Strategist issues a lengthy apology to trump and his family, and rallies around the president. Anna good morning, everybody. Six no one here in london, welcome to the program. Lets tell you whats been going on in the asian equity session. Manus, the msci asiapacific, excluding japan, which is out for today, is up by. 3 . The strength is coming through from the u. S. Session on friday, allowing markets in asia to edge higher. The s p closed out on its best week since december, 2016, largely putting aside any jobs report. He lets have a look at the dollar. The dollar index is stronger, breaking at 2017. Jobsa little strength coming through, with weakness in the emergingmarket currencies. We have a host of factors to keep an eye on when it comes to the dollar this week. U. S. Politics is ever president , what trump says on twitter, and now the house is back in action. And we have various fed speakers this week, and reporting season kicking off in earnest, which means the Banking Sector will be in focus in the u. S. We also get inflation reports from china and the u. S. , so keep an eye on the dollar in fed conversation. I mentioned the weakness we saw an emerging market currencies, and the poster child for that this morning is around the korean won. We are half a percent stronger against the korean won because the fx authorities are not happy with what they call the onesided moves in the currency as a result of the north south korea talks, and they have promised to stern actions in the fx market. Manus i think we know that means dont fight either the central bank or the government. There is flow in china, and a lot of it is to do with fx reserves. Newquick line from diagnostics partnership, a diagnostics platform, and this is going to be in digital. Wash comingd together. Ge on the industrial side, roche on the other side, a digital platform in terms of diagnostics. Anna, you were talking about those fx moves from the korean won. This is the chinese scenario. Im talking about the Foreign Exchange reserves, rising for 11 straight months. January,gle month bar and we were going into anaphylactic shock about what that meant. 129are holding back, billion last year in 2017. And the yuan strengthened against the dollar. This is the Worlds Largest foreign currency stockpile, and it is building momentum. Bloomberg economics say they expect a broadly stable 2018. There are still risks of plenty, the rebalancing story, the global trade. We rallied in december by 1. 6 alone on the yuan. In terms of what happens next from the pboc, will they go in syncopation with the fed . Because they dont want that differential to widen. Anna and what does the Global Growth from the chinese mean for the reserves as well . And the trade tensions . We will talk about that for the program. A host of great guests to discuss that with. Wewill also be hearing more, have an exclusive conversation with sergio ermotti. Our colleagues in china are catching up with him, and we will bring you more from that conversation, what he had to say about china, and his thoughts on european politics and economics. Lets get the first word news with juliette saly. U. S. ,te anna, in the steve bannon has issued a lengthy apology to donald trump and his family over comments in the book fire in theory. The former white house chief strategist said he is a patriot and a good man after Michael Wolffs book attributed comments to been in over his meeting with russian nationals to get damaging information on Hill Dickinson on hillary clinton, saying it was treasonous and unpatriotic. In the u. K. , after a year marked by a disastrous snap election, the departure of several highprofile ministers and an unfortunate Conference Speech, theresa may is looking to enter 2018 on a stronger footing. In an interview on the bbc, the british Prime Minister ended months of speculation and confirmed a Cabinet Reshuffle is imminent. Well, there is no pride in forgetting that obviously the departure before christmas means some changes have to be made, and i will be making changes. Juliette the u. S. Federal reserve will need to pick up the pace of Interest Rate increases in response to the recently passed tax overhaul package, according to the white house chief economist. Administrations computer modeling of the economic effects of the tax plan resulting in Interest Rates that arent inconsistent with the current guidance. Germanys chancellor has said her country needs a stable government to tackle enormous paths ahead. The comments come as she began maker brick talks yesterday to renew an alliance with the social democrats and open the door to a fourth term. Months ofthree postelection stagnation in europes biggest economy, focusing minds. U. K. Consumers curbed their spending for the first time in as surgingin 2017, inflation and falling real wages took their toll on high street retailers. The Consumer Index flipped over 2016, and fell an annual 1 in december. Alsoredit card company says it is unlikely to recover this year. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. Stories on there bloomberg at top. The equity rally continues here in asia, japan. Lastme back online week after a public holiday. The hang seng is fluctuating but the index has been up for nine consecutive sessions. A very strong by coming on the csi 300. In terms of some of the stocks we have been watching, it is really the hong kong players today, Chinese Companies advancing after china said it supports a merger plan. A big surge coming through in a lot of the developers, at a record high, leading the way ahead of the earnings season and expectations. And the Hong Kong Airlines lifted, surging after state rules on fares were eased, which means lines are able to set their own fares. A big pickup of those stocks today. Manus. Manus thank you. Juliette saly with the latest report from hong kong. Ubs is in talks to acquire a majority stake in its chinese joint venture. Sergio ermotti also said that the europebased bank is ahead of its plan to double in china. We havebeen started discussions with our partners several months ago about not only going up to 49 , but we aim and the near future to go up to 51 . If legislation allows that to happen, until we are forced to end that strategy. We are very pleased about those developments. What is the timeframe for that essential increase . Back andk its always forth discussions between us and our partners. We were very happy with the experience we made, so we want to find a situation for everybody. Its a matter of months. How will that set you up . How will it set you up to expand in china Going Forward . Honestly, it doesnt really change a lot, because we are in full control from a managerial standpoint from a view of relations in china, and it is more about financial agreements then it is from a strategic standpoint of you. We have been growing our business, and we set ambitions by 2022 to double our accounts in china, and we are actually on track to achieve that. We are going to be around 1200 by the end of 2018, so we are in line with our plans to grow our business regardless of the stakes. But of course, if we can have a more rounded financial participation in our business deals. Anna that was the ubs group ceo, sergio ermotti, speaking exclusively to bloombergs tom mackenzie. Discussing china and ubss intentions toward china. We are also keeping across headlines from Emmanuel Macron, who is speaking in china, in the old imperial capital. He is talking about how france and china must Work Together on global balance. He also says china has powerful leverage on north korea, occluding to the french president , who was delivering a big Foreign Policy speech at the start of his visit to china. Joining us here in london, james foley, head of fx strategy. Good to see you. Lets talk about china and where you see this going. 2018, clearly the expectations around the fed are that we get a number of hikes and opinions vary. How much does the pboc follow along with that because they dont want to risk changing too much of that yield differential . Well, the last few months, i think it is clear that they want a stale renminbi, but i think that is coming at the cost of the market. If you go back to the start of last year and the year before, there were a lot of doubters about the direction of china, about the cracks with a high level of credit. I think if you look at this year, perhaps there is a little less doubt about china. People are beginning to say, well, maybe 2018 is in the year where we will see the cracks widen, maybe it is the year where it is more steady as she goes. We are not seeing a huge amount of pullback on credit creation, and in the environment where world growth is quite strong, china can perform strongly, too. That doesnt mean we wont hear anything from them. Even overnight we heard about banking reform. We know they are placing down some of their dirty Business Strategy because of the environment. We are seeing change, but perhaps not at a dramatic pace. This means there is a bit more confidence in china this year than there was last year. Manus what does that do to currency . At the start of the show, we started with china as one of the lead stories of the weekend. If you look at the strength of the yuan, if you think about this time last year, you are probably here and we were probably saying, well, fx reserves are on the cusp of 3 trillion. How important is this . We have completely unwound the frantic nest that was in the market, but trade inflows may have had a 37. 4 billion to the reserve. It is inextricably linked with the synchronized Global Growth story that you see the yuan strengthening and the fx reserves. Its building up to a good picture, underpinning that story. It certainly does, and china has producers that are tougher the world. The environment for Global Growth youve got to bear Something Else in mind. We tend to look at the renminbi against the dollar, and it is the worstperforming g10 currencies last year. From that point if you, it gives us more perspective. Anna in terms of the asian growth story, lets talk about the korean won, while were on the subject. We have seen quite a lot of volatility in that, a lot of expectation building up ahead of tomorrows meeting. This clearly is geopolitically very significant, the olympics. But that has worried the government, they threaten stern action. Again, there was talks that there might have been something overnight. I haventhing seen the confirmation, but it is potentially in the market. I think the meeting this week between the north and south koreans indicates, again, a brief contrast where we were last year. There was this build of geopolitical tension around the korean peninsula, and suddenly at the start of this year, it has pulled back. That is significant not just for korea but the whole asian region. Manus this goes into where you want to put your money. We are talking about the dollar more extensively next, but have a look at this. This is the average cost of hedging excluding japan. They are the lowest in five years. That says to me, if i dont want to hold the dollar, i must buy asia. I must buy emerging markets. With this kind of valuation, do you think there is more for the asian fx . Quite likely. Youre going to see measures of risk that go down. They are pretty low, and that is normal in an environment of Global Growth. And it is good for emerging markets. Investments are still going to determine which are the better markets, of course they will be mired in political upheaval, but they will generally perform well once Risk Appetite is high. Manus would you go for asia . I am a g10 currencies strategist, e10 will be good but i think japan will be good. Manus jane foley is staying with anna and i. Coming up, dan apologizes. The former white house chief strategist expresses regrets for comments in an exclusive book. In an explosive book. Anna and the french president is in china, seeking greater Market Access. But how does that fit with his push for a more inclusive europe . This is bloomberg. Anna good morning, it is monday. This is bloomberg daybreak europe. The msci asiapacific is up around. 8 . With japan out of action, you need to trick that out of the market. But picking up where the United States left off on fridays trading session, the s p having its best week since december, 2016. This is what we are watching for you this week. Tomorrow, the european commissioner president jeanclaude younger meets to discuss the disputed overhaul of poland. We will look at the political fallout. Hosts a pressein conference after his country is due to hold talks with north korea. We have heard rumblings this morning from the south koreans on the strength of their currency. Friday, donald trump is said to have his first medical examination by a government dr. How much detail will we get . We dont know, but it will be fascinating to see. Developments following on from that, and we will get interesting inflation data. Manus how does one confirm that one is a genius and stable . Lets get to juliette saly, she knows i am stable and the genius. Good morning. Juliette [laughter] absolutely. Ubs is in discussions to acquire a majority stake in its chinese securities joint venture, as global banks rush to take advantage. Says this ermotti circuitbased bank is ahead of its plan over a fiveyear period, saying it may have 1200 stock in china by the end of the year. He made the comments in an exclusive interview with bloomberg in shanghai. We have been at the start of discussions with our partners 49 , not only going up to but we also aim in the near future to go up to 51 . To buye has agreed impact biomedicines to gain an experimental blood cancer treatment. The price could reach as much as 7 billion over time. The total price would make impact one of its biggest acquisitions ever. Aramco has joined some of saudi arabias Biggest Companies in paying the saudis more money. There was a royal order that extended handouts to government workers to ease public discontent over rising prices. The company, which is preparing for the Worlds Largest ipo, said it will pay eligible employees an extra 267 per month for one year beginning this month. That is your Bloomberg Business flash. Manus thank you. Steve bannon has issued a lengthy apology to donald trump and his family over the comments he made in the book fire and fury. It was in a statement, and he said that trumps son was both a patriot and a good man. The president s allies have also been speaking out against the book, which raises doubt about his fitness for office. Cia director mike pompeo told foxnews that the president engages with and understand the complex issues before him. Anna meanwhile, Congress Returns to work today, and the prospect of Government Shutdown is still looming, but it can be kicked down the road. Jane foley is still with us. Weigh in with your thoughts on where we had with the dollar. Last year was not good for the dollar. Where do we head and how much does geopolitics play in . President trump starting a number of offenses geopolitically on twitter, or continuing his ongoing offenses, what is the risk . Does the dollar go higher or lower if we see any movement, any Real Development on any of those geopolitical offenses . It is not a pure safe haven. We have to think about the japanese yen, and very interesting over the course of the last year, the euro began to kick up a few safe haven behaviors. That would have an enormous current account, but the u. S. Does not. From that perspective, i think the euro could be a safe haven, particularly if you consider the geopolitical risk we had last year related to asia. There was a threat between north the euro was a better location. But if you consider the dollar in terms of geopolitics, i dont think we can consider that question without considering europe. The euro suddenly came back after years of being out in the cold. Manus it could be that haven. I think its not quite a safe haven, but it definitely is keeping up that prospect, and in answer to your question, as long as the euro is still in favor manus jane brings me back to basics. We are not quite there yet. I love what would be on rote today, payrolls. A minor blip, but what we do care about in the most trade event will be the cpi number. The headline wont move much, but it is all about the core. What does it do . Have a look at the positioning. Last week, i kept banging on about the dollar positioning, that we would turn long for the first time in six months, but actually we flipped across. We have gone back to basics, down 10 last year, so the ifstion to you at g10 fx is i it is a europe measure, or are we stepping into consensus negativity . Right now it seems that the dollar is out in the cold, because the euro is so much in favor. But there are other answers to this, and part of it is related to the fed. If we look at the core cpi last year, what is the worst . Does that mean that the fed will hike twice, three times . The jury is still out, we think it will be twice, but you could say, hang on a minute, they carried on hiking. Maybe they had months to get those hikes in anna and on that subject, we gere already seein expectations around inflation. Let me pull this up are you expecting this historic surge in core inflation, or does it not matter at all . Maybe they are not so data dependent. That is what the evidence last year told us. But there is a potential spanner in the works related to china, a country with empty seats on the board. We also have the impression that trump could have tied himself with this bull market. If he wants the stock market to remain global that suggests that maybe the fed wont hike again. Anna thank you very much. Jane foley stays with us on the program. Up next, new year, new may. The u. K. Prime minister thousand to start 2018 on a strong footing with the Cabinet Reshuffle on the way. Who will be the winners and losers . This is bloomberg. Just gonewing tokyo, 3 30 in the afternoon at the emperors palace. 1. 1321. Yen on this is one of the tenants of jane foley, our guest host for this hour on daybreak this monday morning. The markets in a little more depth, guy johnson standing by. How bullish are you . Guy i dont think you will see such a strong start. Europe had a really strong day friday and im not sure that will go into monday, despite an ok session in asia. This is the picture that came through from friday. S p 500 has had the strongest start to the year since 1999. The fear of missing out seems to be the theory in the market at the moment. Everybody is worried about missing out a look at the the market rally in 2018. The dax on friday was really strong, the nikkei had a really deep secession friday, but the closed monday. What you are looking at is the backdrop that is quite solid, but you may not see a transfer monday morning. Aussie dollar trading down, yen trading down. About thisu reasonable mix, and the yen is usually an indicator as to whats going on. It about doesnt seem to be in e equity markets this morning. Lets talk about asia, mixed session, thailand up, bangladesh is down. Im not sure it will have a meaningful impact into monday morning for europe. Lets talk about the numbers, ftse 100 trading at the moment, looks like it will be a fairly flat open, down at less than. 1 . Continuing this very strong run as we have seen. Anna thank you. Emmanuel macron is in china for a state visit that will test his ability to simultaneously win over his host, xi jingping, while threatening to make life harder for him. A very controversial trade decision on his first trip to asia since winning office. The french leader is seeking orders for airbus while calling for greater Market Access in china. Bloombergs Caroline Connan joins us now from paris. Caroline, good morning. Emmanuel macron will see a few headlines about him calling for establishing a trusted relationship between xi and france. Is trying to open china up to european corporates. What is he trying to achieve on this trip . Caroline hes really setting the tone for this threeday visit to china. Xian, is in the city of which is a symbolic location, because it was the departure of the former silk road. In this symbolic location, he is setting the tone, asking for reciprocity with china in terms of trade, asking to restore global balances. The message that macron wants to get to president xi during this visit. He is doing what donald trump called for when he visited china in november. Macron is of course very different, he was not elected under a protectionist platform, but says they must start to be naive with china and that europe should not have the door wide open when others have or three quarters closed. Its a big challenge for macron. The trade dispute between france and china is 30 billion euros over the past 12 or three quarts closed. Months, and later today, macron will meet with president xi for a state dinner. Manus caroline, the front page of the china daily has a380 orders, a number influx. Every head of state goes through china, and every head of state wants to be able to hold up a piece of paper and go, i want business. So what is realistically deliverable for macron on this visit for airbus . Caroline every head of state also takes a big delegation of executives with him to china, this is putting Emmanuel Macron this is what Emmanuel Macron is doing. The has people from airbus, saffron, and bnp paribas, societe generale. The theory that everyone is expecting is the one with airbus. It seems like the final details are still being discussed. Friday thatrted on china could order as many as 100 aircrafts, but the real game changer would be if airbus china, to sell a380s to these larger passenger jets, the that airbus has been having a lot of difficulty selling over the past couple years. According to the financial times, it seems like there is a discussion where airbus could sell in Industrial Partnership to china. Theres also an increase of productions. This is the deal that everybody is expecting. We could learn more on tuesday. Manus lets see what more we learn. He is continuing to speak, the french president in china. Jane foley is the head of fx strategy, and she is with anna and i. Tracking macron, hes another leader that goes. He is looking for the great openness that comes from these visits with china. What he will get in return is debatable. One thing about the currency that we know is that it has been strong and unstable. Alpha is there in the euro, and i ask because many people are saying the difference between what happens to your arrival and what happens to the fed. Theres a difference between the ecb and the federal reserve, but it is actually going to drive the valuation of the euro. In other words, we still think it will be 2019 before the ecb does anything with a stacked deck spreads. Thats right. I think theres no realistic prospect that the ecb will hike Interest Rates in 2019. 2018 will be really important, and of course it is not just about the Interest Rate hikes, theres a real debate about whether they will drop quantitative easing be on september. The next few months will be really crucial about pricing that in, and the market right now is looking at the pmi data, its strong. We started 2017 right from the word go with really strong pmi from germany. I think that is starting again, and we have to remember that the stress we see in the eurozone is not just about germany. We are seeing pretty good data from others as well. From that point of view, this is about the whole region joining the upswing. I think the euro could remain pretty well supported, but a lot of the good news is in the price. With eurodollar, there does seem to be a big psychological issue. Further,nce we can go perhaps not drastically further, a lot of it fails already. Anna and a lot will be on how the ecb reacts. You talk about some of the real data that we hear about. I have the Sentiment Index on the bloomberg. Eu sentiment. This is usually something that tracks gdp quite nicely. Thatpeople are suggesting we could see more strengthen the underlying growth story of the euro. So then, how long can the ecb be comfortable with the guidance they have in the market . And is that the Downside Risk . We should layer on a different part of the debate, who will take over from draghi in 2019 . His job is up for renewal. We knew that he is an equity dove. We know he will look at the cpi data, his mandate. That remains pretty slow to pick up. If speculation begins to emerge in 2018 that he could be replaced by someone from a different country, someone a little less dovish, that will also working to the expectations. Mlivur and life blog blog, talking about a clear indefinable and to qe definable end to qe. Since been nearly a year that disastrous snap election and the departure of several highprofile ministers and to unfortunate Conference Speech for theresa may. Shes looking to enter 2018 in a stronger footing. In and interview with the bbc, she ended months of speculation and confirmed the Cabinet Reshuffle. Obviously the departure from christmas means that changes have to be made, and i will be making some changes. Manus so us apprised, we are going to so no surprise, we are getting a shuffling of the deck. She went through a tough period into christmas. How much tail risk are you now ascribing to an election in 2018 . That is a risk we talked about several times around the table, it is very real and pressing it, but how much and prescient, but how much is it a risk . It certainly seems a little bit less than perhaps it has done, and one of the reasons for this is that the conservative party, a massively, deeply divided party, but they are united on one thing, that they dont want to general election, because of the threat that corbyn could win. They are divided, but they dont want that election, and certainly not before brexit. To fightpects may another general election in a full term, but i think they want her to be there ahead of the brexit in march of next year. Its not only the conservative party that doesnt want the election, i think the europeans are frightened about putting too , and shesure on may could lose her job and then they could be fighting a hardliner. Anna and crucially, the dep probably doesnt want another election. I have another chart for you, a lack of anxiety on the pound. It is at the lowest since 2014. This tells us a different story than perhaps we thought we would see at this stage in the negotiation, back in 2016 when the markets were reeling from the news of the brexit vote. Again, part of this is perhaps related to the Economic Growth, which is pretty good. It puts at the edges some of the stress, and helps to iron over these cracks. However, we have come a certain distance, and the market is expecting over the next few weeks and months some sort of confirmation about the transition. But there is still a huge amount of uncertainty about the issue of trade, and i think that could throw a spanner in the works in terms of confidence, that the whatt talks its a big if first sterling. Manus that debate, if we have a look at this the ranking of sterling, coming in at number four in terms of performance. That is what i wanted to understand. They finished off the year with a 10 rally against peers. What value in q1 is a transition period . Nothing is agreed until its agreed. Do you think that changes the sentiment and changes the riskreward scenario if there is cogent transition period . Yes, i think it helps confidence. It is certainly a threat to your business if you know theres a transition period, but it takes away some of the pressure. That said, you do have the opposite side of the argument, where it extends the uncertainty. There is a concern about that, but generally speaking, the transition period, once set in stone, will help to support it and take of the volatility. It drags through the whole period. Anna and on the subject of the bank of england, theres a lively debate in the market with how many hikes we will get. You say that this is something thats interesting. Differential hikes could open up. If you go back to 2017, and you think about hiking, if we look at this year, we could get more from canada, from the fed, the rba. The vast majority of the Central Banks could be hiking, and that means it may not be sufficient to give sterling anna thank you very much for joining us, good to have you on. The head of fx strategy at rabbo bank. When you are traveling to work, you can tune in to Bloomberg Radio. If you cant get to do television to the television, we are on the radio. John harley is about to sit down with the team. We will get his word on what a Cabinet Reshuffle could do to the pound. Youll have tv, radio, or you can watch it on tv go. As much as you want. We have the video stream, the charts, the functions, and the opportunity to influence the conversation. You can ask the guest a question. Coming up on daybreak europe, saudi arabia has boosted wages after backlash over those price hikes. Anna and later, said on track. The white house chief Economist Says the u. S. Rates wont need to rise faster in response to trumps tax cut. We will get thoughts from our guests. This is bloomberg. Matt a live shot of new york this monday morning. 6 48 a. M. 48 here. Keeping an eye on the vix, the golder goldilocks story. Argue just all a little bit too bullish . Isnt the question we have to ask ourselves. Juliette saly is standing by in singapore. Youve got the business flash. Juliette manus, ubs is in discussions to acquire a majority stake in its Chinese Security joint venture as global banks rush to take advantage of the pledge to further open financial markets. Sergio ermotti also said that the zurichbased bank is ahead of its plan to double headcount in the country over a fiveyear period, saying it could have 1200 staff by the end of the year. He made the comments in an exclusive interview in shanghai. We have been at the start of the discussion with our partners about not only going up to 49 , but we also aim in the near future to go up to 51 . Isiette novo nordisk proposed to buy avilans for as much as 6. 8 billion euros for a medicine for bleeding disorders. It includes an upfront cash offer and potential Cash Payments over time. Thats about 44 more than the stocks Closing Price on friday. The shares have almost doubled since the beginning of 2017. Buylgin has agreed to impact by medicines for 1. 1 billion up front to gain an experimental blood cancer treatment. It could reach as much as 7 billion over time if the drug reaches milestones. It would make it one of the biggest acquisitions ever. And that is your Bloomberg Business flash. Anna thank you very much. Juliette saly in singapore. Lets talk about saudi arabia. January 1 saw the introduction of 5 valueadded taxation, and an increase in fuel prices, but it took less than a week of criticism for authorities to backtrack on those measures. The government announced measures to help offset the cost increases, including 500 extra per month, and social where fell withient increases, along exemptions from those benefiting from private health care and education services. Yousef gamal eldin joins us from to buy. From dubai. What does this tell us about the latest thinking from a homage installment and how it fits into the greater plan . Yousef good morning. Is thespeed you turn best way to describe the saudi royalty in terms of the state handouts. Bear in mind, this also tells us a story not just about economic reform, but political consolidation, moving away from the Traditional Centers of power and making a bet on people. It is a familiar playbook, where you go in hard with the economic reforms, that you step back. We have seen this throughout 2017, a recurring theme for sure. Over the course of the week, the grumbling of social media and state tv, saudi citizens not able to call for it. This is a cascade of changes, theprice hikes, then announcement that they will reinstate the annual bonuses. Bear in mind, 2 3 of saudis working for the Public Sector is a hefty amount, and according to you could be, looking at a boost in terms of Economic Growth of up to 0. 6 in 2018. Anna and what is the Market Reaction been for all of this . The initial introduction and in the backtracking . Any major the past, announcement of Government Spending would lead to a major equities,n saudi but we are not seeing at this time around. We are waiting until the market comes back online. There is concern about the seriousness in terms of fiscal reform. When you backtrack on some of your initial commitments, who is to say that two or three years down the line you wont keep doing that . That is planned to balance the budget and it will go out the window. Think about what Institutional Investors have been doing with their money. Jump into the bloomberg. You thats Institutional Investors have been the buyers, and Retail Investors have been the sellers. We have the msci including one of the biggest events over the summer, that could perhaps lead to an influx of additional foreign capital, at least that is the hope. Anna yousef, thank you. Yousef gamal eldin, joining us from dubai. Manus lets take these themes over the past 45 minutes and put them into context. We have the cio at embark group. Happy new year. Anna and i couldnt think what chart to bring you, so we bring you tidings of great highs in syncopation. Tidings of joy. [laughter] manus have a look. 50. 96. This is where you see the nasdaq, s p busting. We havent seen that since the early 1990s. If you dance. Like question is this we are quite euphoric. Volatility is low. Are we right to be so bullish, because there is good growth around the world. Yes, there is. And there wasnt for the last three years. This is one of those moments where horse racing commentators would be more useful than anyone doing what we might call fundamentals. The gap now between expectation and reality is beyond expensive. Year, a grew last very old equation. Earnings go up, stock markets go up. We created a vacuum, and that is when fundamentalists get unnerved, because there is no logic to move. Last year the u. S. Didnt grow at all, the market for new. Youre creating this vacuum. Investors, wealth managers, all the people who suggest to you its momentum. It was momentum last year and this year, led entirely by china. Know, tosnt help to be the fundamentalist . If you think it is a real economic move, why is it not energy . Cyclicals of all sorts . Most importantly, financials and banks, which should be the major beneficiaries . And it isnt. Its not a real economic event, its fluffing. The fed minutes are saying, in all of last year, asset prices are elevated. Which bit are we missing . Even the fed is saying it. Manus with that skepticism, i have a chart here for viewers, which is the goldilocks story. Last year everyone was sitting back and going, oh, bother, who cares about volatility . Vent chart suggests gi everything you say, do you bet against that chart . There is no volatility because it is being suppressed. If you put enough liquidity in, its the most lose it has ever been. That is why it is momentum driven. Anna thank you. We need to take a break. Peter too good. Up next, we will talk about the latest revelations from the white house, investing around that. Manus good morning from bloombergs new european headquarters. I manus cranny. Anna im anna edwards and these are the top stories. Manus ups wants a bigger piece of china. The bankells bloomberg aims to buy a majority stake in its chinese joint venture. Two years ago, we set ambitions by 2020 to double our account in china and we are actually on track to achieve them. Anna make singles signals a shape up. Shes ready to reshape her cabinet as she pushes brexit to the next phase. Manus bannon backtracks. He issues an apology to trump, his family as allies rally around the president. Manus warm welcome to daybreak europe. In terms of your trading week, we are starting in the green. U. S. Stocks gained nearly 2. 6 last week, the s p earnings jumped to a sixyear high for the rest of this year. They are all rising, carrying through from the asian markets. Support coming through, samsung, japanese retailers are on holiday but technology and consumer stocks are getting uplift. The view from the market is that you have one of the best stocks trading since 1999. Affects, youve seen asia investor bullishness rising and the market. London is up, a nice strong tone to oil. The dax is up. What will happen in germany . They are talking about the need to a finite and to qe. Paris also went up 11 points as macron travels and has a conversation with choosing ping. That we wait to see, can that be delivered . Anna on the german front, we have economic data. Manufacturing orders coming in 0. 4 ,f expectations, the estimate to remain flat on monthtomonth. One month data, is that going to be enough to undermine the Growth Engine . They are in an economic boom, exports are improving global trade and the domestic situation benefiting from low unemployment levels. Domestic spending seeing buttered that. Will that lift wages . The president has been talking going to getare tighter on the front. We will see capacity in labor market squeezes leading to higher wage pressures. We look ahead to the german political conversation. Goingthe euro against the dollt moving and a numerous amount. Lets take a Bigger Picture approach and step back from the german specific and get to the asian session. This is the msci pacific. The japanese markets are closed for today. Up died. 4 , digging up where the United States left off, the best week since september 2016. Even though we got the job report that came in below estimates, the market choosing to put that off to one side. Up. 2 breaking with the negativity weve seen in the dollar trade in 2017. We have seen get inflation data on friday, the earnings season kicking off with the making center on making sector on friday. Banking sector on friday. Lets talk about the currency markets and whats happening in the asia fxcm space. The dollar rising against the korean won. We have seen the korean won gaining because of those talks taking place tomorrow between the north and south. Might be talking about the olympics, but its capturing the imagination. Manus you dont want to go against a stern government or stern centralbank. In terms of bond markets, the inflation weve seen in the note states of america, are they going to have an impact on the bond markets . Nothing too radical on the bund fronts. That said he is sending a clear and the Bond Buying Program is justifiable. You havent seen any negative reaction in terms of being sold and yields being higher. This will give your reasons to bid on the euro and the bund. Its see how it trades out as the day goes on. The question is this, is the ecb taking lessons from the fed . You had its setting the store for a more aggressive style from the European Central bank. They dont want to rerun that fed spike that we had last year. Bunds are fairly flat at the start of trade. You talked about cpi data, which will be critical. If the jobs number was your must have last week, then your musthave trade this week is the bond trade. In terms of inflation. Headline inflation is not expected to move dramatically, but the court number is expected to show 1. 7 and that could invoke perhaps more momentum behind the fiveyear and the tenure break evens, which we are seeing rising. We are seeing a bold upwards in terms of that. There is a lovely line we had, the fx reserves rising in china for the 12th straight months. They gain in the fx reserves could not have come at a better time for the bond market. The boost could make you see a slew of money into the bond market. Thats another way to think of the fx reserve levels. Those are your markets. Lets get across to juliette saly, everything in the first word news. Juliet, good day to you. Juliette in the u. S. , steve bannon has issued a lengthy apology to donald trump and his family. The former white houses chief strategist said he found donald junior is a patriot and a good man after the book at your rid comments to been in over trump meeting with 2016 russians. He said the gathering was treasonous and unpatriotic. In the u. K. , marked by disastrous , and an unfortunate Conference Speech, theresa may is looking to enter 2018 on stronger footing. In an interview on the bbc, the british Prime Minister and did months of speculation and confirmed a cabinet reached reshuffle is imminent. Departure obviously before christmas means changes have to be made and i will be making some changes. Juliette the u. S. Federal reserves wont need to pick up the pace if the Interest Rate increases in response to the tax overhaul package. Thats according to the white house chief economist. The computer modeling resulted in Interest Rates that arent in consistent with the fan the feds current data. U. S. Travelers face more chaos after flooding at new yorks Jfk International airport caused fresh flight delays and diversions. That came and it operations strained by a snowstorm and freezing temperatures. The meltdown two days after the first major strauss snowstorm dealing with long lines and searching through mountains of luggage for their bags if they could get into the airport at all. Chancellor said her country needs a stable government to tackle in office tasks ahead. On july merkels comments came after she began make or break comments. She opened the door to a fourth term. Ofe than three months stagnation of europes biggest economy are focusing minds. They are government without a majority. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. A pretty good start to the trading week building on those record highs. We are seeing across the asiapacific. You do have japan out of action today, closed for a public holiday. The banks have been interesting. If it holds, that will be 10 sessions of gains in a row. The csi 300 finished higher. Australias market at a fresh 10 year high. We are watching the cost be as well. In terms of companies we are watching, a runup in these Coal Companies in china after they said they would support our merger plan between coal and power companies. We have several coproducers with a capacity of 100 million tons by 2020. A big pickup in these Development Stocks ahead of Earnings Seasons and expectations they will be strong. Vocus group looking strong, as well, appointing a fund manager and his company has an ear 80 stake 18 stake. Anna thank you, live for us in singapore. Chinas foreign currency rose 29 billion in 2017, posting the first annual gain in three years. Capital controls and a stronger you want and resilient Economic Growth. Manus the u. S. Federal reserve wont need to pick up the pace of its planned Interest Rate increases in response to the tax overhaul package. Thats according to the white house chief economist. The cio of embark group is still with anna and i this morning. A couple of Different Things to be taken on board here. Lets start the china data. To a certain extent, the building reserves the 11th straight month. I want to the mliv log and it could not have come at a better time. Stronger reserves, stronger yuan , that money will flow back into u. S. Treasuries. What do you take away from a stronger you want and a stronger fx reserves . We have the chart here in my terminal in terms of the building reserves. Guest they have been trying to stop the money from exiting. The exercise in not letting the money flat out without particular grandiose effort. Its a trait that works in reverse. The reality is they are creating credit level. Last year, they made 3. 4 truly dollars in new credit, 700 billion of growth. Thats a five to one ratio of growth. Five times to get to that number. 700 billion of growth for a cost of 3. 4 truly dollars of new debt. That is not a nice place to be. What every fundamentalist once to be last year. It is entirely the reason the growth is coming. Anna the timing is the crucial question around china. A lot of people make that point. Guest im just saying, slow down. Slowcredit bubble could down and then you have the underlying thing, etc. Continuing. The most important thing, the cost of money is zero. There are companies borrowing the market at negative yields. I give you money, you give me negative yields the next 10 years. If thats not the reduction of insane monetary stimulus, i dont know what is. Manus thats just speculation. Negative rates were a real moment of, lets say that euro, do whatever it takes. Guest qe to leverage. Everything is leverage. Now its for growth. Its worked well in japan. Thats the one thing nobodys talk about. What about the velocity of money . Is that accelerating . In china, its going in reverse. That has not picked up and thats been the problem through this entire qe exercise. It hasnt worked. Weve increased debt. Asset prices are so out of reality with earnings. As it prices are supposed to reflect Company Earnings and they havent for years. That is the expanding vacuum between reality anna perhaps there are bubbles driven by monetary gains. You have already been animated enough. Guest manus and i just crated one here. So if youd like some manus this is now turning into the producers. Asia, 80 is coming from china and korea. It reflects the liquidity issues. Them wanted to step away from this externally policy they had in place and we hear that from them and they talk about not doing all the heavy lifting themselves and they want other actors to step in so government in europe and the u. S. Are doing something. They have this big tax plan to try and stimulate growth and that perhaps allows guest s delay growth at 4 unemployment. [laughter] anna it allows rates to grow up faster. Guest what has economist is trying to tell the fed reserve what to do. They dont believe we banished the economic cycle. They are raising rates. Unless we think we canceled the but if we had done that, good luck with the stock market. Manus just before we move on, one guest said you buy it in the fades inates and it japan, you had such a cracking run in japan, would you concur with that . Guest know, the stock market went up 20 . It was a reality of it it it was it was a reality. It did what it was supposed to do. The allocation to Japanese Equities began the second half of last year. Manus lets talk about a couple of indices. s way of indices last year. Six of them hit a multiyear high. At ions are still not they remain at the lower part, relative to their previous weeks. Swiss, u. K. , these kinds of indices, do you want them to be long, these kinds of indices . It wasnt a great year. Inst 7000, just below that january, 2000 and i got 700 points on the board 17 years later. Dont let me get to excited. Ive had dividends. I know that. Ive also had inflations. Lets get excited and the ftse is 500 points higher than it was in may, 2015. This is not interesting stuff. S p things, i get it. Fine, we can talk about that. But we are getting wrapped up in new markets are what . Conditions are easy and people want to invest. There is no fundamental debate. Thats whats going on. Anna chinas interest. China is going to be watching closely with the dollar of it im trying to find with the dollar. Im try to find a segue into my dollar chart. This is a chart on the bloomberg. This is positioning around the dollar. We had a weak year for the dollar western and of a are positioning for another weak period for the dollar. Guest it is mostly global flow and if you look at it, it is allocating to european equities. The flow is against the dollar. The question is whether that happens again this year. Year on year, domestic year growth to client. The german exports has been the engine of growth. Europe is an old economist in a mature of economy. Tot year, people chose reallocate. It was a function of going elsewhere to look for your phone, discuss whether that happens this year, much more of in even fight. Anna thats interesting. Manus the fed said very assisting fleet, we will play that take very consistently, we will play the tape for you. To continue this conversation and his punch out lights on Bloomberg Radio at 7 30 u. K. Time. Coming up, we talk about cost control of business britains biggest businesses. More than any time in the past eight years. Anna we speak to the chief u. K. Economists. They surveyed a lot of them. What they have to say on that subject. This is bloomberg. Welcome back to daybreak. From the minutes away start of the european trading day, just under 40 minutes away from the start of euro trade. This is how we are shaping up, asian equities we are powering through, carrying through our market. Theresa may prepares to reshuffle her cabinet. They are calling for an end to qe im paraphrasing here. Oil is 61 a barrel and we have to wait and see what those changes are to the government here in the u. K. S p futures are up and away. Anna we will keep an eye on the politics, macron in china, the German Coalition talks continue and here in the u k, a cabinet shuffle in the offering. Thats according to the cfo survey. Of 2018,ps the risks which corporate seemingly reacting to Slower Growth and uncertainties raised. Cfoing us to discuss, the sorry, chief u. K. Economists has just conducted this and he is here with us. Ian, good to have you with us. Cfos in the u. K. , he surveyed a lot of them, made from the ftse 350. Are they all about brexit . That all thats worrying them . Guest their top concern is brexit is an increasing concern and actually, the survey. Settlementddles the of the second. Of the talks. Although we are moving to trade talks, there is increasing concern about brexit, the highest level we picked up since the referendum. The other interesting thing is domestic concerns are in the front seat. Slower growth, productivity, much greater optimism about the rest of the world. Manus what i found fascinating is that too diametrically opposed has its come up 51 are focused on cost for the next 12 months, the other side of the coin is that growth, they want to expand, they want to acquire at the highest levels and 2009. Its very much a global view and i were looking view against cannot make sure i have a risk on costs. Guest exactly. It might feel, like driving a car with your foot on the brake and trying to accelerate at the same time. The way i rationalize it is i think cost control is a hedge against uncertainty and against risk. In the meantime, actually u. K. Is still growing, probably in line with what they think is that growth rate and brussels is looking a lot better. I think that maybe, brexit is not going to clear anytime soon, so a question for the company is, is it a satisfactory strategy to say there is too much uncertainty in the world for me to do anything. Whats quite striking is that in previous periods, there has been a euro debt crisis off the referendum. The willingness to expand took a hit. This time, they are hanging on for growth, which i think suggests an underlying resilience to the sentiment. Anna they are talking about growth. But what are the risks in terms of what brexit does to their thinking . How much of a prepared to invest in the moment . What kind of Public Expenditure or hiring intentions delay have . Had we write them on that kind of basis . Guest they are a lot happier than they were after the referendum, but they are happier than they were to it a half, three years ago. So what weve got here is a picture where Spending Intentions are a lot weaker than their aspirations and their interest in opportunities and i think the interesting question is to what extent the cfo allocator in a business, you are able to screw down costs. Anna you can talk bullishly about growth prospects, or if you are not able to mandate to put your hands in your pockets and spend on assets, that aims, doesnt it . Guest the way i rationalize it is that their immediate behavior is quite defensive, what on a , they are still open to growth opportunities. This might be more indicative of how in a new normal world corporates will behave. They will simultaneously keep a control on costs and look for opportunities. Manus wanting the boe will be focused on is the hiring expectations. I understand to hunker down and keep costs low, but if you are hiring is set to drop, the one thing we will see is wage growth , which weve had pressure under. Thats not manifest in this report. That disheartens me. Guest i think the bank will be concerned because the big bet on 2018 is that there is going to be some sort of recovery in Consumer Spending power as the market titans, which will keep growth going. The way i read this survey is saying that the rates of growth have growth of implement has slowed. This isnt an ultraweak reading. Anna thank you for bringing us your thoughts. Ian stewart. Thats it for daybreak your of it the european open is up next daybreak europe area the year daybreak europe. The european open is up next. Manus if you are traveling to work, you can go straight to Bloomberg Radio. Futures are set for a higher ping in, macron visiting x china. Equity markets starts on the upward track monday morning. Thats it for daybreak europe monday morning. 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. Welcome to bloomberg markets, this is the european open. Im guy johnson at the london headquarters. Matt miller is in berlin. Cash trade less than 30 minutes away. Guy stocks on a tear, european equities go higher again as it has the best start of the year since 1999. Are investors being driven by a fear of missing out . Merkels mission, German Coalition talks resume within the next hour