Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20171219

Anna good morning. This is bloomberg daybreak europe. This year is tapering out a little bit. As we get into the penultimate week of trading. The msci index up by 0. 1 . The republicans seem to be ok in the senate. Susan collins, the senator from maine, pushing that one through we think. The houseboats later today. Voteseek the house later today. We have a few things on the agenda. And u. S. Gdp updates. Lets talk about what is happening in South African currency. The u. S. Dollar is gaining a little bit against the african round. The trajectory of travel has been strengthening in the rand. Tribes in the anc vote. Deliver onable to the promises. Will there be risks around that . That is something we will be picking up with our guests in the next hour. In terms of the broader story, you are looking at matt i am looking at that was up 20 . Pix it is up to 826 year high it is up to a 26 year high. Returns wouldnt be so great. Ine you can see the topix blue. In yellow you see how it has returned year to date for euro investors. The strength of your currency, the common currency here, in fact if you went the other way, or if you were a japanese yen and investor, you would have a return on the ftsi. It looks like because of the strength of the currency, you would not do as well in asian markets as local investors have. Eating of local currency investors, lets go to Juliette Saly in singapore. U. S. President donald trump has called russia and china rival powers to the u. S. To turnpolicy attempts his mantra into statecraft. In a departure from his predecessor he declined to mention Climate Change as a threat to National Security. We face rivalp powers, russia and china, that seek to challenge american influence in values and wealth. We will attempt to build a great ownership with those and other a manner that in always protects our national interests. U. S. Ambassador nikki haley has blocked a United Nations Security Council resolution calling on countries the move comes less than two weeks after donald trump that to relocate his Countries Embassy to tel aviv. What we witnessed in the Security Council is an insult. It will not be forgotten. It is one more example of the United Nations doing more harm than good in addressing the israelipalestinian conflict. Today, for the simple act of deciding where to put our embassy, United States was forced to defend its sovereignty. Juliette European Union chief otiator Michel Barnier Justice Theresa mays key ministers or starting to unite that willt policy soothe risks. The guardian newspaper, to rule that the also warned u. K. Will have to abide by any new rules during a transition. President can deputy has been elected to be the new head of the countries ruling amc. That puts him on track to become the next leader. , who a blow to the leader now risks being ousted before his term ends in 2019. The rand rallied at that result. Te media deciding finance state ministry citing a finance in line with economist forecasts. It would be the third time the deficit has fallen. Oil prices battered finances. Global news powered by 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. The high we are seeing on japanese equities. Hong kong stocks rallied quite strongly today. It has been a little bit of a mixed movement in asia. We had weakness coming through in the kospi. In terms of stocks we are watching, big movers in the region. Citing it is up 10 in the session today. This is a malaysian latex glove maker. There is further upside due to technicals. You are seeing quite a lot of weakness in construction players in japan today. An 80 amid a probe into billion Railway Project in the country. A mixed mover in the japanese session. Lets get back to our top story. Republicans have all but tonched the votes necessary pass the tax legislation after Susan Collins of maine said she will pass she will back the bill. Meanwhile, President Trump has repeated his America First Campaign Mantra calling for a muscular for more, we are joined by bloombergs kathleen hunter. Collins, how significant is she in all of this . Does that make this a done deal . Bring us uptodate. Much momentum it is probably going to get done. Collins coming out in favor of it cements that. While the houseboats first, and people will watch that vote closely, attention has been paid to the senate because they only control 52 seats. They really can only lose to republicans. With senator john mccain who has not battling brain cancer present this week, so collins was the last holdout. Thathat she is on board, makes people optimistic this will get done today or tomorrow. Anna we see that optimism in the markets this week. Matt Trumps National security speech was different from those we have heard from previous president s. Talk us through the main differences. Kind of two main differences. Main ones, in comparison with similar speeches given by barack obama, it was notable he did not mention Climate Change. He did not talk about Climate Change being a National Security threat, which is something obama did. Also compared to recent presidency he seemed to error on the military side of economic threats. I think that is something to note. , a departureferent it is worth knowing that in some ways we usually see the opposite with trump, his rhetoric was a little bit softer particularly when it came to russia and china then some of the underlying documents and folks in his Administration Like h. R. Mcmaster, the National Security adviser, statements they have made in recent days about china have been more hardline then trumps rhetoric. It is the opposite of what we normally see from a bombastic president. Anna we look ahead to the house about later on and see what happens there. More from kathleen in an hours time. Max, great to have you with us. I talked at the top of the show about the combination of tested cheer and this tax deal. The dollar, a different story. What signals are you picking up from this tax story . There are two things. The equity market reacted in a pretty good way already. Are reactings, positively. For 2018, even expected earnings for 2019, some might argue it will not be baked into expectations. It will only be in 2019. There hasnt been anything happening yet. It has been solid on the ground, but no real uptick yet. Ic yet. Eal optc for the dollar, it is a different story, because what we do see there has been a sensitivity for longerterm rate differentials. There we have not seen that happening. It has been moving in favor of u. S. Treasuries. Twoyear treasuries were moving much higher. That is why the dollar has not reacted. Anna the central banking story i think it is the opposite. The central bank story on the two years, the market has started pricing more and more fed rate hikes. For the dollar is more a story of negative surprises in inflation and markets saying if inflation is not going anywhere, potential growth remains depressed for now. If we did up duration and soak up duration as much as possible, that is where the long end of the curve is. Anna the fx market has not caught up yet. Looking at global earnings estimates. We have a great chart on the bloomberg. See that 2017 earnings estimates have been revised up. Globally, i wonder how important this tax story is. For u. S. Earnings we have heard people say it is going to be a big boost in 2018. Is it going to spread around the globe . Earningsms of expectations probably not, but what it does is you have a global float story. Once you have 2018 and 2019 once they ares, baked into expectations, that helps europeans. From a global Risk Appetite is supportive. At whether that spreads through earnings expectations around the regions, i think that is a different story. From a global Risk Appetite perspective it is important. Float perspective are you concerned about repatriation of profits . 2. 7 dollarsve trillion overseas, when they bring that back will it disturb Global Markets . I do not think so. I think the potential for all of this right back into u. S. Dollar territory is quite limited. There might be some upset potential for the dollar. But away more important feature for the dollar is longterm inflation expectations. Potential growth, potential inflation. That is much more important of a feature for the dollar rather than what is happening. Anna we spent a lot of this year talking about volatility. I picked out this chart. Local volatility being shown here in the blue. The cost of hedging, it is increasing as if there is expectation volatility goes higher from here. When do we start to see volatility switch . Not in dark term the near term from what you said. I think there are two sides to the going. Shortof people are going the last two years because they say volatility is not going anywhere. Slope here inard the volatility curve. Roll down the future curve, that is the best carry trade you can have made over the last two years. That is one side of the story. That is sort of fading at the moment. That is why hedging costs are starting to raise. For the first top of the year, firstnsensus seems to be half of the year is going to be fined, second half of the year is a bit more worrying. We are in a different the first year the first half of your could bring more volatility. Anna thank you. The conversation continues on radio next. Two in when youre traveling to work. Ine on your mobile device the london area. Matt stay with bloomberg for interviews with a pair of top u. S. Central bankers. Robert kaplan joins us for an exclusive interview. It is an interview you do not want to miss. We will be speaking with minneapolis fed president. Jam packed with fed speakers today. Definitely stay tuned to bloomberg. Anna all you wanted for christmas. Coming up, no special treatment. Michel barnier says therell be no preferential arrangements for u. K. Banking. We will go to barcelona for the latest. Matt welcome back to bloomberg daybreak europe. We are showing you pictures of singapore. It is 6 20. 2 20 in singapore. Bloombergto the business flash. Shareholders of mcdermott will control 53 of the merged with the risk going to investors. The combination of the two Major Engineering Companies will have annual sales about 10 billion and a contract valued at 14. 5 billion. That would boost total payouts to almost 11. 5 a billion. It will mean more than half is made up of customers who will have recovered their loss pencils in full. Annual bonuses are expected to climb 39 at the end of this year. Respondents said they are looking for bonuses rising to 562,000 while sector heads, partners, and Portfolio Managers expect a 79 rise to 1. 3 million. That view might be too optimistic. That is your Bloomberg Business flash. The European Unions chief brexit negotiator has set out a hardline position. Barnier rolled out a special deal for british banks. You kate will have to abide by will have the u. K. Barnier to abide by any rules. Teresa case ministers were beginning to unite behind a policy. Still with us. The cabinet meets today after the brexit cabinet met yesterday to talk about what they want. This is the first time the cabinet is going to be discussing the future trade deal. , aulled up this chart reminder of the trade relationship between the u. K. And the eu. U. S. Compares it to the with a trade relationship is smaller. What are you watching for in terms of u. K. Assets at the moment . Is it all about the final relationship or are you considered about transition and investments . Max from a pure market it is very much a twofold thing where you say as long as sterling is appreciating, that could be for u. K. Equities. That correlation picture is in place. The problem is what we have seen this year, it is not depreciating. Perspective, on a global perspective, from that angle we will need to see the 125 in aneaded toward orderly fashion. If it is an orderly, then the deales about an orderly will trump the correlation picture. It is this really thin ice we are walking on from a pure market perspective. The correlation entered would help us, but it has to be orderly. Anna that is more about the short term. View on what a trade deal must look like in order for the u. K. Economy to gain some momentum to benefit from the Global Growth story . Max i think it is too soon to say. From a mediumterm, what is more say, itt is a sickly to is not what the relationship looks like, but where is more unity . Does the European Union show more unity . That is why the european government, the European Commission is able to say, there will not be any concessions because we are united and you are not. Anna some of the diplomats have been briefing bloomberg and say when it comes to that different already havetries different trading relationships with the united kingdom. That could clout the influence in which they will enable u. K. To push for a deal. As things get more complex, there may not be unity. Max i think so. In 2018 with the italian elections and other elections, and when you look at the landscape, we are focusing on macron. When you look at Eastern Europe and austria, the Czech Republic and poland, we have a right wing populist movements which made it into government. It makes unity look fragile. I would not be to sure that holds into 2018 and 2019. Matt to what extent can Portfolio Managers in frankfurt exposure toce their u. K. Assets . Or is that something they want to do in this. In this time of uncertainty . Max purely from a german perspective, what is interesting, two weeks ago when the u. K. Newspapers were all over the place, saying there is a groundbreaking deal. In the german newspapers it played very little role. It was like the last story. Negotiations, you saw the brexit negotiations played very little role as well. Matt max, thank you for your time. Kettner, this is bloomberg. Anna 6 30 here in london. The dollar against the yen pretty stable at the moment. Olatility at its lowest lets talk about what is going on in europe. Spring is spain is bracing for the catalonian election. Final polls before a blackout begins saturday showed that the three parties pushing for maydence may win slip win the slimmest of majorities. May win the slimmest of majorities. From barcelona, maria, morning. Why is this such an unusual election . Good morning, anna. Two months ago we were right here in this new republic was being created. Madrid is still very much in command. There are people running in the selection who are in prison or have been in prison. That makes for an unusual ballot. The pros spain parties are going to try to get people out to vote on thursday. The Central Government is betting on this to get a record turnout. Voters have never been compelled to vote in a regional election. Turnout. Polls looked very tight. Matt what about turnout . That has always been an issue in the illegal referendums. . Hat about this legal election are they going to turn out to vote, even those who are profederal spain . Turnout is going to be keep. They are looking at a turnout of 80 which is absolutely remarkable. Voters who have never voted before field this time they have a guarantees they need to vote on a legal ballot, and they are going to do so. The electoral law here works against them. A complicated situation, and thats where the market might be complacent at this point. Article 155 suspends the region from selfgovernment, it will be in place until a new government is formed. Maria, thank you very much. Maria following the catalonia story for us. Lets talk about some of the research you have been doing. The United States of europe is a good place to jump off. Very close to the Holiday Season and christmas, is this something you are watching closely, or will this not move markets the weighted a few months ago . [inaudible] the catalonian local market bonds, perhaps the we are seeing proindependence movers do better in the polls. Anna we have a bit of a problem with your microphone. Lets make sure we fix that so we can hear everything you are saying. It is all about grey swans and things that might happen in 2018. One of them is United States of europe channeling a man not far from where you are sitting in a geopolitical establishment. Matt that is a good point. We heard Martin Schulz who is his Party Meeting that he wanted to kick off the United States of europe. That has been said in their platform for a long time. This idea is revolutionary. It would mean ditching the eu as it is a britain up now, and starting a new more federal version of europe. It does not seem like most people on the continent are ready for that. Clearly, the u. K. Is not. How dark gray is this one . That is the whole point. These are not our ace case scenarios. They are called grey swans, the black swans cousin. What we are seeing in europe, we have learned the lessons of the past in this grey swan, and that is we should fix the roof while the sun is shining. You got on employment falling, and most of the regional and statewide and National Wide elections, barring italy. Once that gets out of the way, it gives the European Parliament , dear can commission and all 27 Member States excluding the u. K. To come together. Saying,tin schulz is going toward the United States of europe, 2025. That is a bit of a stretch, a bit of an ask, but Movement Towards that, brexit being as the topic of brussels, are migration and the euro reform. But also the fact that france and germany might not be on the same page. How is positioning around the euro it makes it tricky because when everyone agrees with you it makes you want to bite the bullet. Growth is heading higher. The ecb is talking about when they will normalize. That is not adding that pop toicy that is not adding that policy, it is taking it away. Q3, will finish tapering by so a bit more hawkish. Q1 2019, the first second half of next year is what we will be pricing in. About thetalk possibility of rate hikes in europe. On the grey swan, there is a possibility of rate cuts. I am guessing you are looking at the u. K. Because it is about the Housing Market decline. Is that the case . It is not the u. K. We are looking at two hikes next year. Swan is about the hot money inflows we saw in australia, canada, norway, sweden, new zealand as well. We had low Interest Rates but highgrowth during the crisis periods. Saw was a massive housing boom. Sweden is a very good example. We are seeing some of that grey swan in the sweden taking place. We are looking forward to next year. We are seeing Housing Markets cool off. If we see those economies which have a high amount of conception having a Housing Market slowdown, that might make the central bank be a little bit more dovish. It is not our base case. Matt if that did happen, i doubt it would be due to amazons inflationary impulses. That does hit a lot of other sectors. You talk about the amazonif cation. Companyu have a large like amazon, most of the cost of it is nothe low end, the r d if youre talking staples, it is the transportation costs. Amazon has formed a Fulfillment Centers that makes it cheaper to do business. You are seeing prices lower online versus offline and in the stores where you have three or four Staff Members for every amazon staff member. Anna Online Shopping is a reason people have that online we are seeing growth picking up and they expect growth to continue. This is a deflation trade. Amazon are seeing from is that the u. K. , for example, adjusted numbers Online Shopping in terms of retail and growing very quickly. Out. E do not want to go they want to stay home on the sofa, order online, and prices are on average cheaper. If you are a bloomberg customer you can watch this on tv , as well as the pity. Creen the video screen click on ask the guest a question. Said toudi arabia is announce its budget next year. According to saudi officials, it is crucial to the success of crown prince mohammad bin overhaul ann to economy long dependent on oil. State media has released its assessment of 2017 saying the deficit narrowed to 8. 9 of gdp in long with economists forecasts. Joining us now, yousef gamal eldin. How does this set the stage in terms of todays budget announcement . Quintessential question for this government, you point out that a. 9 of gdp shows the government is making process making progress. The nonoil economy is key. There is a dependency on crude oil, so they moved on things like taxes on soft drinks, taxes on tobacco. Bear in mind that with much of the austerity measures this ways on growth. It look at the latest serving survey ving hash a year ago oil was trading at 47 a barrel. Right now it is trading at 65 a barrel. That gives the government a lot of windfall to move around and reignite some economic message going into the new year. Leave thee does that National Reform program . Does this make changes into implementing the program . Yousef it does not. In the past they have made adjustments. They have shown a willingness to rethink according to the realtime data, and according to the situation on the ground. You are seeing ambitious moves in terms of headline grabbing changes. Theyre looking at women possibly driving in 2018. We have big offense coming in the next six months in terms of additional momentum in economic reform programs. At the head of this announcement, we saw a surge in saudi stocks. There will be a big boost in infrastructure spending. It could trickle down to cement companies that push the saudi market up over 1 in yesterdays trade. Matt thank you. Yousef gamal eldin. Rallies, theand new amc leader on track to become the next South African president. Does he have answers for that troubled economy . We will discuss that next. Later, Michel Barnier says there will be no referential arrangement for the british banking sector. This is bloomberg. Anna this is bloomberg daybreak europe. 1 46 in the morning. Lets get that Bloomberg Business flash. Shareholders of mcdermott will control 53 of the combination of the two major engineering and Construction Companies catering to the engineering industry will have sales of about 10 billion, and a contract backlog valued at 14. 5 billion. Totaling 584 million from the trustee unwinding the con mans company. 11 would boost a out to billion. Hedge Fund Professionals are expecting annual bonuses to climb 39 at the end of this year according to Recruitment Firm odyssey partners. Bonuses looking for rising to 562,000. That view may be too optimistic set a partner at the firm. Started china to develop a futuristic tube transport system has been given a lifeline in the form of 50 million. The board approved the deal last week as the company was running low on cash in attempting to navigate a scandal involving their cofounder. They said Richard Branson has been made chairman. That is your Bloomberg Business flash. Africa has elected a new leader, putting him on track to succeed jacob zuma. He nearly defeated summas exwife. Exwife. Why the expectation that ramiposa will reduce the state capture problem but when he was part of the government that is responsible for that . That thee know is president of the state is now the new Party President has come on strongly criticizing the undue influence over state oil enterprises as well as cap ministers. Even while he was in the government, that is something he will work to tackle. Also, the judiciary has made some decisions that will not give him some level of power. A point ahead prosecutor of the country. It seems as though in this new position he may have more power at his disposable at his disposal in order to deal with some of the corruption allegations that are marring the country and the government. Wonder if he can live up to those expectations policies. Effect how our markets taking this . Compared to the alternative this is the markets pick and the business pick. It seems as though he was the markets pick. Its make it speaks to a smoother transition of power. Event in significant the sense that for this year it marks one of south africas politically stable transitions of power within the anc. After the announcement was made on monday evening, government bonds fell 12 basis points. Shows thatthat it this is not overly confident about how he will be able to unravel the scandals that have marred government. As well is to see if he will lead to any exit from state power. Matt there are a lot of people winner,egardless of the this spells a quick and for zuma. Serve outexpected to his term until 2019. It is unclear at this time. What will be critical is that the names that will form the partys highest did decisionmaking body will be announced today. That will be 18 members and it will depend on where the power lies within that body. We will have to keep a close watch on that. The names may be announced later today or early tomorrow morning. Anna thank you. Lets leave the south africa story there and get back to you are fascinating grey swan note this morning. Case expectations, things that could happen. Get to the chopper. Anna is this japan . Weve got a new governor, a election coming up next year. Will kuroda stay on . People are expecting the bank of japan to be relatively sanguine next year to keep the markets unsurprised. Swan whene grey things get exciting again. What about the printing of more money . And essentially handing it out in other ways in terms of qe . This is the way you see centralbank policy makers trying to stir inflation in an economy that does not want inflation. People do not want inflation, is what the polls say. Even when you have oil going to 80 in an extreme scenario, a if you look at the ecb, it is below that. If you look at the u. S. Is below that. Such a banks are not hitting their targets. It is asking the question in that grey swan, if we move to targeting gdp growth, it is an academic story at the moment. Nobody is actually doing that. Aging demographics, especially in japan that is not the bracket you want inflation. They are no longer in the workforce. Those are the ones you do not want high inflation. Many lowering to 1 could be the great swan. Gray swan. The the first great swan you have, youre talking about terminator salvation, tell us why the cinema could forecast 2018 better than analysts . There are a few films which are based in 2018. You have it talks about the rise of skynet. It is the first film where you see the t800. It is not farfetched. Happensise of skynet because everybody is connected, you have to have take away assets and currencies, you have andrise of bitcoin cryptocurrencies. It gets very farfetched when you Start Talking about iron sky which is not sees which is nazis hiding on the dark side of the moon. The transformers are already there, so they beat them. Some of the grey swans are not too great. You say abandoning a 2 inflation target is something we could see. How does that play out . I looked at last years grey swans and pretty much none of them happened. Baseare great swans not cases. We did mention an extreme ecal, the rise of cash sh. That is perhaps not going to happen, that is why it is a grey swan. If inflation starts to climb toward the end of next year, you see in some economies, anna thank you for joining us. Up next, clinching the votes, republicans move closer to attacks triumph, and the key senator says she will back the bill. That is next. 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. Matt good morning from berlin. Im matt miller. Anna im anna edwards, live from bloombergs new european headquarters. These are todays top stories. Matt backing the bill. Senator Susan Collins says she will support tax reform, giving republicans the votes they need to pass legislation. Anna a hardline. The brexit negotiator rules out a special deal for british banking. Matt and rand rally. The currency jumps as south africa has a new party in control. Hour away a look, an from the start of cash trading throughout europe. Futures and how they are pointing on tax reform. Tax reform optimism, you can see that euros stocks futures, ftse, cac, and dax futures this doesnt show futures. You have to click the futures box for that to work. I can pull it up myself. There you go. You can see futures gaining, although very slight, across the board. Santa could still come to down but maybe the christmas rally has already happened. Anna i was going to ask. Its not very giving, is it . But lets have a look at the asian equity session. Not much more exciting, up by. 2 on the msci. This is very much about the tax story, about Susan Collins in the United States, republican coming into line in terms of the senate. The house will be voting later on today. The tax story still captivating markets, s p futures suggesting we will be pretty flat at the start of the trading day. The South African currency, we have been talking quite a lot about what has been happening politically in south africa, the new Party Winning the leadership vote, which puts them in position to be the new president. That is something that has been driving the rand higher, although as we heard from johannesburg earlier on, there is so much expectation built up, we wonder if they can live up in terms of reform, corruption reform, two topics du jour. What do we see in the bond markets . Matt lets take a look. Bond futures are probably more indicative as bond trading in the market just opened. You will see that the futures are down, which means investors may sell, pushing the yield higher. We will see the bund start to trade, and we will put them on the screen for you. Lets get out to singapore and give you the bloomberg first word news with Juliette Saly. Tt, u. S. President donald trump has called russia and china rival powers to the u. S. As he outlined in muscular Foreign Policy that attempts to turn his America First policy into statecraft. He declined to mention Climate Change is a threat to National Security. We also face rival powers russia and china that seek to challenge american influence, values, and morals. We will attempt to build a Great Partnership with those and other countries, but in a manner that always protects our national interest. Juliette u. S. Ambassador nikki haley has blocked a United Nations Security Council resolution calling on countries to not establish Diplomatic Missions in jerusalem. Less than two weeks after donald trump vowed to relocate his countrys embassy there from tel aviv. The Security Council is an insult. It wont be forgotten. Tis one more example of the United Nations doing more harm than good in addressing the israelipalestinian conflict. Today, for the simple act of deciding where to put our embassy, the United States was forced to defend its sovereignty. Juliette European Union chief negotiator Michel Barnier set out a hardline position as theresa mays key ministers were starting to unite behind a brexit policy. An interview with the guardian published late yesterday to rule out a special carveout for the Financial Services industry. He also warned that the u. K. Will have to abide by any new rules during a transition period after leaving the bloc. South Africa Deputy president has been elected to the new head of the countrys ruling party, which puts him on track to become the nations next leader. The outcome is a blow to president jacob zuma, who had hoped his exwife to succeed him. The rand rallied on that result. Saudi arabia is preparing what is expected to be an expansionary budget for next year. State media is signing of finance ministry official, reporting that the deficit has narrowed to. 8 of gdp, in line with forecast. It would be the first time the deficit has fallen below 10 since the collapse in oil prices battered public finances. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Mainland china stocks just finishing up the session today, and we have seated pickup in the csi 300. The hang seng in late trade also looking good, up by around 1 . A switch out of japanese stocks, but the topix yesterday was at a 26 year high. Australias market finished the session higher by. 5 . A few big movers in the region, particularly in the medical space. A medical robot maker has received fda clearance for its product, shares rising for the most in three years. This latex glove maker has also risen as rhb came through, saying they have further upside for the stock. A big switch out of japanese construction, Falling Point 6. 3 probe linked to an 80 billion Railway Project. Quite a bit of weakness from construction, but you have export stocks mostly higher today. Anna juliette, thank you. Juliette saly in singapore. Republicans have all but clinched the votes necessary to pass their tax legislation after republican senator Susan Collins said she will back the bill. The house of representatives is scheduled to vote on the bill today. Meanwhile, President Trump has repeated his american First Campaign mantra, warning that global rivals want to undermine traditional u. S. Influence and interest. For more, we are joined by kathleen hunter. Also with us good morning to you both. Crucial isow collins to making this work . Theres a lot of focus on the senate does the margin is so slim, and they only have a 50 seat majority. They lost one vote in the sense that john mccain is battling brain cancer and wont be available to vote. Every vote is essential, and collins has been cagey about whether or not she will vote for it. Her coming out in favor of it cements that in all likelihood it will pass. It looks at there will not be republican opposition. That is why there has been so much hyper attention on this dripdripdrip of each senator holding out on support. I think that is why there has been so much tension. The momentum will push it through in the next coming hours. This gives them the blessing of the left wing of the republican party. Is there still any lingering concern about mnuchin said it will not reduce the burden for the richest americans, looks like it will. 50 of americans say it will increase their tax bill, middleclass americans. Then you have concerned about the deductions written into Real Estate Investors that will help people like President Trump. Are any of these scandals going to be fixed before the bill passes, or will we see all those things stay in it . I think the train is leaving the station. I think it is probably going it would be fixed after the fact. Madehe points you just speak to a disconnect between the rhetoric that republicans have surrounding this tax bill and the actual policy implications, which really underscore a potential difficulty for republicans. Once this tax bill is passed, i think they would be careful not to assume it will be an automatic political win. I think they are going to have to work on selling it to voters and making clear between now and the midterm whether there are any demonstrable effects in terms of benefits to their own pocketbooks, otherwise they might find themselves in the same situation as the democrats in 2010 when it passed obamacare, and a couple months later, there was a huge drop, a nd republicans took control of the house of representatives. Careful,ns need to be one of the perils of passing legislation without bipartisan support is that, you break it, you buy it. Kathleen, in terms of the other conversation, it has been around shia politics and the National Security concerns. You mentioned that there are differences between predecessors. Are we just talking about the differences between him and obama . Absolutely. What we saw yesterday was trump lyin laying out the trump foreignpolicy doctrine, and we saw some of the stark differences. One of the most dark is a obama had a pretty heavy focus on talking about Climate Change as a National Security threat. That is something we definitely didnt see yesterday. He also fused economic and military threats, in terms of talking about them in a way that we didnt see from obama. I think it is also interesting that we saw trump take a slightly softer rhetoric against russia and china than what we saw from not only the National Security adviser last week but then also for the underlying policy documents. I think thats an interesting point to note. Anna kathleen hunter. Cox joins us this hour, Hermes Investment management. Good morning. In terms of the market psyche, heading toward the end of the year, looking for any signs of the santa rally, but it is hard to identify because we had been rallying already. Think the tax conversation and the way this could get done before the holidays . What does that mean for the market psychology . I think clearly it is a positive, especially for u. S. Equities. From the valuation point of view, we are just starting to see it. I think the question going into 2018 is what does this mean in terms of in somewhere like the u. S. , where before trump was elected, we were talking about it being budget neutral. I question whether that will happen now, and the big question is what this means going forward. Its still uncertain as to how good it is, although it is definitely a good thing for valuations. Matt one of the positives is that they may actually get something done, right . They havent passed any big legislation. This could lead to more successes. Yesterday, there was a tragic Train Derailment in the northwest, but donald trump used that to say we have to invest in infrastructure. Is that going to be a key opening of the floodgates for investors . Everyone has been waiting for this trillion dollar spending package, and we havent seen much of it at all. Yeah. Obviously, the fiscal floodgates are going to start to open. Tenure, its his very hard for him to pass would he wants pass what he wants. We are going to see an increase in fiscal spending, but it will take longer than we had hoped. Anna its going to take longer where does that translate into your universe . While you are looking at the european story, there are some areas that could benefit from lower taxes the United States. That is certainly going to be a theme of the beginning of 2018, not least because european equities have a situation when it comes to cost of capital. Were going to see increasing policy divergence as we get through the year. Certainly for european stocks that have u. S. Exposure, effected by the negative aspects of the tax bill, they will be in a good place. Crockford stays with us. We have a lot more to go through on this tuesday morning. Coming up, no delay. Chancellor merkel says she doesnt want German Coalition negotiations to push back her eu reform agenda. We will look at the challenge she faces. This is bloomberg. Matt good morning, 7 17 in london. Youre looking at a live shot of the brandenburg gate, a rainy tuesday. You are seeing dax futures down. 02 . So futures are flat right now. In fact, if you take a look at the full screen, there is not really a lot of direction being indicated by these futures. Anna indeed. Lets get a broader look at the markets. These features are pretty flat this morning, matt. Euro stocks features down. Yield,ernment 10 year 2. 39 , pretty flat on that one as well in terms of the treasury yield. We have the budget day taking place in saudi arabia. We had a report earlier on from yousef gamal eldin, on the ground in riyadh, little movement. Lets get the Bloomberg Business flash with Juliette Saly. Juliette anna, Mcdermott International has agreed to require Chicago Bridge and iron company d in a deal. Two majoration of the engineering and Construction Companies catering to the Energy Industry will have annual sales of about 10 million in a contract backlog valued at 14. 5 billion. Victims of Bernard Madoffs t upi scheme are set to ge to 548 million. It would boost total payouts to almost 11. 5 billion. It would also mean more than half of his customers who submitted approved claims will have recovered their lost principle in full. Hedge Fund Professionals are expecting annual bonuses to decline 39 at the end of the year, according to Recruitment Firm odyssey search partners. Say theyts on average are looking for bonuses rising to 562,000, while sector has, partners, and Portfolio Managers expect a 79 rise to 1. 30 8 million. But the view may be too optimistic, says a partner in the firm that did the polling. A beleaguered start up trying to develop a futuristic to based Transportation System has been given a lifeline in the form of 50 million from two foreign backers. The board approved the deal last week as the company was running low on cash and detecting to navigate a scandal involving the cofounder. They also said Richard Branson has been made chairman. And that is your Bloomberg Business flash. Matt all right, thank you. German chancellor Angela Merkel has said she wont let Coalition Talks with the social democrats interfere with an ambitious timetable for forming the European Union. She wants the talks between her cdu to be completed by the middle of january. Tim crockford from Hermes Investment management is still with us. Tim, let me first ask you how quickly you expect a resolution to these talks and a new grand coalition. We arent holding our breath. Having said that, it shouldnt be something which is keeping markets up. One of the big themes of 2017 has been if the economy is improving, we dont care much about the politics. Fact, on the in survey i have a chart of it here that although the Current Assessment has flattened out over the last few months, the expectations are still skyrocketing, and indeed the green bar, as you can see, the gdp and real economy is growing,. Is this going to throw a wrench in the works of growth, or does it just continue on . We dont think so. This is a recovery that, at least in germany, has been in place since 2013. Europe now is slowly catching up, and we are starting to see the laggard economies really start to build confidence, and the recovery does have legs, we think. This is something that we dont think is long in the tooth just yet. We are certainly at an early stage of the cycle in europe compared to elsewhere. Anna with 2018, the year europe catches up with the United States in ways that have proved elusive in 2017 . I think with regards to equity valuations, things look very good. If you look at, for example, chinopee, where the headline number is way lower. If you look at, the preceding 10 year corporate earnings, which that ratio uses, what you find is that in europe you havent really had a broad recovery in corporate earnings yet. We really do think things are just hitting started in europe. Matt what to you expect from reforms . When we talk about merkels ambitious plans, do we really expect anything to come of this . Do you think investors really want to see big changes, or would gridlock be just fine with you . Question. The big i think reform is something that is needed across europe, and of course one of the big risks is that if you do have a cyclical recovery, you start to see reforms pushed back, because they become less urgent everywhere in the minds of both investors and politicians. If something it is something we are keeping an eye on, because what we are seeing is cyclical. The structure does still need to be fixed. Anna does it seem unlikely to you that without the threat of a looming crisis the eu or eurozone would manage to put in place some of the infrastructure that has been put in place . The germans are talking about a european stability mechanism, the french about a finance minister, does any of that sound like the kind of thing that gets traction . It is happening, in to be fair, there are still enough things to stimulate this change. ,e are not out of the woods yet there are things like the catalonia election this week, thats the situation in germany, and we have the italian elections next year. Europe isnt a fully happy place from a political point of view. Things like that will hopefully keep things chugging on, but it is always going to be a slow grind. Matt is that why we dont have the kind of valuations you see in the u. S. , trading at 22 times earnings . Here we are only at 16 times earnings. Do those valuations make sense to you, tim . Look, it is a question of where we are in the cycle. Youe seen europe cheaper over the course of the year, because you had a pick up in corporate earnings. If were right, and we are at the start of the cycle, european equities are going to look very cheap going into 2018. It is something which can continue, because we havent had a broad pickup in europe. Anna can you mentioned the politics. We have the catalonia election coming later this week, lowvolume environment. Things like that can be interesting. You are putting the politics to one side, because we have this Global Growth story that seems to be dominating. What would it take for politics to distract . Whether take a bigger economy in italy, for example . I would be very surprised if we did have an upset on the back of the catalonia election, because lets not forget that we are coming off a proindependence party ruling. It would be a shock to us if we had jitters. But as you say, volumes are on the ground. Going into 2018, the big thing that stands out is italy. But over there as well, it is unlikely that the upsets are going to be politically from absolute majorities. It will still be a situation where things are uncomfortable, but they move slowly. Anna thanks very much. Tim crockford, Hermes Investment management. Tim will be continuing his conversation with us on bloomberg radio. A couple things to watch, keep an eye on grignard. Belgium, business in in advanced negotiations to acquire dole food company. A big fish in that pond. No definitive agreement has been reached and there can be no assurance. But its m a to watch. Were also keeping an eye on pound and in south africa. This is bloomberg. Guy welcome to bloomberg markets. Im guy johnson at the new london headquarters, alongside matt miller in berlin. Cash equity trades, less than 30 minutes away. Guy pass the bill. The republicans look to have tax reform over the line. Have investors already priced in the good news . Cherry off the menu. Says london will not get a special deal if the u. K. Leaves the single market. In canada the rand rallies