc. Trumps nominating Marvin Goodfriend. Will he be a good friend to the market . This is bloomberg. Matt we are 30 minutes into the trading day. Lets take a look at your top headlines this morning. Ed, thing Defang Technology shares turn red. European stocks start the day flat. Connecting the dots. Marvin goodfriend is topped by tapped by trump. Is he a hawk or not . Opec and russia agree to extend production cuts until the end of 2018. We will bring you the latest from the anna. Good morning. Welcome to. Bloomberg markets european open. Im matt miller in berlin alongside guy johnson. Guy 30 minutes into the trading day. How are things shaping up . Upside, personal household goods, food and threege, those are the outperforming sectors we are seeing on this morning and we talked about that weakness in the u. S. Session yesterday, about it bleeding through into the Asian Session as well. It did into the the determining factor for what we saw in asia overnight. We are seeing some weakness in europe. At the bottom of the screen, tech is the worst performing sector this morning. We are not blessed with a lot of tech stocks today. That could be turning into an advantage because it is not the kind of dry we saw elsewhere. Financial services are showing signs of weakness. Retail is trading down a bit as what isntinuing with happening with the british consumer. Oil and gas giving back ground as well. Big names in the red this morning, including hsbc. This is the bloomberg first word news story. Ek. E is seb solial sebastian prices maintain recent gains. According to delegates in vienna, all opec members and russia agree the end of next year. Yesterday, a said committee charged with overseeing the agreements also recommended extending until the end of 2018. It plansisse has said to boost returns to shareholders and pay half its net income and share buybacks. The bank also increased its target for Wealth Management. At the same time, the lender confirmed its targets for the Swiss Universal Bank in Capital Markets and Global Markets businesses. The u. S. Has demanded china cut off all oil exports to north korea out of the countrys latest Intercontinental Ballistic Missile test, warning they will force action is beijing failed to do so. U. S. Ambassador nikki haley said xiald trump had called jinping to discuss the matter. U. S. Senate republicans voted to begin debate on their sweeping tax overhaul bill that would cut rates to businesses and individuals. It touches off a process that vote produce an up or down by the end of this week. They will have to hammer out compromise legislation with the house earlier this month. The factory gates has unexpectedly increased to near a fiveyear high. In november. 8 that is as foreign and domestic demand helped clean up the environment and the financial sector. Lebron is, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. President trump has nominated Marvin Goodfriend to be a governor at the federal reserve, filling one of the empty seats on the fomc. If confirmed, he would add some academic clout to the board of governors. Has a phd in economics. But with janet yellen also due to depart, the president will have three more spots to fill. Joining us now, megan green. It morning. Good morning. Guest i dont think you could say he is a hawk. He has highlighted that price stability is really important. We know he did not love qe, but he is a huge proponent of negative rates, which would be hard to implement in the u. S. Given the money market funds would be decimated by negative rates. He is a difference anger, and thats a good thing, potentially. Here,e have the dots where do you think he would put them in terms of the expected rate path for the United States . Below thebably median. I think he is actually pretty worried about price stability and low inflation. To be fair, i think the fed is more worried about that as well since they produced that dot plot and i think the dot plot is largely meaningless given the turnover. Guy which dots . Megan we are really know, but on think it really matters either. Matt you think the dot plot is meaningless or you think the actual forecast is meaningless . The fed delivers even when the market does not think it is going to. Megan i think the dot is meaningless because there is so much turn up a fed that half the dots will be replaced by new ones. I also think the dot plot is probably a bit off. I think neither the markets nor the fed have it quite right. The market beat probability for rate hikes, i think is one. We will get one rate hike from the fed before the end of this year, so i think that is too low. The dot plot cap price in three rate hikes for next year, and i think that is also off. I think inflation will remain persistently low so the fed will probably have to back off of that great pass a bit. I think we will probably get two rate hike next year to the following year i think neither the markets nor the fed have it quite right, but that of course means that everything is priced in, so there are investment opportunities. Matt why do you think inflation remains persistently low . Most of the economists we talked to, most of the phds sitting on the central bank boards, at least publicly, say they expect the phillips curve to eventually kick in. Guy the phillips curve should eventually kick in. The question is at what level of unemployment and how strong is that relationship . The relationship is probably broken down a bit, and it is largely driven by global factors, things like low productivity growth, demographics, and oversupply which keeps upward pressure off of Wage Inflation through those are the kind of drivers that are really under pinning it elsewhere. It is no longer a local phenomenon, but a more global phenomenon. These are things that are not going to simply be disappearing with a tax bill or an infrastructure plan. I dont see policy coming down the line to address any of this either. I think this will be the case for a wild to come. While to come. Guy the market prices it. We have been in the channel for a wild out. Which way would you expect that to break then . Megan i think the markets are under pricing so we will get more rate hikes. Guy do you think inflation goes up with where we are with inflation rate now . The market is not expecting very much. Walk me through where you see inflation in five years from now. We have probably run through the end of the cycle. So that is a factor to bear in mind for the United States. Obviously, the politics is going to change quite considerably. All evidence at this point in time points to the fact that inflation is going to remain very, very stable where we are now for a very, very long time. Megan i think or inflation will remain very stable. Headline inflation will be more volatile off the back of potential oil price changes. Given what might happen in saudi or not or what might happen with opec today or not. Core inflation, which is what most central bankers are looking at, and certainly the fed will remain pretty low. It could go up a bit. A lot will remain on Health Care Policy as well. If we were to see the administration in the u. S. Get rid of obamacare, you could see premiums reset much higher. You get some inflation. Ou might get some inflation fundamentally, we will be under mainly just around 2 . I dont have a recession baked into my forecast. Guy the curve flattening. Megan it is, certainly. The risk to that call is inflation. So, it is a bit ironic that all these analysts are desperate for inflation to come in, but that would probably hit us into a recession. I think the yield curve will remain flat for a long time. I dont think it will invert, so that is the risk. I dont think most analysts who suggest we are going to have a recession say it will happen in 20192020. When you ask them why, they say we are kind of due. I just do not buy that argument at all. I think the Business Cycle as we have known it does not really exist anymore and it is much longer. I dont think we are due for a recession. Matt well, i mean, especially in light of the impending tax reforms, megan, are you confident we are going to get those tax reforms, and shouldnt they continue to support Sustainable Growth in the u. S. . Megan i do think we will get a tax bill. I would call them tax cuts more than tax reform. There are good things in the tax bill, but a think it will be much more for the markets that growth. On the growth side, we might get some sugar hit from a tax bill. I think we will probably get than we wills investment on the corporate side. It will not boost our potential productivity growth. A sugar hit in the shortterm, but we will add 1. 5 trillion dollars to our deficit, and that will be debtfinanced. Over the medium to longterm, that will offset any kind of growth boost we might get. I dont think this tax bill will be much at all. Guy there you go. Megan greene is going to stick around. She will stay with us. Up next, merkel and schulz meet today. Can germanys social democrats get skeptical Party Members on board for a rerun of the grand coalition . Matt says it so much more well than me. More to come on that story. This is bloomberg. Guy 43 minutes into the session here in europe. Lets talk about which stocks we should be focusing on. Here is nejra cehic. 137a euronext gaining million euros. With this, it is getting the Irish Stock Exchange has a big market for etf that is set to as financial activities leave the u. K. After brexit. This looks like it is euronext positioning itself to benefit in a postbrexit world. We are seeing the stock up 2. 7 . Meanwhile, aviva gaining with some of the best performers on the stoxx 600 in this section. It will increase its payout ratio to 55 to 65 a improvement in its cash flow in earnings. Credit suisse moving on to pay out news, up 2. 8 , targeting a 50 pay out plans you buybacks were special through buybacks or special dividend. This i as Credit Suisse confirmed its profit targets for key divisions ahead of an investor day in london. We spoke to Credit Suisses ceo , and he said all options were on the table for shareholder returns. Is toig part of my reward shareholders. They have been through a lot. I am painfully aware. Solve a no way to massive dilution of shareholders. Nejra those are some of your biggest movers on the upside, matt. Matt thanks very much for that. The central bank is ready to adjust of policy terms as the euro economy strengthens, he said. He spoke to me a the Financial Stability review. All indications are recovery will continue for longer, and that will put pressure on wages and prices going forward, so wes a gradual process until see it going in that direction according to our objectives. In berlin, social democrats laying the groundwork for a renewed reliance for angela merkel. Defeatedellor and challenger Martin Schulz are due to meet today at bellevue palace with the president. ,egan greene, chief economist is with us. I wonder first what you expect out of these coalition talks, or how important is it that germany build a coalition, that angela majority towith the growth in the european economy . Megan i think if we saw a renewal of the grand coalition, we could expect policy to remain roughly the same as it has been in germany, both domestically and at the european level. That being said, if we had a minority government that couldted of that, we expect that policy continuity. From a european context in particular, i dont think germanys position would change a whole lot either way. It would be a bit easier for getel and her party to policies through, as they did have a coalition with the majority rather than having to create partnerships based on issues. It might just make policymaking a bit more efficient, but i do think the spd is sitting down gonking that maybe they will into another grand coalition are given that in the junior partner in a grand coalition has been pretty bad for the spd in the past couple times they have done it, maybe they will go into a partnership. We could in the end get a minority government out of germany with the spd agreeing to back the cdu on most issues, but not all. Matt i like your take on the u. S. Tax reform. It is really just a tax cut, not the reform it is being sold as. We have thepe, deeper integration that people are supposedly moving towards, but do you really buy that we are going to get movement on deeper integration . Is germany really going to support macron and his Integration Program . Megan the german cdu talks about this relocation to take a step ahead, but when you see into the details and see what solidarity they are talking about, they are talking about maybe migration. None of these things are reforms that would actually make a difference in terms of making the euro area and optimal currency area. In terms of getting those kind of measures, i dont think there is much chance. I dont think that germany will go ahead and accept the kind of risk sharing that would be necessary to create a full banking union. We might get a few things. We might get a European Monetary Fund that is basically a soupedup version of the esm. Germany would agree to that, but i dont think it would be much different. I dont think we will have the kind of reforms that we need for the euro area to be more stable in the next crisis. Guy how much better does the data out of europe get . Because the data are incredibly strong right now for most portions of the euro zone economy. Recoveryere is a legit happening in europe, and i think we should expect it to continue. We have monetary accommodation, even if it is being slowly withdrawn. And so that should help. To some degree, europe had to recover at some point. There are big differences between european companies. It is not exactly booming now. It is growing, certainly, and they are doing better than we but still, there gdp has not recovered from a crisis. Guy when u. S. Clients talk to you about europe, and you have the kind of conversation, what is euro going to look like . What are you telling them . Megan we expect the recovery to continue. There will be political risks, especially considering the upcoming italian election. Actually, that will turn out to be a bunch of nothing. That is what has happened so far. Megan must you get a fivestar movement. Guy that is what we head into the french election, into the dutch election. We have seen that movie, and we know how it ends. Megan we dont because the european project is pretty popular in france and the netherlands. It is pretty unpopular in italy. Italiansonceive of the being offered a vote on their membership of the euro and actually voting it down. Guy kind of handicap that for me . Megan it is not my baseline scenario. According to some recent opinion polls, italians do not support euro membership. We are sensitive to that number. It is pretty close. You could imagine the scenario. That would be an existential threat for the european projects. The french really liked e. U. Membership. The italians have never been huge fans of the european project, so you could imagine a scenario where it happens or alternatively, you dont even need a referendum on italys membership of the euro. You need to threaten to have one and people start pulling their money out of banks. There is no plan so it gets into big trouble. About oile not talked yet. Megan greene, chief economist will stay with us. As opec and its allies look set to extend the deals through 2018, we will look at the outlook for oil. What it means for inflation. How do you exit what is effectively a kind of qe policy in some ways in the way that opec has run that story . Vienna have a look at next. This is bloomberg. Matt welcome back to the european open. I am matt miller in berlin. Lets get more on the story of oil. Opec and russia extending production cuts until the end of next year. We bring back stuart wallace. Megan greene is with us. What do we expect to learn . Is there anything that could change from what we know now throughout the rest of this meeting . I think there is a potential for surprise. It could be negative or positive. Deal two the delhi years ago. They are about to sign it and the Saudi Oil Minister got a call from his boss and the deal was off. This time, they could get surprise to the upside. That could mean bringing in some other countries. It is somewhat speculative. Maybe they reframe the deal and say actually, it is a 12 month deal and we reset it to january. The key thing here is making sure that the Market Expectations are matching. Right now, that price is reflecting a deal until the end of next year. Well have to get on top of it. Guy what numbers do you bake into your economic numbers for oil . What numbers do you put into the model . Megan 15 per barrel. Scary thing is this is the hardest thing for any economist to forecast. Anyfirst forecast into model. If you get that wrong, everything is wrong, which does not speak to economic modeling, but does highlight the importance of the oil price. We have it range bound. It is partly because if you get thenrices much higher, shale producers all, on and effectively guy capped. Stored wallace, plenty more coverage coming up in terms of the story for oil throughout the day. Great coverage from the bloomberg team. Megan greene will be heading with matt and i over to the Bloomberg Radio shortly. Up next, it is surveillance and francine lacqua. 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 the u. S. Senate tax bill is headed for a debate. Bitcoins wild ride. Cryptocurrency plunges the former covering losses. Could the selloff spiral into something deeper . And how secure is the fabric of u. K. Society . We will ask Minouche Shafik at the bank of england. Francine good morning and welcome to bloomberg surveillance. Im