Transcripts For BLOOMBERG Bloomberg Surveillance 20171229

Manus europe rallied. You are welcome. It is surveillance and i am manus cranny. Rallied. Ment, europe where up on the stoxx 600. It was text and telecoms that to the heavy lifting, nothing compared to your performance in asia. Record highs in asia. You are looking at levels that you havent seen since the 1990s in japan. Technology up 50 in asia. Europe, you are seeing this growth story. It is absolutely intact. The next question are you, European Equity markets, can you sustain the growth gains that we have had the euro at around 120 . Could the euro valuation unseat the story we see here . Week,llar index, what a what a year. This is the first yearly loss since 2012 for the dollar. You are seeing another push low. You get a 3 growth rate, you get a tax reform deal, you get three hikes from the Federal Reserve and still the dollar is lower. 2 lower from here at end of 2018. The most bearish view is the dollar will be down by another 5. 5 , not everybody is so pessimistic. On the upside, you get a rally of 6 . Spot index down near 1 . Eurodollar, 119. We are waiting to see what happens next with the European Central bank. Will they change their language in the middle of the year . That is what ing told me this morning on daybreak. Of thedy for a resetting language coming from mario draghi. Italians have an election. Coalition grand coalition. I said we had quite an enjoyable collection of people to enjoy and to join us. Nandini ramakrishnan will join the team. We will speak to Luigi Zingales zingales. I Michael Purves and chief global strategist. This be up the s p up this year. In the meantime, there is one deskthat Close Software 17 closes off 2017 with a promise, it is taylor riggs. Warned donald trump has china over tales of oil to north korea. Says theretellite are chinese vessels transferring oil to north korea ships. Donald trump tweeted caught redhanded. There will never be a friendly solution if this continues. While themp is said investigation into possible ties between his campaign in russia make u. S. Look very bad he believes Robert Mueller is going to be fair. The comment was made in an interview with the new york times. Even republicans argued that the investigation is tainted. The u. K. Government is withholding the publication of secret files on the creation of the european union. The documents date from 1992 and were due to be released today under the 25yearold but the 500 files, one is a 14 are being held back. The Cabinet Office hides them liberally hides them the liberally. Theresa may will meet Emmanuel Macron to begin trade talks with the european union. Talkay use the meeting to for control between the two countries after brexit. The issue of who pays for hter Border Patrol checks over in liberia, george has been elected the next president. It marks the first fully democratic transition in more than 70 years. He play for top Football Clubs. Global news, 24 hours a day powered by more than 127 journalists in more than one at to 20 countries. I am taylor riggs. Manus thank you very much. Heckled, the dollar. It is had its test it is headed for its biggest weekend drops. Green bay dropped against all major peers on the way to its worst year and more than decade. The 10 year treasury market take a little bit higher after in a twoday slide. U. S. Inflation was surprised in 2018 and a bond market tension could easily be the catalyst for an asset correction story. Patrick armstrong the cio of Plurimi Wealth joins us. He just joins us on the radio. Thearted talking about dollar. This is btv 1595. If i started the year and we got 3 growth, a tax reform, three hikes interwar the way and the dollar rally. Why . Did the fed not matter anymore . What is holding the dollar back . Patrick that was my biggest mistake of 2017. It is gone to hike three times, strong u. S. Economic growth and the ecb is going to remain on board with kiwi, just with qe. The current account deficit in the United States and the political instability created by trump, wheres the dollar store off desk sold off, equity markets never did but the dollar did and never seem to recover. Manus very honest of you, well done. Not many people come on essay, i got it wrong. If i take myself forward, is it a rerun . Is it a rerun . Does the dollar trade lower in 2018 . Think it patrick i is not going to rise much but i think it will. The fed will be the driver. Thefed is in front of all Central Banks and the Interest Rates, you havent seen treasuries with the fed on the short end pushing that up. The long and rallies going to create capital flows. Manus lets break down the bond story. We never really pounded through on the treasury market because we didnt get the whites of the eyes of inflation. On the radio program, you said to me that story is going to evolve. Dont mind me because my opinion is an important. Yours is. Why do you think we are going to get inflation . Patrick sharp patrick you have 12 months of ewen dollar. Dollar of ewen weak dollar. There is where inflation is going to start to emerge. You dont get inflation unless people are paid more and they consume more. Unless it is consumed by borrowing, you need ways growth. The are some warning signs that we will get ways growth. The most pressing issue for Small Businesses in america, 22 of Small Business owners responded texas. Texas are their biggest worry. Taxes. Taxes are their biggest worry. The ability to attract labor. It is a issue for Small Businesses. Manus on unraveling of the bond market at 3 . Patrick i think will go to three and a quarter. The markets are not expecting that. Every risk asset is based on tenyear treasury. Manus lets take that. Three 3. 5. Lets look at volatility. This is the vix. We are seeing at volumes traded almost 730,000 options traded. Utures changed hands that is the most on record and yet the vix language at 11 . Volume backat do to of does that turn volatility up . Does volatility ratchet higher volatilitytrick will spike higher if it to that three and a quarter in a quick manner. If it is a slow grind higher where Economic Expectations are improving, the market might be able to cook with that. If we get attention that is revoked by the fed hiking when there isnt the signed inflation there isnt this signs of inflation, that could push volatility. The incentive to shortfall is so attractive that if you bet nothing happens in the next three weeks, you can get a 50 desk at a 15 return assured in the january features. That is a pretty good return. You get huge shorts and the vix. The because the vix not because the vix. Manus we got a whole lot more to get through. Some of the calls for 2018. Stay with the Surveillance Team because they are lost in this last hour. Banking on uber. Investors hope a new deal with Technology Billionaire will smooth the road ahead for the ride heading up. This is bloomberg. Manus economics, finance, politics. One this nation surveillance. Uber shareholders have agreed to sell a sizable stake in the ride ridesharing cap company as it is now officially known in the u. K. And to softbank group. The transaction implies 48 billion valuation for uber. Our guest host, patrick armstrong, is from the rini rimi whererom plu he is the cio. Patrick there are issues facing right now and the ipo isnt going up until next year. People are keen to crystallize some of the gains and they think they are giving and nice discount. Manus you mentioned the investments, typically they want to get out. Uber has been around since 2009. It is an expected to go public in till 2019. It has been through a lot of hurdles this year in terms of management, in terms of accusations, litigation and it is still mired in litigation in this country. Technically, it has lost its license. How does it look to you from the patrick s an investor . I think everything you alluded to is a reason you would want to get out and you get an illiquidity discount. People got pretty big gains. Hacking of private information of uber is the other issue. I think it is a company that is growing rapidly still. It is facing some issues, and it is and i position it is an acquisition that long the softbank takes a long view on. Manus when i look at something ways, i yen, in many know softbank has the muscle to do this. Dollar yen has played into this,. S as far as currency as far as dollar yen, what next for that . If you see that kind of resistance from yen, does that carry through . Pietro i dont think there is going to be Much Movement in it. The divergence between what the bank of japan and what the fed is going to be doing will lead to a strong dollar. I dont think it is going to be sharp moves in the currencies. Manus one of the things i started with was the msci asia pacific. What is still a performance that has been. Part of that has been technology. Something you want to lever into again in 2018 . Patrick i dont think so. These are the ones at risks at risk. There is no real country in recession right now. I think you want to have oldfashioned industrial. Im a banks. The most valued i want banks. We are short netflix, tesla. The enthusiasm and optimism are the good news in the price. If there is any disappointment, there is an theres air pockets. Why wouldfor example, you buy tencent . Tencent 30 cheaper if you buy in the South African listing. They want to on the direct asian stocks. These are the kind of things that happened when there is extremely enthusiasm when people dont care the price they are being for something. Manus heavy hit extreme enthusiasm have we hit extremely enthusiasm . 22 return in the United States of america, is perhaps extreme enthusiasm. Do you think you are going to see do you remember we talked about a rotation out of technology and into perhaps more growth let stocks . Patrick we saw some of our tech names at some of our big companies. We sold microsoft in april. That is when they start to get fully valued. We are shorting companies that dont have Sustainable Business models. Its got disney that has all the fox content. It is going to come up with a competing service. Earnings. 190 times netflix is going to really be competition going forward. Amazon has various to entry. Manus patch ago we dont own amazon. Manus find it ever got to push along. Pesek is the cio of Plurimi Wealth. Why would theresa mays government hold the files. Well discuss. This is bloomberg. Manus you are watching bloomberg surveillance. I am manus cranny in london. The u. K. Government is withholding publication of secret files on the creation of the european union. The documents date from 1992. They were due to be released today under the 25 year rule. Back and ang held dozen of those related to the european politics. The Cabinet Office denies elaborately hiding sensitive materials is a cause for the papers to be published. Fascinating story this morning. I think i take my mind back to 1992 when the pound was expunged from the Exchange Rate mechanism. Interest rates went to 15 . Do you remember just rate of 15 . What is fascinating here is the papers they did release were the ones which are around the expulsion of britain from the Exchange Rate mechanism. Almost decisive almost divisive with at least. Patrick we dont know what they release. Manus this is very brexit orientated. One could assume. Setting up the gambit for the trade negotiations. Probably of the other side of things were talking about benefit. Manus this expunged is any of those. The pound has had a little bit of a better year. Charthave a look at the this is the performance this year note of the last year and to an extent a lot of those if you get a transition deal, this is going to help take the pound higher into would you agree with that . Is 140 attainable . Patrick i dont think so. I think the transition is good news. It is not really good news, it still leads to uncertainty and you talking about brexit every day for the next two years. Manus i love talking about brexit. Patrick nothing is going to happen. When you have these transitory deals the lead to uncertainty, if youre a multinational company, where are you going to make your hundred billion pound . It is going to lead to a lot more investment in europe over the u. K. And that uncertainty. Manus more uncertainty to come. With the bank of england will do is anyones guess. We have more to get through. Patrick armstrong from serenely just from plurimi stays with us. Is there anywhere gas left in the tank. Bring that bell. What investors are looking at for 2018. Manus economics, finance and politics. This is bloomberg surveillance. I am manus cranny in london. Literature first word news with taylor riggs. Taylor u. S. President donald trump has warned china over sales of oil to north korea. Official,ified korean u. S. Satellites have observed chinese vessels transferring oil to north korean ships 30 times since china is allowing oil to go to north korea, there will never be at from the solution if this continues. U. K. Prime minister will meet french president next month as britain years up for trade talks with the european union. Macron may use the meeting to discuss financing some of the Border Control between the two countries after brexit. The issue of who pays for tighter border checks could be a further headache from a as she seeks to agree to a transition the oh as well as transition period as well as the bloc. On march 4. The vote could lead to a Hung Parliament and a further period of turbulence. The antiestablishment five Start Movement ahead of the Democratic Party and the potential centerright coalition. Former Federal Reserve vice chairman has said the republican tax overall will benefit americans and middleclass he made comments with kathleen hey. Middleclass tax cuts are temporary and they will go away according to the slow. But they may not. I think it is very heavily weighted toward business and toward upper income people. Taylor in the u. K. , a new batch of government documents have revealed a remarkable tale of topflight politics in zoology. The papers from 1981 show that Margaret Thatcher refused to share her concorde with a giant panda on her first trip to visit ronald reagan. The iron lady said mammals bad luck to politicians. Mammals brought that luck to politicians. Global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. This is bloomberg. Manus thank you very much. After a bumpy year for global stocks, how much has the market got left in the tank . Our guest host says that while we expect continued expansion, the risk for equities will be magnified because the Global Economy is not going to replicate data results it had throughout 2017. He expects negative returns on u. S. Equities, small positive on european equities. Joining us now is our senior bank analysts, jonathan tice. Jonathan, welcome. We chatted a couple of times this morning. Ou express some cracking views from a valuation perspective, there are a couple of things driving banks, what are they . Jonathan 2 to 3 revenue growth, and most. Provision stay low. It is difficult to see much momentum. Is, one,tment story capital return. It is bad debt cleanup. The new rules on thats. New rules on that. Bad bank debt. This is one of the big stories for you going into 2018 which is about high, nonperforming loans. But this could be quite a big wildcard play for you and 2018. You have to look at how italian banks were trading. Two opposing sides talking about it. The bad debt in italy. It is begin to fall but a long way to go. Ireland, you got npl ratios doubledigit. Dont forget greece. There is a lot of work yet to do. The rate of earnings position as you clean up the Balance Sheet is a very interesting story. I dont think well get an answer overnight. Manus patrick, let me bring you into the conversation. Banks up 8. 15 . Jonathan says they could be a part of the wildcard stack for next year. View . Agree the b. I. Patrick we like difference banks. They are trading it book value. They are trading at book value. With french banks, your trading 10 pounds earnings. Youve got not a terrible amount of bad debt. Difference banks the french banks are preferred play in europe. Manus we could talk about basel and this does play in. We have had some kind of curtain raiser in what we can expect for banks. Jonathan, you said get ready for banks of ing to give us more as a result of basel. Jonathan they have been using the uncertainty for a long time to defer paying. I wouldnt disagree on the french banks. B p is huge. What do you really play their. What do you really play there . Selling, it iser a hard to be. Manus you mentioned turnarounds. The turnarounds are barclays with jes staley hopefully. Obviously Commerce Bank obviously, commerzbank. Those kind of stores, are they going to be front and center for you . They are big stories. Deutsche bank, we dont on the stock. I dont the risks but i feel very comfortable that they are an ongoing entity that are valuable forever. You do get a reasonable premium. Manus jonathan, you mentioned to me, i talked about bitcoin and you said i have written a bit written a piece on blockchain the could provide an additional boost to the financial story. Why . And of the bases of the trade. I know the bases of the trade. Jonathan europe at the first oil trades early in 2017. You got hsbc looking at trade finance and the group they said they are going to commercialize as of the second half of 2018. Youre getting the cost cuts out. His will be a beneficial revenues are not really going anywhere. Lets not forget hsbc and standard chartered. If you look at revenue expectations for the next year, those two are the very top of the pile. Theyre geared to rising u. S. Rates. Does not forget our old friends have been to a lot of pain. Mental us not forget any of the friends of the Banking Industry manus let us not forget any of the friends and the Banking Industry. Jonathan tice is our b. I. Analysts. Atrick armstrong stays with us next, we had a ruling on south africas highest court and this is what they said that the nations parliament failed in its duty to help jacob zuma to account for his role in a scandal. With more from south africa next. Manus economics, finance and politics. One destination bloomberg surveillance. South africas highest court has ruled that the parliament failed in its duty to hold jacob zuma to account for his role in the scandal that involved the misuse of avid funds on his private home. Me thishave you with morning, michael. He very latest on this this is the highest court in the land. The background to this ruling and regard to private funds on his home. Michael this case originated from the 2014 finding that the president benefited from his home makeover. The Government Congress tried uses majority to shield the president. He violated his old by failing to comply and pay back part of the money and has ordered the treasury to figure out how much he owed. The opposition parties argued that parliament remained in violation of its constitutional obligation. Compelling directly on the matter. Terms,look, in practical what does this mean . Michael basically the parliament has to go back and look at the matter. The Court Ordered to draw up new rules. The president can be removed from office. We saw the Economic Freedom fighters, one of the opposition parties saying that parliament should deal with this matter within 31 days. Theyve got to go back and we look and we look at the entire matter. For zuma, how likely is it he is going to cling on to office . It goals and from one month to the next. Michael he has been involved in a succession of scandals. He lost control of the ruling party in december. He doesnt have the political clout he used to have. It is going to be tricky for him to hang on. Manus lets see what happens. Michael joining us with the very latest. Up next, this was the year that investors bet the direction of the of the vix like never before. What is the direction for 2018 . What is the potential for policy step . This is bloomberg. Manus you are watching bloomberg surveillance. Am manus cranny in london lets get your business flash with taylor riggs. Taylor apple has apologized for Software Changes that reduced the performance of order iphones expected to prevent unexpected shutdowns. The giant said it did not intentionally shorten the life of the product. In response to customer complaints, apple says it is cutting the price of replacement batteries. A provision in the new u. S. Tax law intended to prevent American Companies from shifting profits abroad might also hit the largest foreign banks with significant operations in the state. ,nder thebased Erosion Payments made by u. S. Businesses abroad must be counted one tax relating global Tax Liability because global banks frequently move money among units, the growth basis would amplify their abroad muste counted one tax income for the calculation. Uber shareholders have agreed to sell a sizable stake in the right hailing leader to an Investor Group led by softbank. Buys a 48tion billion value for the right hailing company. The Investor Group will put 1. 25 billion directly into the san franciscobased business at a higher valuation of about 69 lien dollars. Just 69 billion dollars. 69 billion dollars. Strengthening the banks Management Organization in an area of innovation as the ceo works on a Business Plan expected to feature expansion in insurance and wealth management. Plans to announce that strategy in the First Quarter of next year. China Aircraft Leasing has agreed to buy 50 airbus single aisle airliners with a combined listing price of 504 billion. Iny are expected in stages 2023. The deal comes amid surging demands in an Aviation Market that surpasses the u. S. As the worlds biggest. Citigroup is being fined 11. 5 million to resolve claims it brokerage by displaying Inaccurate Research ratings. Later just the regulator showed incorrect ratings to brokers, customers and supervises on 38 of equities covered by its Research Department ranging from february 2011 to december 2015. That is your Bloomberg Business flash. Manus. Manus a very happy new year. Patrick armstrong is the cio of paris wealth. Of the rini wealth. Global stocks, 14 straight months of gains. Undoubtedly asia took the trophy. That is how we started the show. Jeopardy stocks back in the 1990. Asia, technology drove it higher. Bang for my buck in equities, 2018 . Magical i dont think you are going to get much. Patrick i dont think you are going to get much. Exuberance toreme moderate exuberance. 75th percentile multiples. Were looking at a sympathetic decline on u. S. Equities, very small gains in europe, little bit in japan and asia. ,ince u. S. Is the biggest leaves nothing for the year. Resurrection, which rose to versus russia. You brought a cracking function to my attention. It is the vtr. It is wti. Peaches curve is where we are now. Thinking. Rough your this is a significant move. Patrick it is shocking. If you ask what happened to oil prices, they look at the green line versus the orange line. Youve got a 50 rally. If you look at 2020, oil prices are down 15 . People are bit perplexed why oil and gas were such a poor former poor performer. Oil prices are down over that time so i think opec has had some success. Yet some pipeline disruptions in some african disruptions. Discounting that Shell Production is going to come on strong in its very elastic supply. Manus do you doubt that . The rigors have promised value over volume. That is what they promised. Does that cap out how much rigging comes back in . Price. it comes back to there is going to be, whenever drill, it isof very elastic. I dont think you are going to have Oil Prices Running away from you. Manus the other story that ive made a bit of headway with this week is copper at a fouryear high. You whichis chart for is one of the funds that focuses on commodities. It is the best performing commodities fund. Mining companies are to turn to dealmaking in 2018. My metaphoris is for commodity and commodity m a. How much commodity do you want to get involved with . Is that sigrid nice growth . Is that a synchronized growth story . Patrick i think china was about demand and copper is about supply. You probably have copper into balance for the first time in a number of years in 2018 which is good news for copper. I think it is a run away from itself. A market that is imbalanced with meeting demand. We are not looking at supply shortages and the reason it is coming to balance the supply has been curtailed. Manus my favorite start of the dabbled in americans bitcoin. Never has then so much written aggressively volatile market. Is outperformed by like coin it yet ripple in there as well. You have a variety of these cryptocurrencies. Exposure by the equity side . As we were talking about earlier in regards to banking or are you a naysayer at this point . Patrick i am a naysayer with bitcoin. Bitcoin cannot be used for transactions. The amount of power for each enough for, it is u. K. Household for a week. It as so many problems, it cannot be used as a transactional currency. Gold is not used as a transactional currency but it has value. Theres so many competing technologies, i dont think iscoin necessarily guaranteed to be in place in the future. It doesnt have anything that stops a better solution from coming in. Prices like long island iced tea, they changed the name to long blockchain. There is a euphoria and people piling in. There is a lot of con artists crating stores around this. Artists creating stories around this. Im not long bitcoin. Manus you have delivered that for us. Thank you for being with the bloomberg family this year. We look forward to your contributions going into 2018. Patrick armstrong at cio of the rini wealth. I hand you across to the ladies of bloomberg. They will take you through the next two hours. This is bloomberg. Ending with a whimper, the dollar set for its biggest weekly drop since the end of knows im there end of november. Uber shoulder uber holders agree to a transaction that at 48value the company billion dollars. And the u. K. Government decided it will not release secret files on the nation of the e. U. This i. This is bloomberg surveillance. I am nejra cehic. Francine and tom have the day off. What a year 2017 has been. The 10 year treasury yield finishing off the year pretty much where it started. Every time i look at the u. S. Equity averages, the nasdaq up almost 30 , the dow up 26 emerging markets. Others 34 . What a year. If you had gone back 12 months and look at the folks we talked to, no one would have expected the optimism. We was he what happens in 2018. Nejra exactly. I do not think anyone expected bitcoin to be one of the winners as well. Lets get to taylor riggs. Taylor donald trump warned china over alleged sales of oil to north korea. South koreantified officials, u. S. Satellites have observed chinese vessels transferring oil to north korean ships about 30 times since november. Trump tweeted there will never be a friendly solution if this continues. Donald trump has said that while the investigation into possible ties between his campaign and russia makes the u. S. Look he believes special counsel Robert Mueller will be fair. As you mentioned in your cold open, the u. K. Government is withholding the publication of secret files on the creation of the european union. The documents were due to be released today under the 25 year rule. However, of the almost 500 files from the Prime Ministers office, 114 are being held back. The cabinet denies withholding sensitive materials. South africas top court found that the countrys parliament its president , jacob zuma, accountable. Lawmakers have been ordered to drop rules governing the circumstances in which she could be removed from office. Zuma was found to be unduly n upgrade torom a his home and was ordered to pay back some of the money. Benefitoverhaul will corporations more than the middle class middleclass tax cuts are temporary. They will go away, according to this law. Of course, they may not. But i think it is very heavily weighted towards business and towards upper income people. Taylor global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Nejra thanks. Tradingast dating day of 2017. European Equities Trading pretty much that you do not let the full year. The stoxx 600 is on course for its best year since 2013. Eurodollar, 1. 1983. Up 3 10 of 1 today. Cable at a threeweek high. The 10 year bund yield unchanged today. You were talking earlier about the 10 year treasury yield ending up right around where it started, but the 10 year bund yield is quite a move higher. Carol lets start at the s p 500 on what we can see the last trading day of the year in the United States. S p up about six points. We talked about the strong dollar not be strong dollar, the strong euro. Not so strong for the u. S. Dollar. The bloomberg dollar index down by a. 5 or so this year. Trending lower again this year, about 0. 3 . Also the yen having a very good year. Best year since 2011 as u. S. Yields for the u. S. Dollar. That has been good for the yen. Lets talk about bitcoin. Another 2. 3 in todays trade. We will talk about it a little later on as well in our broadcast. Nejra lets take a look at some of our bloombergs. We were talking about volatility and the fact that it has been lope look at my chart, g btv 7470. The blue line, the vix. Looks like the least volatile year on record for the u. S. Stocks. The white line is showing the cost of hedging against a rebound. That has been climbing. We talk a lot about the short vix trade and the wall of money going into that, but what this chart shows is it is by no means a oneway bet. A big question about whether we will see the reversion to the mean. Carol i have a chart for everyone as well, taking you to the s p 500. What happens in the year, when we have the s p 500 showing very strong doubledigit gain . This is g btv4223. The s p 500, when we have seen a strong getting up more than 25 , we have seen this about 20 times higher,tock market was averaging a nine point 3 return. When we think about what may happen in 2018, it could be another positive one for stocks. Nejra could be indeed. Joining us now is the Global Market strategist at jpmorgan. Pointing to those two charts that we showed, they are very closely interlinked. Let me start with volatility will it make a comeback in 2018 . There is a good case for volatility to increase. I do not think the vix will shoot to record highs. There will be a sense of different areas of the market, whether politics or the economy, affecting volatility more. That is one of the reasons why when we talk to clients, it is thinking about how to be diversified. How do you have things that are diversified away from some specific regional risks. Nejra what has been interesting about 2017 is we have seen low volatility across assets. Is that correlation going to continue . Nandini there is a very good example that shows that there is but also lowtility correlation among Asset Classes. Different economies are trading on different fundamentals. Politics affecting emerging markets and even parts of europe more. It will be very interesting to watch how these macro events affect different markets. Speaking of macro events, when you have these huge Corporate Taxes hitting u. S. Companies in the United States next year, that will provide some momentum for the equity universe. Nandini indeed. One of the reasons why you had to think about equity markets having these different forces is that shares, buybacks, and dividends have been a huge theme and certain Asset Classes, most particularly japan. This masse have inflow of cash or capital for u. S. Companies, because of the tax cuts and repatriation of assets, that could boost companies as well. Everything onet that one theme we have to see that earnings are coming through. The good news is that u. S. 2018. Gs look positive for we stick to be positive on u. S. Assets on that basis as well. Someone likeo warren buffett, and it comes down to that top and bottom line. What about the emerging markets universe. What a bullish year for emerging markets. What do you see on that front . Nandini 2017, we have been talking about this global recovery, almost to death, in terms of these phrases. It is important to remember those, because that is what has allowed Asset Classes to do so well. You have tech supporting parts of the asian market. You have the recession, or supportingarkets, some emerging markets. And you have the sense of this growing middle class, increasing higher gdp per capita in some markets. Sourceg markets now can demand and revenue from consumers within their own borders. That will be one of the reasons why we like emerging markets for the next few years. It is most led now by china, who you see still low organization but a growing middle class willing to spend money within chinas borders. Nejra you stay positive on emerging markets not a homogenous zone or asset class. It has been a good year for em equities, e. M. Bonds. What about fx . Nandini emergingmarket currencies are at some of their lowest valuations against the dollar for a long time period, if you look at that average. We are in a very discounted level of emergingmarket currencies. A few theories mean this is reversion. Emergingmarket currencies have a higher likelihood of going up rather than down. To grab be beneficial some of that the appreciation going forward. You have some very undervalued the South African rand, for example. Perhaps some effect from the political situation there. Nejra great stuff. 1980 on christian nandini ram akrishnan stays with us. Tuesday, we are live from Eurasia Group headquarters for a look at their top risks of 2018. We will be joined by the founder and president , the former u. S. Treasurer treasury secretary. This is bloomberg. This is bloomberg surveillance. Business the bloomberg flash. Apple apologize the customers for Software Changes that reduced the performance of older iphones to prevent unexpected shutdowns. The Technology Giant said it did not intentionally set out to shorten the life of the product. In response to customer complaints, apple is cutting the price of replacement batteries for handsets no longer covered by warranty. A provision in the new u. S. Tax law intended to prevent American Companies from shifting taxes abroad may also hit the largest foreign banks with significant operations in the u. S. U. S. Businesses to related companies abroad must be counted. When calculating global tax liabilities. Because global banks frequently move money among units, this ford in a fighter income the calculation. Uber shareholders agreed to sell a sizable stake to an Investor Group led by softbank. This transaction applies a 48 billion value for the ridesharing company. This would also put 2. 15 billion directly into the san franciscobased business. That is your Bloomberg Business flash. Carol thank you. U. S. Tax chaos continuing. New guidance from the irs about property Tax Deductions causing nationwide confusion. Taxpayers have been told they can deduct pupate and local and state property taxes 42018 on 2017 returns and is only if the taxes were assessed before 2018. It is the term assessed that has not been defined and is creating uncertainty. People are rushing to pay in it ise without knowing if a waste of time or money. Lets get back to Nandini Ramakrishnan, joining us in our london bureau. If you look at what is going on in terms of the tax overhaul, there is a lot of confusion about how it will impact us all. How do you see it . How does that factor into some of your projections for 2018 . Lets think about 2017 the year of politics, particularly in europe and actually across the world. The one thing that really did happen was a positive upside for u. S. Taxwhich was the overhaul. There will be you mentioned the number of line items, the different applications and details it will take time, especially for u. S. Companies and households, to figure it out. On the whole, it is a positive for s p 500 companies. Looking at the headline numbers, Corporate Tax down to 21 , that is a good number for autumn lines bottom lines. But looking at types of companies that can handle it, financials will tend to do well, given the fact that u. S. Based financials, given the fact that they are one of the big and a fisheries off a lower tax rates. Also a big beneficiary of higher interest rate, which we should expect to come if u. S. Growth continues. Because a lot of these tax benefits are frontloaded, we should see u. S. Gdp get a positive boost. We are thinking about 3 for 2018 gdp. That will be great for any cyclical type sector or company. Carol what about the u. S. Corporate tax rate becoming much more competitive globally . Mean for tax rates, Corporate Tax rates, around the world . Will they see more pressure to bring rates even lower . Nandini i was looking at global tax rates in a chart we are putting together for our upcoming publication yesterday, really digging into the numbers, averages across the world 21 for the u. S. Is much lower than 35 , but it is not dramatically lower than various other countries. We have countries in europe with lower tax rates, Companies Across countries across the World Competitive with matt 21 . I do not anticipate other countries taking a huge step to reduce tax rates further. They have been enjoying this low level compared to the u. S. For decades. That is one of the reason why we see countries have a lot more with lower taxd rates, but i do not think we see a shift in companies in countries lowering taxes to stay competitive. Nejra i love the points you make about this issue of tax rates globally. I asked about tax harmonization in the you and whether they would push that forward with eurozone reform because of what the u. S. Is doing. But i wanted to ask about the tax overhaul we heard this story from taylor riggs in the first word news that it may punish foreign banks with u. S. Units. Do you think that could happen . Nandini it is certainly a concern. It is too soon to tell how all of the different line items and parts of the tax bill will play out, but it sort of has a sense of protecting the american banks more than anything else, which is very much part of the Trump Administration. We will have to see how this plays out. It is not a huge red flag are concerned that keeps us away from financials across the world. Carol he will continue with Nandini Ramakrishnan we will continue with Nandini Ramakrishnan. Also coming up, we will be by of the chicago blue school. This is bloomberg. I am nejra cehic in london with carol massar in new york. Lets talk about the dollar. It is headed for its biggest weekly drop since the end of november as traders but the passage of the u. S. Tax cut package in the rearview mirror. It has been dropping against all to theeers on its way worst year in more than a decade. Lets get back to Nandini Ramakrishnan. Earlier, you are saying you were generally positive on u. S. Assets. Does that mean you have faith in Dollar Strength for 2018 . Nandini you do not need dollar faith to be positive on u. S. Assets. One you think about where you are investing from. Lets talk about the index performance itself to that is based on fundamentals. The s p 500 will do well if earnings exceed or meet earnings expectations. For the dollar, it has not been a great year, but that is because other currencies have relatively outperformed. We see the yen strengthening, given some of the macro and bank of japan messaging. For that reason, the dollar has not had the same type of gains it had in 20152016. Nejra so you think it is down to relative performance by other currencies rather than investors losing faith. What does that mean for next year . Nandini it is accommodation of both give you have investors thinking less and less about inflation coming through in the u. S. If the s p 500 continues to gain, that asset class still there. You have money coming into the u. S. Market, lifting up the s p 500. The real question is looking forward to 2018, what are other Central Banks doing versus the fed . We know the fed will increase Interest Rates lets say three to four times. That should into gate that should indicate a currency with higher Interest Rates could strengthen. So how much can the Dollar Strengthened against other currencies will be the question. Carol i have to ask for entries maybe this is way after. When you talk about the burn currency market, does bitcoin coming to the conversation . Jamie dimon has been vocal about it, but where does it come into your conversation . Nandini it does come into conversation. Not one we are talking about broad Asset Allocation themes. We will have to defer to jamie dimons opinion on that. It is speculative. Not necessarily something we put into our daily conversation in terms of currency or other asset class investment implications. Briefly, you said the big question is what happens to the dollar in 2018 or down . Nandini marginally up. Nejra thank you, Nandini Ramakrishnan, j. P. Morgan asset Global Market strategist. Coming up later today, ginny blanche our danny blanchflower. 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. Good morning. I am carol massar in new york, with nejra cehic in london. Lets get the bloomberg first word news. Warned donald trump has china over alleged sales of oil to north korea. Baseding to a seoul newspaper, u. S. Spy satellites observed chinese vessels transferring oil to north korea and ships about 30 times since october. Disappointed very chinas allowing oil to go to north korea. There will never be a friendly solution of this continues. Donald trump has said while the investigation into possible ties between his campaign and russia looks very bad, he Billy Special counsel Robert Mueller will be there. Comments, even as fellow republicans have argued the investigation is tainted by antitrump bias within the Justice Department and the fbi. South africas top court found parliamentuntrys failed to hold president jacob zuma accountable for his role in a scandal involving the misuse of public funds pay lawmakers have been ordered to draft rules governing the circumstances under which she could be removed from office. In 2014, zuma was found to have unduly benefit from a taxpayerfunded 17 million upgrade of his private home and pay back part of the money. In liberia, after a decisive victory, pay back part of owns part of Football Club manchester city. And a remarkable tale of topflight politics in zoology. The papers from 1981 showed that british Prime Minister Margaret Thatcher refused to share her consul with a giant panda. The cuddlydy said mammall brought bad luck to politicians mammal brought bad luck to politicians. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Nejra thank you. Your past turned out to be a hot spot for m a deals. Europe has turned out to be a hotspot for m a deals. Theopposite is true for u. S. , where a battle over tax rate continued it graduated to lower volume. Eric hirschfeld, bloombergs executive editor for global deals joins us now. Us, nandinith ramakrishnan, Global Market strategist at j. P. Morgan asset management. It has been interesting, with europe being the hotspot for m a. Why is that . Is it just about confidence in the european economy or are there other factors . It is mostly we have finally seen the longsought economic europe. In europe we have seen the growth they have been wanting for so long. That has led to confidence and ceos willing to pull the trigger on big deal. Some of the biggest deals were in spain and italy, so that confidence is reflected in this year. Nejra will that continue, or will we see the u. S. Make a comeback . Aaron there is a big argument for the u. S. Picking up. Theof the Big Questions was uncertainty of policy after the election. Now we will see a lot of cash comeback to the u. S. , and we will see it spent on m a, stocks, buybacks, dividends. We have already seen a Record Number of deals. It is just the start of a pickup in the u. S. Get more momentum coming back to the United States. Where white where might we see them . Tech a big topic is disruption. One of the hottest deals we saw last year this year was amazon buying whole foods. That was all about a tech player going into the grocery industry, disrupting the of a will see that in carmaker, in other parts of the traditional spaces. Deal,e saw the foxdisney that was a reflection on the defensive moves they are taking against the likes of amazon. Carol what about the Regulatory Environment in the United States . Is allmp administration about rolling back regulations. What do you foresee on that front . That is an interesting topic. Everyone thought it would be m a friendly under trump, but we have seen, with at t and time warner, there is debate over whether there that was political interference. Na, etc. , those deals are more closely scrutinized than people had expected. Carol you mentioned tech sorry. Anted to ask i wanted to ask about negative deals. They are more absent this year compared to previous years. Is that likely to continue, and will we see a difference between the u. S. And europe . Aaron mega deals have been missing. Broadcomqualcomm is still alive. But the big tax issue, now that that has been resolved, we could see the big players bring back money to the u. S. Carol you talked about technology. We expect to see a lot more activity, 2018. What may be the industry that may surprise folks next year . Aaron one area that we are looking out for is the Retail Consumer space. Some of the bigger players, like png, etc. , they faced some taxes from activists. Whether it is png, nestle people are asking these companies, have you gotten too big, do you need to focus . Watch. One sector to carol what about the size of the deals . General electric is looking to shed a lot of assets. Will we see a lot of thought esther deals . Or are they smaller, midmarket deals . Aaron ge is a good example. They will sell big assets, up to 20 billion. We will see that trimming on the edges. But also, depending on the sector where consolidation is needed, we will see big deals as well. Nejra when you look at the year ahead for 2018, how focused are you on m a in europe . How much of this is driven by the ecb buying Corporate Bonds and perhaps pushing down borrowing costs . Nandini borrowing costs are a huge benefit to companies who want to issue debt to them, to refinance, to do a lot of this corporate activity that we track closely. The key point is europe is now the shining light. A few years behind the u. S. In terms of the economic cycle. M a tends to some big corporate stories aside 10 along cyclically. One companies see the possibility to acquire, we are seeing that in europe quite a bit. Then the broader issue is what happens to money and capital across the world. There will be a lot more cash and assets coming back to the u. S. , whether it is because of tax reduction or money coming back in from overseas. Dr. Help boost share rue purposes that could help boost share purposes. Nejra are there any sectors you see in 2018 you see as ripe for more consolidation or an introduction of it . Nandini we look more on a global basis, but generally, we see the story is in big disruptors. We are talking about technology. Some of the deals in news items happening over 2017. Not just because of m a, but thinking about combining retail , whichchnology, fin tech is perhaps even more exciting in the emerging markets. There is also a banking part of it just combining a lot of different sectors and ideas is exciting, not just for 2018 but for the longterm. Nejra an exciting year ahead. Thank you to Aaron Kirchfeld and Nandini Ramakrishnan. Commute, june into bob moon and carol moscow on radio. Bloomberg daybreak europe you heard in new york, washington, d. C. , boston, the bay area, and across the u. S. On sirius xm. This is bloomberg. I am carol massar in new york. Nejra cehic an hour london bureau. It will be a pivotal year for european banks as new regulations like mifid ii will come into force and dominate headlines. There is also the small matter of the u. S. Tax regulation. Credit suisse saying a key division may increase its u. S. Tax increase. Lots to discuss. Here is the senior european dusty light and still with us is Nandini Ramakrishnan. Me start with you, jonathan. What do you see as the military environment can you hear me . Sorry about that, we are having an issue. Carol was asking about mifid ii and the migratory environment and what that impact might have . Been a long time coming. It has been deferred six months. We know that, from a research perspective, the banks are still not fully up and running. We would expect a little bit of revenue erosion there. Capital, thet answers we got in december, they were beneficial to the banks as well. Towards the end of the pain of regulation, if anything, the incremental costs have kept growing. We should see more normalization of profitability. Carol do financials in europe feel ready for mifid ii . Of the compliance necessary, the transparency asked of them, being able to pull up data as regulators acquire it it takes an awful lot. Do the banks and financials in europe feel prepared . Jonathan no. They are not ready yet. That is why you had them asking for six months of the 40 deferral. It is hard to believe it has crept up on europe, because it has been dominating headlines, but i think people began to realize the global ramifications. So they are not ready for it. I think it will take a while yet. I would not be surprised if we get further deferral. Carol talk to me a little about the global Monetary Policy and rate environment, how that will come in to play for banks and the new in the new year. Jonathan someone like commerzbank, they have to read have two they targets. Is it rates rise, and one does not. I think we are still seeing margin erosion, maybe margin stability. You are adding risk to the Balance Sheet with a capital track. The revenue outlook, at best, 2 to 3 for the banks. It is hard to get excited from that perspective. Nejra where is Profit Growth going to come from in 2018 . Jonathan we have the provision stories hit if anything, they may be slightly lower. The cost of risk has been an amazing boost. It made up for the week of the weak revenue outlook. You have seen a lot of new targets. Ultimately, all of the investment we are seeing in digital if you look at the lyear results we will get give it another 12 months. We may begin to see this feed through into cost ratios. Provisions cannot go much lower. Then, they will normalize at some point. The expense line has to take affect. Nejra what about bad debt . We have been talking about italy. Will that remain an issue for 2018 . Absolutely. The ecb comes out with a sensible idea, but reasonably hard line. We are looking at new loans, not new npls, etc. That has not played out. You just have to look at the italian banks. For italy, ireland, portugal, this remains a real issue. We do not know where it will go. I suspect probably be gentler stance. Carol we spend a lot of time talking about the traditional Banking Sector. The big players currently. You have also been doing research on things like virgin money and other digital platforms. Is it getting more competitive . Jonathan absolutely. The more you look into , youcations for blockchain have banks talking about trade finance and will they actually they said we think we will begin to see revenues on this new trade platform that is more efficient. Throught oil trade put a Blockchain Platform earlier this year. Technology will increasingly dominate the way the banks are presenting themselves and their growth outlook. Near term, there is an investment drought. It will take a while for these things to feed through revenues. Nejra that conversation will continue to be interesting for years ahead. We have talked a lot about europe. When you look at the Banking Sector globally, do you have a are you more positive on the u. S. Versus europe . Nandini at the macro level, the supports it, whether it is the shape of the yield curve determining how financials in the u. S. Can and will perform. In europe, it is a case of a very different story across different countries. Italian, board to use portuguese, greek banks, are very different to other banks presenting stronger growth figures because Interest Rates are starting to rise slightly, whether it is the 10year bund that has gained a little bit. It will be a different case of how we like a european banks and a selective situation for european banks. On the whole, they should benefit, given the better macro position. But it is important to be selective. Nejra Nandini Ramakrishnan stays with us. Carol and we are looking forward to doing more with her. Our thanks to jonathan tyce, senior e. U. Analyst. Out bloombergs tv. You can continue the conversations with us, ask our guests questions. Also, check on the markets in some of the segments we have been talking about through the morning. You are watching bloomberg surveillance on this friday, last trading day of 2017, and this is bloomberg. Is bloomberg surveillance. Has named a new chief operating officer. It is one of several appointed names to strengthen the banks Management Organization in areas ash as Digital Innovation the ceo works on a Business Plan expected to feature expansion in insurance and welcome management. Specs to announce that strategy in the First Quarter of next year. Chair line China Airline aircrafts deliveries of the a320 are expected in stages of 2023. Airdeal comes with surging travel demand. Citigroup has been fined 11. 5 million to resolve claims that a brokerage unit displayed Inaccurate Research ratings. Buyrrect ratings, such as a instead of a sell, was shown to 30 of its was shown by 38 of its research segment. That is your Bloomberg Business flash. Nejra lets get back to our guest of the hour, Nandini Ramakrishnan, Global Market should adjust at jpmorgan asset management. It is the last trading day of the year. It is good to look ahead to see what the surprises are of 2018. One thing that came as a in 2017 was how well the eurozone has done. What kind of questions are you getting from clients about the eurozone and where it is going . Nandini 2017 was positive in terms of the elections, the politics that turned out to be more market friendly. Emmanuel macron winning in france versus marine le pen. A lot of post discussion in Coalition Talks in germany, but still, Angela Merkel in power here that has been positive for the year as a currency and supporting european macro. Kidding record highs in europe. Onsumer confidence very strong data coming forward from europe. A surprise, but also necessary. It supports the macro picture for companies. Fundamentals earnings per share also surprising. 2018,o we see for potential positive upside could be the italian elections going in a more market friendly result. Generally speaking, just a continuation of positive momentum could be good for european equities. Carol if we went back 12 months, a lot of people were not expecting the enthusiasm we saw globally around the world or synchronize global growth. You think there is better visibility this year, going into 2018 . Nandini i keep saying purchasing managers even gdp, in largesurprising economies, if we continue to see why that is growing, it is the consumer supporting a lot of that. Shifting labor markets. Wage growth increase could be beneficial for the can for the consumer for a the comes of pain for companies to pay employees more. All of those dynamics under the shifting labor markets. Wage growth increase couldhood,o see how that plays out. But on the whole, we are positive on equities, risk assets across the world for the next few quarters. That is vital watch the macro in order to change that view if necessary. Ramakrishnan, Global Market strategist at jpmorgan asset management, thank you for joining us. Coming up, we are joined by luccis of the chicago booth school. This is bloomberg. S is bloomberg. Carol last trading day of 2017, and 2017 is not the year of the dollar. The u. S. Currency set for its biggest weekly drop since the end of november as it heads for its steepest decline and more than a decade. Get ready as the first year first week of the new year brings new regulations. Congress weighing a doddfrank fix. New year, new agenda. Washington facing a laundry list of legislative issues to tackle 2018. Kle in this is bloomberg surveillance. I am carol massar in new york with nejra cehic in london. Lets get things started on this sunday with bloombergs first word news. Taylor u. S. President donald trump has warned china over alleged sales of oil to north korea. According to a newspaper citing south korean officials, the u. S. By satellite observed chinese vessels transferring oil to north korea about 30 times since november. Trump tweeted very disappointed china is allowing oil to go to north korea. That whilep has said the investigation into possible ties between his campaign and russia makes the u. S. Look very bad, he believes Robert Mueller will be fair. The comments made in an interview, as fellow republicans have argued the investigation is tainted by antitrump bias within the Justice Department and fbi. The u. K. Government is withholding the publication of secret files on the creation of the european union. The documents date from 1992 and were due to be released today under the 25 year rule. The almost 500 files, 114 are being held back. The Cabinet Office denies deliberately hiding sensitive information. South africas top court has found that the parliament failed to hold jacob zuma accountable for his role in the scandal involving the misuse of public funds. Lawmakers have been ordered to dress the circumstances in which he may be removed from office. They say he unduly benefited from a 17 million taxpayer upgrade from his personal home and require him to pay back the money. The republican tax overhaul will benefit businesses and the rich more than americas middle class she made the comments in an interview. Middleclass tax cuts are temporary and they will go away, according to this law. Of course, they may not. I think it is very heavily weighted toward business and toward upper income people. Taylor global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Carol thank you so much. Lets get a check on the markets this friday and start with the s p 500. , up 20 h banner year overall in 2017, a slight gain this morning. Take a look at the dollar, because it is sliding to a threeweek low in its worst year. N a decade, down about 8. 5 the bloomberg dollar index trending lower. The yen headed for its best year since 2011 and gaining versus the dollar its biggest annual gain versus the dollar in about a year. A flat income curve is weighing bitcoin rebounding to about 15,000 actually, a little bit lower than that. Concerns about south korea and Greater Regulatory oversight, so that is weighing on bitcoin. Bump you talked about a for the s p 500. The stoxx 600 has been up about year, 10 of a point this the best year in a while. It is pretty much treading water. The euro heading for its best year since 2003, one of the outperforming currencies, up 3 10 of 1 today. Uple breaking above 1. 35, 4 10 of 1 . At least a threeweek high. We are seeing sterling strength. , treasurynd yields yields ending pretty much where it started, but the 10year bund yields have moved considerably higher over the year, although it is unchanged today. Carol i wish i had a dollar every time we talk about the lack of volatility. , volatility plunging across all Asset Classes. Stocks seeing the smallest decline. That is the bar chart at the far left, and that is a look at stock volatility. Up 27 atility index three yesterdays flow even after the s p reached a record high. That is the biggest vix drop since 2009. Volatility for other Asset Classes, they fell all more than 34 . 38 in terms of volatility. Volatility in 2017 was down across the board. Nejra extraordinary. That is a great chart. Mine is about volatility, focusing on the vix. The blue line is showing you how long we have gone with the volatility, and what we are looking at here, because we talk about the short volatility trade , how crowded it is, but it is by no means a oneway bet because the white line is throwing you the vix delta calls costs ts, crosses someone out there is betting on volatility rising in 2018. Carol a little bit of a volatile first year for the white house, but things did get done. The proudest achievement, cutting through red tape. Hisecember 14 hes touted effort as the most farreaching Regulatory Reform in history, his words. Over the first 11 months his administration delayed or andeled regulatory actions has doddfrank at the top of its regulatory agenda. Joining us in new york are Marty Schenker and Luigi Zingales. Boostsity of Chicago School of finance. We have seen a lot of regulations rolled back in 2017, some of them under the radar, maybe not in the headlines as much. Donald trump did eliminate a lot of regulations, but many of them were actually initiated by the Obama Administration and are very donald trumpinconsequential, te designating the grizzly bear in yellowstone park, how that affects the way people conduct business is questionable. It is clear he has targeted regulation at the agency level, and to the extent that he can do that by executive action, he has been effective. Carol how do you reconcile that with them giving pushback on m a deals . Marty it boils down to what happens at the agencies. The Justice Department has a new antitrust chief. The way they conduct business is supposed to be away from political influence. So far, there has not been any real significant pushback on some of these deals. Have to wait and see just exactly what kind of policy they adopt. Bill toarty, the senate , financialhreshold institution threshold, is that likely to be a higher priority for Mitch Mcconnell . Has stated quite publicly he is not going to try and do anything in the senate this coming year without the help of democrats. Democrats are not going to be interested in deregulating the banks. They have taken a very hard stand on doddfrank, and if he cannot get any democrats to go along, that is not going to happen. Nejra luigi, let me bring you in. We have Bloomberg Intelligence writing a lot about this senate bill and saying that while there may be a few hiccups along the way, it should pass by the second quarter. If that happens, i wonder what sort of effect that might have on the big banks versus the Smaller Banks in the u. S. Could it cause instability . Luigi i do not think it would cause instability. It is important to remind the aewers that this is not financial choice act approved by the house in june. This is not an overall change of doddfrank. It is a much more modest plan to change particularly relieve the burden for Smaller Banks. People who are against say this is a slippery slope and you increase the threshold to the point no one is in threshold and it would go away. This particular change will not be particularly destabilizing, and could be good for the small banks who are i think excessively burdened by doddfrank, and they are not systemic. It might be a good move. Carol do you see anything coming out of the u. S. Congress in terms of u. S. Banks where we could see more risk being taken as a result of rollbacks and regulations . Luigi i can certainly see it. There is an infinite possibility. Or is no question, as martin was saying, the Trump Administration is trying to be road some of the regulation that was put in place. Some key aspects of doddfrank achieve such a large consensus that i do not expect them to be rolled back. For example, think about the Lending Authority in the case of a financial meltdown. I do not expect that to be rolled back and that is a key element. I think there is more attention for the Consumer Financial Protection Bureau because they are really going after it in an aggressive way. Again, i would be surprised if the republicans were so bold to eliminate it completely, because i think it serves an important purpose. Carol we will be back with Marty Schenker and Luigi Zingales. For more from the ouija on this luigi on this and some other issues, check out his podcast, byital isnt, coanchored kate walsh talk. It will be starting thursday, january 4, and check out bloomberg. Areng up on tuesday, we live from Eurasia Groups headlines for a look at their top headlines for 2018. Joined by jack lew and brad smith, microsoft president and chief legal officer. This is bloomberg. Carol a very good morning. This is bloomberg surveillance. It is early in new york. I am carol massar with nejra cehic in our london bureau. U. S. Tax chaos continuing, guidance from the irs is causing nationwide confusion. Taxpayers have been told they can deduct prepaid state and local property taxes for 2018 on 2017 returns, but only if the taxes were assessed before 2018. Asis the term assessed quote that has not been defined and is causing uncertainty. People are rushing to pay in advance without knowing if it is a waste of time and money. Joining us are Marty Schenker and Luigi Zingales. The comes out yesterday and says, though ahead and do it. Marty i am one of those people. Carol what do we do . Marty you really have to consult with your financial advisor, and even then, it is a crapshoot. State and local governments are trying to establish the rules that would fit under those irs guidelines, but they are really not sure whether that is going to cut muster with the irs. Even if you pay and the state says it is ok, it is possible the irs can say no, so it is a crapshoot. Carol why isnt the irs being more clear . Marty they do not even have a commissioner. They have been handed this massive tax overhaul with a staff that is about 40 of what it was 10 years ago, and they have promulgate these rules and put them out within the next month. That in a Holiday Season is a very difficult thing to do, even if they were fully staffed. Carol the whole process has been rushed, to say the least. Nejra another thing to throw in the mix, a story on the bloomberg talking about how the tax overhaul might punish foreign banks with u. S. Units. Marty that is one of the things, when you rush the rate tax overhaul of this significance, you are going to miss things. These are the unintended consequences, and the irs will be forced to interpret what congress wanted so they can actually issue roles on the implementation of this bill that could take care of this problem. They probably will, but that will take time. Meanwhile, angst have to operate under this environment of uncertainty. Not a great situation. Nejra how much upside do you see in 2018 the u. S. Growth from what we see from the tax overhaul . Luigi i think this certainly will be positive in the sense that the tax rating in the United States was incredibly high with respect to other countries, including canada, which is next door. Starting a business in the u. S. Was not as profitable as it was starting in canada. I think the reduction will benefit the economy. The question is our match, will we pay the bill because this is at least in part financed with deficit . The idea of the Corporate Tax rate was a good one. Carol there have been estimates of a substantial gain in u. S. Growth, and some are saying, tempering that back. Luigi it is extremely difficult to have a point estimate on this, because it depends on a lot of things. Currently, u. S. Companies are not investing that much, so the fact that you have a reduction in Corporate Tax rate and the benefits of depreciation is not really pushing an economy that is lacking investment. It seems that companies do not want to make investments. I think there is no question that this is positive for growth. Marty the one thing that you cannot measure is how the animal spirits of corporations are b uoyed by this bill. The Trump Administration is saying 4 growth. That is a possibility. Carol that is substantial, and there is a lot of enthusiasm. Gentlemen, thank you so much. Marty schenker, and sticking with us is Luigi Zingales. Coming up later this hour, Holiday Travel is not over just yet. We will hear from julie and mark aboutSenior Analysts airline expectations julian mark keel, Senior Analyst about airline expectations for next year. Good morning, i am carol massar along with nejra cehic. No doubt about it, we are wrapping up 2017, but when it comes to the regulatory issues, they will carry over to 2018. Nejra it will be a big year for fin rags, particularly for mifid ii. A heightened risk of a fat finger trade, these are the dangers the new year could bring thanks to mifid ii. The deadline for implementation is january 3, bankers and investors bracing for the biggest changes to industry rules in more than a decade. About this with will hatfield. I was referencing a story that talks about the worst mifidss store scenario. How likely is all of this in the first week of january . Will fat fingers could happen anytime. I think the real potential for major problems is if all the major i. T. Systems that banks, fund managers, and revenues will be upgrading in time for mifid. One Major Investment Bank has to do 300 in a few hours. Something is going to go wrong somewhere. Whether we will find out about it is a different matter. Nejra when you look at the potential winners and losers, you look a lot of exchanges and market structure. Why are exchanges seen as some of the biggest losers . Will they may actually gain to begin with, because they get caps in europe for the first time. That boost may only last for about six months and then after that, the industry will find a way to trade to the dot because it needs to. Periodic options, which is what they will decide to do next probably. Longterm, a lot of the volume will stay off strange nejra why does it need to carol the traditional exchanges, if they do not keep up they will be left behind. Will indeed. Some of the exchanges are doing periodic auctions, which allow the trades to stay in the dock. The systematic and turn allies theres are a way for internalize ors are a way to trade directly with the asset manager, so avoiding exchanges altogether. Nejra we have not even started talking about research, one of the big things around mifid ii. As sara mahmud said yesterday it is more of a journey rather than event. The Parent Company of Bloomberg News also provides mifid related solutions for firms complying with mifid ii requirements. You can catch more of our mifid and Financial Regulation and market coverage on bloomberg. Arkets, rules and returns we will return next friday at 8 00 p. M. U. K. Time. This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Carol i am carol massar in new york with nejra cehic in london. Tom keene and Francine Lacqua have the day off. I want to talk about facebook, because we have seen lawmakers in the u. S. And u. K. Grilling executives about a variety of issues. Zingales. G back luigi you have a new podcast making it debut come the new year, and you talk about facebook. You ask the question, who is afraid of facebook . I feel like lawmakers are getting more aggressive about facebook and their ability to sway opinion, and maybe not police themselves as much as they should. Luigi i think the first concern of facebook is the market dominance. ,t is the Major Social Network and i think it is right difficult to see on the horizon anyone threatening that. Carol even regulators . Luigi the regulators might intervene, what it is very difficult given the market power that facebook has. It is very difficult to see alternatives. How you are concerned about is that market power used . If there were a lot of alternatives, that would not be a major concern, that there are not. Should we trys, to break down facebook . I do not think it will happen anytime soon. Should we try to regulate . Or my preferred solution, should we try to make data and social easier so alternatives may arise . I believe competition is the better decision to all the problems. Starting to have the government intervene and regulate what facebook will publish or not is pretty scary. Nejra you talk about the fact that there is not much threat to facebooks dominance at the moment. As theyre not a risk of creative destruction, even in an industry like tech that has so much innovation, at some point . Luigi i think that is the hope, but the reality is they are very powerful. Did defeatfacebook an incumbent when it started youd in the early phases started. In the early phases, it was much easier to switch. It is very effective in buying out anything that could be even a remote potential threat. They have a system of monitoring so any other social network to get any traction, they go there like a smallt, thing for kids, they bought it out before the first revenues. Carol we see amazon doing that on the we see amazon doing that. Taylor u. S. President donald trump has warned china over alleged sales of oil to north korea. According to a newspaper citing unidentified south korean government officials, the u. S. By satellite has observed chinese vessels transferring oil to north korean ships about 30 times since october. Trump tweeted very disappointed china is allowing oil to go to north korea. There will never be a friendly solution if this continues. While the investigation into ties between his campaign and russia makes the u. S. Look very bad, he believes Robert Mueller will be fair. Even as fellow, republicans have argued that the investigation is tainted by bias within the Justice Department and fbi. In the u. K. , a new batch of documents published by the National Archives have revealed a new tale. They show that Margaret Thatcher refused to share her concorde with a giant panda to visit u. S. President john out ronald reagan. She said it brought bad luck to politicians. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Carol i am going to say it again, that is nuts, because pandas are often seen as good luck. I dont know what she was thinking. Nejra how on earth could such a cute, big thing carol and a little aggressive, i hear. Nejra i am going to move smoothly and seamlessly from pandas to italy. The president dissolved parliament on thursday. The country is set on a path to a National Election that could lead to a Hung Parliament and political turbulence. Opinion to polls but the antiestablishment Movement Ahead of the democratic policy. Still with us to discuss is , professor of finance at the university of Chicago School of business here it not going to ask you about pandas, but i want to know what your outlook on italy is. ,we talked about the fact that t could lead to a Hung Parliament and political turbulence. Luigi the thing in common between italians intend us, we both are cute and do not reproduce. This aside, i think the election is the most important election of 2018 because it will determine the future of italy. That the newalize electoral order that was approved in november is designed to make sure that the fivestar movements will not get the majority. As a result, probably nobody will get a majority. The most likely group to get a berlusconi. Actually she is back, and if i were to he is back, and if i were to bet, the most likely one to win the election. Carol what about Economic Reforms . What we get the momentum to do the things that need to be done . We 13 consecutive quarters of growth here, but more needs to be done. Luigi i do not think this is likely. If berlusconi wins the election outright, i do not expect that to form anytime soon. There is a Hung Parliament i do not expect reform. The best case is either we go to a new election, or there is some political change that creates a new coalition. At the moment, the Ruling Coalition has been very sort of timid with reform. The Campaign Just started, but i do not see any big vision. I do not see any group or party bringing a big change view to say, if this party is elected then a lot of things would change. I think that five years ago i had a lot of hopes for renzi,. He appeared to be that leader but now is not. Nejra what about the prospects of the Banking Sector . Luigi i would say the best in years. The Banking Sector has been hit very hard in the last few years. I think, my hope is for large banks the problem is behind us, at least the major problems are behind us, stability problems. Is Banking Sector in italy facing what every Banking Sector is facing, so the competition of fintech, the need to change cap costs, it is not going to be easy but it will be easier because the biggest issues are behind us. What remains a question is the ability of the Banking Sector to land to the economy and to have the economy grow. Lendnd to the economy to the economy and have the economy grow. Loans are not going at the rate we would expect, and that is putting a brake on the growth of the economy. Carol Luigi Zingales will be sticking around for a little bit more. As we head to break, some breaking news involving Goldman Sachs making cuts of 5 billion in its fourthquarter earnings, the bank saying that about two thirds is due to repatriation tax. We are getting companies beginning to weigh in on the impact of tax overhaul. Goldman sachs hosting their Earnings Conference Call january 17, 2018. This is bloomberg. Taylor this is bloomberg surveillance, i am taylor riggs. Intesa has named its new chief operating officer. It is one of several appointments aimed at strengthening the banks Management Organization in areas such as digital and innovations, as the ceo works on a Business Plan that is expected to reach her expansion in insurance and wealth management. Intesa plans to announce the strategy during the First Quarter next year. Leasing agreed to buy 50 airbus single aisle airliners as a combined list billion. Price of 5. 4 deliveries are expected in stages in 2023. The deal comes amid surging travel demand in an Aviation Market set to surpass the u. S. As the worlds largest. Citigroup being fined 11 million over claims they displayed Inaccurate Research ratings. Such as a buyngs instead of a cell to brokers, customers, and supervisors on 38 of the equities covered from the department from 2011 22015. , anotheritcoin unregulated Digital Currency is giving couples in a way to hide money in a divorce. The anonymity that userscurrencies afford make them attractive options to concealing marital assets. The president elect of the academy of match or mobile lawyers saves that bitcoin says bitcoin is anonymous and untraceable. That is your Bloomberg Business flash. I have to touch on the bitcoin story, because we often talk about the difference between price and value, and the different uses of cryptocurrencies. And the fact that it is unregulated, and yesterday you spoke with Michael Holland who the csc see is the only organization looking into this. Carol i never had to go through a divorce, thank god, but for those who have, there are always stories about hiding assets. We have often talked about this as a way to use Digital Currencies to skirt the law, and seeing it put to use in divorce cases potentially. It is a little troubling. Nejra it is what next really, isnt it . Yet another story today saying venezuela will bring its own answer to bitcoin, dubbed the petro. We have it all covered. Carol lets find out if bitcoin is being used in travel, and lets talk about travel and the trends and deal to look to in the new year. As theuest competition from lowcost carriers keep costs from skyrocketing. Julian keele is joining us now. , both of them with us in our new york bureau. Is it happening . Julian it is not happening anytime soon, but is being discussed as airlines try to be ahead of the technology curve. Carol a different way to deal with payments. Julian there are certainly advantages, but also it comes with a lot of challenges. Until there is widespread acceptance it will not really take off. Carol lets talk about travel in 2018, and i have to bring up chrissy teigen. We saw that flight, somebody got on that should not have been on the plane. I got out four hours and had to turn around. Security issues and also a reminder that stuff goes wrong on flights and continues to do so. I feel like a lot of customers feel Like Airlines do not even care about them. Julian airlines definitely do care, especially in this case, because it is a security issue. That is a failure of several different security checks. Calledot just as chrissy it, the beaver machine, but there should be bieber beeper machine, but there should be headcounts. Airlines are concerned about security and know they are liable if there is issues, so they will be on top of that. It is an embarrassment. Nejra it is extraordinary that when we get these travel headlines, they always make it to the top. We always want to hear about this. What will we hear about in 2018 when it comes to travel trends . Will costs go up . Julian we think costs will increase in 2018. We do not expected to be all the way up, thanks to the lowcost carriers in the u. S. And globally. That will keep airfares from spiraling out of control, but we see a lot of demand when it comes to travel, business travel. We expect the cost in 2018 will pace ahead of inflation by a little bit. Carol i just want to bring luigi in. What do you think about travel trends in terms of what it tells us about the economy, either on the business or consumer level . Luigi certainly it is a sign the economy is doing well. I think especially Leisure Travel is sort of a carol it does not sound like you think it is a good indicator. Luigi it is a good indicator and an even better indicator is where people travel to. We know tom keene is in italy. He tweeted the parthenon the pantheon, sorry. Also Francine Lacqua i think is in italy, so i think it is an important destination of travel, but more importantly, it is a luxury good that people spend on when they have more available money. So i think that the expansion in travel is a good sign of the economy, the World Economy, because it is not just limited to one part. The World Economy is on a good path. Julian we are seeing a lot of really great airfares for italy in particular. You can get there in economy for less than 400 roundtrip. It is very impressive. Carol there is something with you and i wrong with you and i that we are not traveling. Nejra tom keene and Francine Lacqua in italy this week. I am going to italy next week, cannot wait here at what tips do you have for travel at this time of year . Is it pretty crazy or does it go quiet . Julian this is one of the busiest travel times of the year and it is important to be prepared, get to the airport early. A tip i always give is if you have a problem, try and contact your airline via social media. I visit American Airlines and they areteam there 24 hours a day and can really help you. Tweet us and you are likely to get help faster then you will by calling. That. I totally buy a brother and i was stuck in a line and was not going anywhere, tweeted, and got on the plane. Check out tv , check out our interview throughout the morning , check out market reports, and send us a question. We love to hear from you. Be a part of our conversation. , i am carolme back massar in new york with nejra cehic in london. Tom keene and Francine Lacqua are traveling. Lets get to the single best chart. I want to go back to the s p 500 because i have been blown away by the equity gains this year, and was most with most folks probably not predicting that. What does that mean at the end of 2018 when you see such strong gains for the s p 500 . Strong equity gains have usually been followed by positive returns, with the s p 500 on track for a 20 increase this year. In years after calendar gains of at least 20 , the stock market was higher 75 of the time, averaging a 9. 3 return. This chart is a lot of stuff going on and goes back to 1940. Where we are seeing gains, we tend to see gains in subsequent years so we could see more bullishness in 2018 for u. S. Stocks. Nejra what happened to mean reversion . Luigi i do not think there was such a strong reversion. It is not that easy to predict a stock longterm. It is the first approximation around the mark. My only concern is the sort of if you look at this long chart, what has driven all the returns in the last 20 or 30 years has been a dramatic increase in corporate profits. Fueled by as been reduction in Corporate Tax rate. There is a question, Corporate Tax rates can go much lower and it is hard to imagine they will go much higher. What will fuel this bull market in the future is still to be determined. Carol it depends on what goes on in the economy and whether that momentum can continue. Does it bother you that this economic cycle, the bounceback we have seen it has not been a bounceback, it has been a slow slog that it can continue longer or does the cycle need to come to an end . Luigi i do not think there is an inevitability it will come to an end. The cut in the Corporate Tax rate and expansion in deficit will push it a little bit farther. The question is, to what extent there will be the high growth that is needed to sustain a high valuation the stock has today. Nejra stock gains have been matched with low volatility. All volatility make a comeback in 2018 . Luigi i am surprised like all of you that it is so low, and political uncertainties lead to high volatility. We had a lot of political uncertainties recently and not much volatility. I think it is easier to expect that it will come back at some point. Carol we will see if it picks up. It would be a different feel. Luigi, thank you so much. Luigi zingales will join me and pimm fox on Bloomberg Radio as we will continue the conversation. Tom, andejra, francine, happy new year. We are anticipating a little bit of a gain at the beginning of the u. S. Open and we could see another positive day, the last trading day of 2017. On the european markets, the ftse up 19, the cap up 19 down have a good trip to a happy and prosperous 2018, to you and everybody. Nejra thank you, carol. It has been great. Alix we made it. Happy new year. The dollar is down in the yield curve goes nowhere. Companies tax scramble, that compensation. Apple apologizes for Software Updates to the iphone 6, saying it did not shorten the life of the product. David welcome to bloomberg daybreak. We made it almost. Alix were really close. David its the last trading day of the year. Alix we appreciate it. Cashe 2. 5 hours to the futures are higher by. 8 . Is 119. Dollar we are looking at the best year since 2003. The 10 year yield is 242. There is a little bit of buying on the margin and crude is stronger