Anna very good morning. 6 00 here in london. 7 00 if you are joining from paris or berlin. Not a lot of movement in the bull market. 2018 a seen so far in surge in risk assets. Morgan stanley talks about euphoria. Others talk about a melt in equity markets. Equity markets in asia in the wake of the bull markets, msci asiapacific down. Perhaps taking a breather. Speed anddo with the pace of that move. We will talk about that more as we go through the program. Lets talk about what is going on in currency markets. The yen is on the move. For ase currency is up second day. It was described by many strategists and economists as a small tweak to boj policy, not it not a change in their qe strategy. We do see a second day of moves for the japanese currency. Crude oil up. Of thellows a strong set moves for energy markets. We see 2. 5 gains. This all comes on the back of u. S. Industry data which signals that crude straps and dropped for an eight week. That may be the biggest decline since 1999. That will be worth watching. A big move in commodity markets. There is a wonderful line, gnome mr. Bond, i expect you to die. No, mr. Bond, i expect you to die. 27 a share, out there buying up. I talked to you about mr. Bond, i expect you to die. That could be the euphemism. Mr. Bond emerges from the clouds, and the smoke on ruffles. What this chart is asking you, they are nervous, they are twitchy, they are even paranoid, bond traders that is. Three markets telling you three stories. The bond market, equity market, and fx market. 255 is where we went on the yields. The bond market is bear. The curve steepened. This is incredibly important. The steepest move in over a year. Huge amount of supply. This move in the bond market is going to work supply from the u. S. , the u. K. , and japan. Year, he called the death of the bond market, and set a break of 3 . He believes the market can push higher to 2. 6 . Will starthaps what hurting the equity markets. Three markets, three very different stories, higher yields. The fx is becoming a bit stronger. Anna we will see how long the equities keep pushing and fundamentally what it means for the u. S. Economy, and the global economy. Chief economist will join us later on the program. A. M. In london. On the u. K. Up retail story. We have had contrasting story reports. Next hour we will speak to the cfo, kevin obyrne. More about that in the next hour. Lets go to the bloomberg first word update. With Juliette Saly. Juliette in the u. S. , the children of undocumented immigrants facing deportation from the country have won a court order temporarily blocking the trump administrations position of ending the dream program in march. I judge rejected the arguments that the courts dont have the authority to secondguess whether the president and properly decided to terminate the program started by barack obama. Former white house chief strategist steve bannon has left his job as chief executive of breitbart news. He also will no longer host a radio show on sirius xm. Lost his support of republican megadonors and his closest patrons after trump spoke with them by phone. The European Union risks opening the door to another Global Financial crisis if it refuses to give londons bankers a trade deal. Article for a german newspaper, they said they want eu andooperation between u. K. Regulators as part of an expensive trade deal. Warning thates are price increases are ahead, according to a survey by the british chambers of commerce. 37 of firms are expecting to raise prices in the next three months, the highest since 2008. U. K. Inflation accelerated to field by the pound slide since the brexit vote. South korean president has vowed never to accept north Koreas Nuclear program. It comes after delegations from the two sides met facetoface, and disagreed when the south proposed talks on denuclearization. I do not desire the immediate reunification of the koreas. It is my goal during my term to resolve north Korean Nuclear issues and reestablish peace. The nuclearization of the Korean Peninsula is the process of peace. We can never concede regarding denuclearization, which was agreed to and at south north joint declaration. The Development Lender raised its estimates of Global Economic growth to 3. 1 , up by two Percentage Points from its june estimate. It said the World Economy expanded 3 last year, each would be the fastest pace since 2011. Global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. A little pullback from asian equities, which have been on a strong rally. The first block we are seeing in seven sessions, the nikkei down by hong kongs market up. The longest winning streak on the hang seng index on record going back to 1964. Having a look at some of the stocks we been watching, it is a story of these chip makers coming under pressure. A lot of movement coming through in the korean shipbuilders. They could benefit from a push by the south korean government. Great wall motor in hong kong disappointing with some of its earnings. Its share price is down by 6. 5 in the latter part of the hong kong session. Thank you Juliette Saly in singapore. We have breaking news. This is in scandinavia. Deal ingot a scandinavia. Comhen is a holding company. Digital television, broadband, and the like. Consolidation coming through there. The market cap at the close of not an enormous business. Manus shareholders are getting a 16 premium after that last 30 days trading according to the valuation you just gave us, agreeing to combine the premiums. Premiums, bondt traders are a bit nervous. The bond bear market, after the 2. 5 since theop First Time Since march. U. S. Stocks saw six days of gains closing at another record high. As asset markets price in this longer term lower interest rate, that is partly what is explaining the higher asset prices, because theyre discounted at a lower rate as cash flows. There is optimism about Global Economic growth. There is a warning that the s p 500 will have a negative return in 2018. Joining us is fx strategist, good morning to you cant. Good morning to you, kit. Your talents stretched far and wide. In your universe, what significance is this move . It seems to have many people scratching their heads, and asking when does the equity market party fade . Yields have moved higher. If you look at the last 12 months range, we have not broken out of that. Im not good enough to draw the lines, bear market here. This is a move higher than a range we have been stuck in. It is only interesting if we intinue to see what the fx will call a bear market at 3 if you like. Lets put it another way. Yearal yield on 10 inflation securities above 1 would mean something. That is what we have not done. Until then cancel yes this is a difficult year that we will move to the point this huge amount of bond buying from the worlds Central Banks goes into reverse when the feds Balance Sheet shrinks. The ecb Balance Sheet is growing more slowly. Some point, when it stops we will have to look at a price the bond market and the cut price everything off of that. Implicit and what we have looked at in the last 24 hours, a movement by the bank of japan, is it al movement signal . Is it a sign . Did we over interpret it . Past fourfor the weeks is saying get ready for inflation going into the new year. Was it an excuse to sell the bond market . Kit yes, if inflation is our what cpi does see on friday in the states, and get some of that. I read a note yesterday saying that thecoincidence bond market moves higher as soon as chinese authorities start resisting further currency strength. That is what happened over the weekend. The japanese have a yield target. The yield target, you have a commitment to buy so many bonds. None of those are targets, if you have not changed your yield target, it seems to me irrelevant. The big move in japan, if they say, instead of wanting 10 year yields to zero to 1 , but they like 10 year yields at 25 basis points, it will trade 30 seconds later and we will see what happens to global bond markets. I would downplay the japanese move, despite it is making more moves. ,hat we are doing is exploring ok, policy is moving into reverse. Anna they dont describe as departing from their strategy. 7 anythin kit anything i take from the japanese move, we are hypersensitive to anything the japanese does, or the fed does. Districting of ballast sheets is not Balance Sheet is not priced in. How do you want to play the fact that central bank contraction is not fully priced in . Kit to that extent, that will hurt everything. It is not about inflation. It is one of three things. One, there is going to be inflation which will be a game changer in a meaningful way. We havent figured out where to price real yields. That qe had nome impact on financial assets, so it is dangerous to suggest that reversing qe will have no effect. I get that. The third is, are we going to change our minds about, as far as im concerned i am hearing nothing to suggest peeking hedge case,is 2. 5 , in which and i will build a yield curve off of that, and it will build a view of the Foreign Exchange market off of that. You. Thank too muchization proved for pyongyang. We are live in seoul next. Manus matt miller is on the ground. With the conversation you dont want to miss on bloomberg. It is 6 20 in london. It lets get to Juliette Saly. Cutting 7000 jobs in italy, or 14 of its workforce. According to people familiar with the matter, the company has started discussions with unions to reduce labor costs while remaining in compliance with italian law. The monopoly would be in favor of reducing headcount with about 4000 early retirements and 3000 voluntary eye outs over three years. A spokesman for Telecom Italia declined to comment. The Company Recently talked to 21st century fox about acquiring its film and tv assets, but eventually lost out to disney. He spoke to bloomberg in las vegas. Is to now, the strategy shore up our Motion Picture business, and then make sure any of the deals we may concern in the future, we are in the , and not in a situation where we have to give up control. Juliette that is your Bloomberg Business flash. Anna , and not in a situation where we have to give up thank you, juliette. Present then south korean president has bowed never to accept north koreas denuclearization. They disagreed when the south post talks on denuclearization. I do not desire the immediate reunification of the koreas. It is my goal during my term to resolve Korean Nuclear issues and establish peace. Denuclearization of the Korean Peninsula is part of the process toward peace. It is our basic stance that we can never concede to nondenuclearization. There is a bit of wrangling from pyongyang in terms of being too pushy to talk about denuclearization. That is right. Since theways known president took over in last may that he favored dialogue. The full onant sanctions tactic like the United States and un security council. To engage as fellow koreans. It is interesting because obviously the allies, United States and japan, appeared if you allowed them to talk directly, it could drive a wedge and japanouth korea and the United States. They talked about that issues today, denuclearization, they are not separate issues. He is saying to the south korean people, we need this dialogue, the week must insist on denuclearization. That was the overriding theme in his comments to the press in this new years address. They cannot accept north korea as a Nuclear State and must push for denuclearization. Manus thank you very much. The chief fx strategist, Societe Generale. In terms of sport, doesnt set the stage take a look at this the global risk aversion seems to be saying in the markets, that we have overestimated the risk. Are you optimistic . I am optimistic about some of the economics. I do not think the geopolitical risk environment has changed very much in the sense that it makes headlines. I think, what does this tell me . It tells me that markets see more balance, Global Growth, smaller in balances smaller imblaalances. At the end of the day, that plus lower Interest Rates everywhere says the people, i am going to stop worrying about north korea. Im going to get back to my business of buying equities, buying corporate bonds, and having a good time. Wea if we are doing that, are not worry much about whether we are going to get paid. Asia,hows indexes in europe, and u. S. At their lowest since 2007. The markets are not overly concerned. These are all the same type of thing, low volatility, credit risk. This guarantee from the fed that we are going to have an extraordinarily low peak level of Interest Rates in the worlds that underpins, everything. Back to yours world. If i am less concerned about north korea, less concerned about getting paid, what does that do to the euro . Kit and the dollar. None of them do as well as the ,orean won, or more excitingly money frozen and emergency markets. It has been flying into emergent markets emerging markets. Were not worried about what is happening. Without worried about what we were worried about last week. Into that you throw this one pond. Stone into the someone says there is a bear market in bonds, and that is the first ripple that will turn your chart around. ,nna thank you, kit juckes chief fx strategist, Societe Generale. Coming up we will speak Goldman Sachs and see what they have to say about the bond market. 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. Anna welcome back. This is bloomberg daybreak europe. 6 30 in london. The dollar against the yen is on the move. 112 point 38 is where we trade. Reaction to the bojs forecast. Qe a big departure from its strategy, we are told. We will see how that manifests in the markets. Heres nejra cehic. Nejra quite a lot of movement in the markets. S p 500 had its sixth day of gains. That optimism doesnt seem to have translated into asia. The msci asiapacific shilling a little softness. This is the picture. Weakness in australia, weakness in japan. The hang seng doing well. Sincengest winning streak 1969. Overall, a touch weaker in asia even though global stocks are near a record. The big focus for the markets is the 10year treasury yield. Hitose seven basis points, the highest since march. We are slightly higher today, 2. 56 . Bill gross has already said 2. 5 , now we are in a bear market. Guggenheim bear call is at 3 . A little bit higher than the yearend consensus call, 2. 92 . This is the core of where a lot of markets are going to go. Dollaryen, you just mentioned it. We are seeing a little bit of further reaction. What happened to the 10year treasury yield to some extent as well. Ask, is there some support coming through for dollaryen . Citigroup saying it could go either way from here. Finally, taking a look at oil. Nowe gone past 63 a barrel on wti after that api data showed u. S. Stockpiles dropping. We get the eia data later today. Manus thank you very much. Were going to get all these calls from the bulls and the birds in these bond markets. Matt miller is on the ground with Goldman Sachs. Hes joined by the banks chief economist. Maybe hes got the answer. Boom or bust in bonds . Are probablye we at different places in different regions. Thanks so much for your time this morning. Lets focus on what is going on in the u. S. You put out a forecast of 4 growth 2018. Largely due to the new tax package that has gotten through congress . That number refers to the global economy. As far as the u. S. , we are thinking 2. 7 for 2018. That is up about half a percentage point. Weve seen improvement at different rates. What are the drivers of growth in the u. S. I would say two things. One, this is partly a backward looking view, but i think it is still relevant, the change in the impulse from financial conditions. It took a while before the market has i just did has digested the increases. That has really swung. Weve gone from an impact of minus one percentage point to almost plus one percentage point. I think in 2018, given what has happened, how buoyant markets have been, we will continue to see positive impulses for the next few quarters. Second point is the one you mentioned, fiscal expansion, the tax reform bill, which we think is going to contribute to growth in 2018, 2019, probably not as powerful financial conditions, but we think 0. 3 . On top of that, probably some spending increases. Half a percentage point give or take seems like a reasonable estimate. You mentioned financial conditions in 2015. That was a time when the market was concerned the u. S. Economy may not be able to handle a 50 basis point benchmark rate at the fed. 2 , 2. 25 expecting from the fed. Does that hurt financial conditions . That is the point to some degree. The idea is you tighten financial conditions gradually in order to slow things down gradually. That is not normally how it is presented, but i think that is the point. So far, we havent seen any of that. Weve seen 125 basis points rate increases, but financial conditions are a lot easier. Over time, in 2018, 2019, i would expect some of that to reverse. Ideally it would reverse gradually. You dont want a sudden tightening of financial conditions. I think it is likely to go in that direction, primarily through the right channel at the shorter and the longer end. We expect some increases. 2018. E four hikes in markets are priced for two. The median Federal Reserve projection is three hikes. Basically we think the labor market is going to improve more quickly than the fed is projecting. Matt do you expect the curve to completely flatten . We dont. It makes sense, when the fed delivers more rate hikes than what is priced in the market, but in 2018, our expectation would be some increase in the term premium at the longer end of the curve, so the curve stays positively sloped. Matt what about inflation . You are expecting 2. 7 in the u. S. , 4 unemployment. Is the phillips curve did . Do we get a balance in inflation . Ove trendk we are abou growth. Even if we take the gdp numbers, our estimate is that trend growth, potential growth, is 1. 75. Typically you would say that should push the Unemployment Rate down about half a percentage point. If we look at other higher frequency indicators, which we summarized in our current activity indicator, those have been showing something closer to 3. 5 or 4 growth. Inflation,stion on we think there is a phillips curve, but it is very flat, and the numbers are such that the ups and downs of the labor market only account for some portion of the ups and downs of inflation. A one percentage point move in the inflation rate by our estimate only gives you about one or 2 10. That is a small number. That is what happened in the last year. I do think youve probably got a little bit of a move from a typically stronger economy, but there were a number of other things that went the other way. Rents were weaker. There were changes in cell phone pricing. That took us down to 1. 5 . We didnt expect this, and neither does the fed. Seems like weve passed the trough. We were down at 1. 3 . We are now at 1. 5 . Activity andic labor market activity, maybe a little pass through from a slightly weaker dollar, and the anding, the dropping out declines in some prices, Cell Phone Services in particular, the combination of that is going to push us somewhat higher. Our forecast is similar to the fed. And that is a global phenomenon, right . The ecb also has trouble hitting its target. Are the reasons the same . I think the reasons are a little different. Key distinction between the ecb and the fed is that unemployment in europe is still close to 9 on average. From that perspective, it is not really surprising that you have very low inflation. U. S. ,zzle, similar in the we have very low inflation in 2010, 2011, 2012. Not a surprise because you also had a very weak labor market that was only starting to get better. Europe is more in that situation. As time passes, i would expect stronger activity in europe to put upward pressure on inflation. Again, the phillips curve is flat. Lots of other factors will matter as well. Matt how do you see the urine economy compared to the u. S. Economy the european economy compared to the u. S. Economy . Growth is not very different in the two economies. Europe if anything is growing a little more quickly relative to the potential. The labor force is growing more slowly than in the u. S. The big difference is that europe is maybe four years behind the u. S. Output trough in the u. S. In early 2009, output trough in europe in 2013, that is a simple way of dating it, but i think it gives you the right sense of europe being on the same broad macroeconomic path but just with a fouryear delay. Matt thanks for your time. Looking forward to this conference. Chief economist at Goldman Sachs. Anna thank you very much. Matt miller with the chief economist at Goldman Sachs. Fascinating conversation about what is driving u. S. Growth. We will bring you more from the conference later in the day. Jeff curry will be joining the Bloomberg Team at 11 30 a. M. U. K. Time. A bit of breaking news. We got emmanuel macron, the french president , in china at the moment. A lot of focus on the airbus story and whether they are going to be able to sell aircraft there. Macron said they will finalize that order very soon. Those planes, we hear, will be delivered in 20192020. He said the orders are for 13 different airlines. As soon as we get confirmation, we will bring that to you. Manus weve had a little bit of inflation data. Softer inflation data gives the pboc chance to focus on debt. Consumer prices at the lowest level since 2017. Kit juckes is with us from Societe Generale. You take the past 24 hours from china. It happened just after an a and i came off. The chinese are getting peeved that theyve got such a strong yuan. They have got a strong yuan. What does this do to the pboc . Kit i think it encourages them in their beliefs that they want their currency to trade quietly, not be a source of concern, and allow them to get their balance. China is still all about stability. They want stability. They dont want a currency that is too strong. But the moment the currency stops strengthening, reserves almost immediately stop growing. Chinese are buying foreign assets, treasuries, keeping the bond market ongoing. When they back off, everything is hunkydory. When this happened in september, as soon as the chinese signaled a change in policy, we talk 10year from just over 2 all the way up to 2. 4 quite quickly. We are just doing it again. Anna thank you very much. Kit juckes from Societe Generale stays with us. Manus you can hop on to radio. Youve got Bloomberg Radio on your digital device. Is in the london area. Matthew sits down with the team to talk about bonds. , whetheroin the chorus it is a bear market or not. Anna coming up, a warning to brussels. U. K. Ministers say a bad brexit deal risks another financial crisis. Later on, we get growth from sainsburys. This is bloomberg. Manus live shot of london. Its almost dawn. Bottom of your screen, london markets. It is the sainsburys sees the fullyear adjusted pretax moderately ahead of consensus. From theently upwards sainsburys management. This is a growth of food, but also of other products. The 2016 deal, they bought the argos chain. To what extent is that giving them a negative . What weve seen so far has been that food has been quite resilient. It has been other areas where weve seen some weakness coming through. Is that the sainsburys experience . We will keep an i on the headlines. We will be joined shortly by the sainsburys ceo. What are the Consumer Trends that we need to be aware of as we head into 2018 . Lets talk more about where the markets are. You talked about where the futures are heading. Msci asiapacific is pretty flat right now. Just an hour ago, we were formally in negative territory. Its sixth the u. S. , day in positive territory. Another record. We are talking about a euphoria according to market Stanley Morgan stanley. Are we in a bear market . Something weve been talking about as weve gone through the program. To what extent is that move going to drive equity markets . Twohe currency markets, day of this story. This is the strength of the japanese currency. Up for a second day. Just scaledback one of their regular operations. That has got people scratching their heads as to just when the boj is going to move away from its ultraloose monetary policy. 0. 75 ,up around extending gains after touching threeyear highs yesterday. The question is whether the bond markets are telling us something that is of consequence for the equity markets. The bond traders are nervous. Perhaps a little bit uneasy. Youve got Jeffrey Gundlach calling as the market in u. S. Treasuries breaks. Last year he called 3 . 12 months on, hes back with his bearish growth. View. Job is to have a bill gross view is that the longer term trend is breaking higher. To that end, you are going to see a move. You are just seeing a repercussion. Go to the mliv blog. Theres a conversation about the amount of supply. They are doing nothing in the u. S. To really help the u. K. Supply along with the u. S. Supply. At 1. 60. E down lets get your first word news. Juliette saly standing by. Juliette the children of undocumented immigrants facing deportation from the country have won a court order temporarily blocking the decision to end the socalled Dreamer Program in march. A judge in San Francisco rejected the argument that the courts dont have the authority to secondguess whether the president improperly decided to terminate the program. Former white house chief strategist steve bannon has left his job as executive chairman of breitbart news. He will also no longer host a radio show at sirius xm after feuding with donald trump. Bannon lost the support of the mercer family, republican megadonors and his closest financial patrons. The European Union risks opening the door to another Global Financial crisis if it refuses to give london bankers a good trade deal. That is according to the u. K. s chancellor of the exchequer. Article, Philip Hammond and david davis say they want cooperation between e. U. And u. K. Regulators as part of a trade deal covering both goods and financial services. Thatbusinesses are warning price increases are ahead. Of Services Firms are expecting to raise prices in the next three months. Among manufacturers, that figure rose from 35 previously. U. K. Inflation accelerated to the fastest in more than five years, fueled by the pound slide. South korean president moon jaein has vowed never to accept north Koreas Nuclear program after delegations met facetoface yesterday and disagreed when the south proposed talks on denuclearization. President moon said hes open to meetings with kim jongun, but only under the right conditions. The European Union markets regulator has made a surprise move a on trading limits. The european securities and markets authority said the plan to list potentially hundreds of stocks couldnt be implemented on time the cause of the lack of data received from venues. The start date will be pushed back as well. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. The rally in asia has come to a little bit of a stall. You had a stronger yen. The nikkei down by 0. 3 . The kospi off by 0. 4 . Have a look at the hang seng. That is 12 sessions of gains in a row, the longest on the hang seng index in records going back to 1964. A lot of these chipmakers coming under pressure, similar to what you saw in the u. S. Tsmc down by 2. 3 in taipei. I saw he breweries in tokyo falling, projecting lower beer sales over the course of 2018. The manufacturing or component maker in korea up 5 on anticipation the company could benefit from a potential push by the south korean government for new Nuclear Plant deals. A little bit of a pickup from that stock. Manus juliette, thank you very much. The world bank has raised its Global Growth outlook after 2017 saw the fastest rate of expansion in six years. Stock markets rebounded around the world. Bloomberg asked some of the biggest hitters in las vegas what they saw as the biggest risk to Global Growth in 2018. Perspective, we want to make sure that whether it is multilateral or bilateral discussions that happen between countries and territories, that there is a free flow of content, products, also data as well as people, and every time there is an issue or hindrance to stop that free flow, that is going to impact our business. Trade to make sure free of various goods and services is on the forefront of everything we talk about. Technology has no boundaries. Innovation, collaboration needs no boundaries. Caution,is scope for because theres pressure from people are generally finding that inflation is a lopez and Pricing Power is difficult to establish, and theres pressure on cost. Overall, i would say the environment is a positive one. Manus finishing the conversation. Start the conversation on the daybreak set. Welcome to the show. The risk coming through from Global Leaders seems to be about trade. Anna and i had a conversation. Politics,e trade, not that hurt the market. What do you think is going to stall this run, if at all . It is hard to see this equity market stalling. The markets seem to be turbocharged. Youve got gdp growth globally at 3. 5 , which is encouraging. Youve had strong Economic Data on both sides of the atlantic. And of course, q4 earnings up 14. 6 . The markets look like they are going to trade higher for now. Where are the risks . Obviously brexit negotiations. Weve got some concerns around trump and impeachment. I think theres issues around what is going on between north and south korea and the rest of the world. When we are trying to join these dots, you described the equity markets as turbocharged. When you see what happened in bond markets yesterday, not getting carried away with just how high weve gone, but it was a substantial move, and that seems to attract the markets attention. What is the followthrough from that move into equities . Bond markets go on to 3 or higher, how does that impact the equity markets given the conditions you described . Look at momentum and flows. Investors already overweight cash. They were reluctant to go into bond markets. Equities look more attractive. We would expect to see flows from the bond markets to Global Equities that will help support the rally. The caveat is valuations are very stretched in the u. S. Youve got the s p 500, nasdaq at 22, valuations look more attractive. When he says 2. 6 is the yield at which it starts to hurt stocks, not that simple for you . It is very different globally depending on what jurisdiction you are in. I think most investors look at bonds as a carry trade over cash. At the moment, we are overweight equities relative to bonds. Manus i started the show at 6 00 and said theres three very different stories. You look at what is happening in the equity markets and the bond markets. This is what kit juckes brought to our attention. Hes only going to get distressed if the amount of inflation protection gets back to this 2013 bond spike. That was the taper tantrum in 2013. Hes really only going to get disturbed if demand rises back towards that 1 . He said its all a lot of noise at the moment. Realityrelative to the of real yields. We look at the bond markets and we invest in the bond markets. I go back to Global Equities. It is earnings. It is not what is going on in the bond markets. It is earnings that drive share price appreciation. Look at pricetoearnings levels. Look at the guidance we should be getting for q4 if you look at u. S. Corporate tax rates from 27 down to 19 . That is what is going to drive markets higher. The backdrop is the Foreign Exchange market. A weaker currency will help drive earnings. Anna you mentioned the tech story. Our colleague spoke to Goldman Sachs. He was talking about things that will contribute to u. S. Growth. One of them is financial conditions being more favorable. He also said the tax plan in the and will add 0. 3 in 2018 2019 to gdp. What does it do to the earnings picture . Is that priced in already . Have we got further to run . A lot of investors assume that earnings are correlated to gdp growth, and they arent when you look at historic data. I think that what you will say is improved sentiment in terms of what goldman is saying, and that will help move markets higher. Go right back to basics. Earnings drive share price appreciation. We are concerned about the bond markets. Three rate hikes, two rate hikes. You look at the debt issuance. Up 6 overrillion, 2016. That is being allocated to Global Equities. This. Have a look at it is a chart on Investor Sentiment from the American Association of Investor Sentiment. Market ise the equity going to be higher in the next six months. We get these surveys and i just go, really . That is anna you might agree with that. Weve been very cautious. Weve been overweight equities. Weve been cautious looking at valuations. You look at data like that and it raises your eyebrows. Manus would you reallocate . Is that the overall u. S. Complexion . Maybe europe has more bang for its buck. Im looking at some of the e. U. Valuations. Maybe theres better value there. We agree with you completely. We are overweight europe. Euro on a a weaker ppp basis. I saw the unemployment data yesterday. These are very encouraging signs for europe. Europe only did 7 in terms of returns last year versus the u. S. At 18 or 19 . Risks we sawical in elections last year, germany, france, spain, they havent really played through as a lot expected. Anna we will see what happens in italy. We will see whether the equity markets can withstand that challenge. Remember, if you are a bloomberg customer, you dont just have to watch on the tv set. You can use the tv function on your bloomberg. You will get to follow along with the charts and functions. N manus with got a lot more for you, talking about sainsburys, the earnings numbers. They beat estimates. We are going to the cfo. What have we got . Anna global head of Commodities Research at Goldman Sachs joins us at 11 30 a. M. U. K. Time from frankfurt. Matt miller in attendance. This is bloomberg. Anna good morning. 7 21 in london. Joining us now on the program, kevin obyrne. The company has just reported their numbers for the Christmas Period and beyond. You are guiding the market slightly higher, it seems. What gives you the confidence . Weve had a good christmas, as you can see. Grocery sales are up 2. 3 . On theaken market share basis that weve had the most important trading period, we felt it appropriate to guide the market with a modest increase in fullyear profits. Manus kevin, good morning to you. That is a theme we are seeing from other people. Did we trade up with you . We did. Private labels taste the difference. Treatedtomers themselves over this important period. Seems to havees outperformed other parts of the retail empire. What did you see there . Argos perform . There is no doubt consumers are under more pressure. Weve seen that well documented across the industry. We are very pleased with our relative performance. If we stand back and look at christmas this year, customers were looking for value. They were definitely looking for customer service. It was really an online christmas. Our convenience business growing, our grocery Online Business growing, and our fasttrack growing 25 . It was a robust performance in a challenging market. Manus that message to investors is about online. How much more are you going to invest there . That where the next lump of capital goes . Wouldditionally retailers have spent a lot of money on stores and real estate. In this half, we opened a handful of stores. The big Capital Investment is not going into real estate. The big Capital Investment is going into technology. That is reacting to a change in customer behaviors. There is that constant move to give customers greater flexibility, either shopping locally or shopping online. Anna kevin, how big can the discounters get in the u . Youve got some experience before sainsburys. The discounters clearly are putting down more spaces so they continue to grow in the u. K. We are focused on what we can do uniquely for customers. We focus on giving our customers Market Leading Service in our stores, and helping them shop whenever and wherever they want with fasttrack through Online Grocery delivery, Home Delivery. On the 22nd of december, we were making a Home Delivery every second of the day. Day, every second of the i dont know whether that frightens me or emboldens me. Dont worry. Im still in the local store at the end of the road. Where are we with the inflation debate . The bank of england wants to know what is happening on the ground. Is it going to flatten out . Give me your call in terms of the inflation push . The recent market data would inflation is food running a little over 3. 5 . We didnt see quite that level of inflation in our business and we are working as an industry and a business to maintain the prices and keep the inflation down. Seen most of the inflation related to the brexit situation has flown through. Theres going to be some ups and downs as there always are, depending on the harvest, the oil prices. , we should beion seeing towards the end of that. Anna you mentioned the investment is not in brickandmortar anymore. What about in deals with Convenience Stores . Is sainsburys still looking to do any deals on that front . Never comment on what we might do in the future, but we watch with interest. If it is the right thing for our investors, then clearly we look at things as they come along. Nothing currently. Manus kevin, thank you very much. Kevin obyrne, sainsburys cfo. 2 48 is where we finished the trade yesterday. Lets see where the market compared to those better than estimated numbers. The best christmas ever on record. Anna a little in the discounters. The online story crucial for sainsburys. That is it for bloomberg daybreak europe. This is bloomberg. Good morning and welcome. You are watching bloomberg markets, and this is the european open. Im alongside matt miller. We have got cash trade less than 30 minutes away here in europe. Good morning. So, it is a big day for the bond market with yields pushing higher and investors digesting 10 year from the u. S. , germany and japan