Transcripts For BLOOMBERG Bloomberg Surveillance 20240713

The margins there seems to be more optimism in the markets that the yearend wont bring the crunch we had forecast. This is the picture for european stocks up 0. 1 . 1. 3096. D, a phase one trade deal. At 96. 3,ng in betterthanexpected after they had a figure of 95. 5 and thats moving euro a little bit. Coming up we will discuss the and also dont miss our exclusive interview with the chief executive, thats coming up at 1 00 p. M. London time. Lets get straight to the first word news in new york city. President trump is accusing Speaker Nancy Pelosi of turning chamber. Into a star powerump laying out his and obstructed congress. Later today the house is effective vote to approve two articles of impeachment. The u. K. Credit outlook has been upgraded by both s p and after Boris Johnsons conservative party won a decisive majority in last weeks elections. S p raising the outlook from negative to stable. Fitch taking them off rating watch negative. It removes the immediate threat of a downgrade but they do maintain johnsonnister boris want to attend next months World Economic forum in davos. He is granting his administration the cash branding the peoples government and dont want to undermined the image. Johnson hasnt always been against attending the summit. At least twice he attended as mayor of london. The Trump Administration plans to bolster enforcement of iran sanctions, thats driving oil exports when presented lows. It said to increase pressure on Global Shipping and metal production. Tehran noo give choice but to negotiate new limits on its nuclear program. The u. S. Has little leverage to prevent prevent the nord stream 2 gas pipeline. Thats the view of 10 senior officials and its a rare admission of failure following years long effort but the administration would they believe is a threat european security. The u. S. Will try to impose costs on other Russian Energy projects. Global news 24 hours a day on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Off with lets take it the deal that will create the worlds fourthlargest automaker. A new european giant, will be able to take on Global Leaders . Today its quite a crucial day in the Auto Industry because we have been discussing even on bloomberg tv for years about consolidation in the Auto Industry. Finally we have a deal and they agree that to combine would create the worlds fourth biggest automaker. , a verybe a giant strong performer in europe. They managed to into one of margins european profit , making Something Like 8 in europe which is the number we use. Then they will have a stronger u. S. Business and this is essentially what Fiat Chrysler is bringing to the table, they are bringing jeep, one of the most iconic brands in the Auto Industry, one the best performers if you see whats happened with jeep in the last themars, when they bought in 2009 it was essentially a u. S. Brand and now its a global brand which is selling the 2 million cars a year. An incredible story of success of Fiat Chrysler. Of new carmaker is born out two carmakers which are struggling. If we take a view of some of the car problems or challenges the industry will have to face, there is still the trade war, the rules regarding co2 emissions and then theres a lot of things looking at weaker volumes. How will this m a story help . These are a response to those issues. Job issions for sure the better equipped than fiat to tackle the new admin emissions rules which mean more hybrid and electric cars and electric cars. On the lower volumes and higher standing, if you join forces you essentially share investment that you can cut costs and save a lot of money with something not so sexy for your customer the council ought in the balance sheet. Thank you so much. Car manufacturing is one of the sectors most buffeted by 2019s trade war. Recovere deal will see or will art are we set for another year of tensions. We are joined by the chief macro strategist at the credit focused multiasset manager seek u. S. Formally of ubs. Great to have you on again to talk about trade. Last time unlike last time we have a phase one deal. Will it hold . Almost by definition in the sense i think we are entering a phase with the politics on both sides of this conflict almost imply we will have at least a significant period with a risk will be a lot less than we had before. It is also a different aspect to it in the sense most likely will have less of that anxiety in the markets waking up to some sudden news on a daily basis and i think that makes a difference for market psychology. Francine what if it comes back . If its one thing weve learned under the Trump Administration is you cant be too certain about going a certain direction without a change of pace. Back,will inevitably come its almost i think guaranteed in the sense if people were to look even on the longer horizon to look at the differences over in the u. S. On both sides china is to remain an issue. And we dont have phase ii and phase three, the question is if it becomes binding for the markets early on and thats a probability but i dont think its the most likely one. Francine the trade also came up in our conversation with Robert Kaplan who weighed in on the phase one deal and the prospect. The trade issues with china will go on for years. Not months, but years. Most businesses are adjusted to that, these issues of intellectual property and Technology Transfer and the much deeper issues are going to be going on for a long time. Than not is better having phase one. Ive already got baked into my outlook we will have weak manufacturing next year. Pretty sluggish Business Investment but with a strong besumer, there would have to some Material Change that outlook. Francine that was our conversation with Robert Kaplan. Andou look at what we heard you look at inflation expectations, its a one thing you have to get right from a bankrupt macro point of view because that will skew. Pictureis the bigger question. If i were to summarize what am i truly worried about his inflation but thats a theoretical. Francine Inflation Higher than we are expecting. Thats the only thing that stops the party. Otherwise the policymaker can generally respond. Absent that whether trade war or any other interruption they can deal with higher inflation. Francine market is really pricing it and bring the market will tell you pricing it in. The market will tell you its not an issue. We have to be careful because of that. We need to think about the transition. If we were to get inflation we would get it because Something Better is going to come first so we will get nominal growth. What im saying is im worried at a high level of this but im going to be happy on the way there more likely than not. Francine likely a Second Quarter surprise we dont see coming, inflation suddenly is there. It would be on things like oil shaping up. Im less concerned about that. And the policymaker can respond to that. Its the other type of inflation we are worried about. Francine he stays with us. Stay with surveillance. Lot he a we will discuss Boris Johnsons win, what it means for the sector. Thats coming up next and this is bloomberg. Francine economics, finance, politics, this is bloomberg surveillance. Lets get to the Bloomberg Business flash. The latest lender to be implicated in a vast Money Laundering scandal. The nations financial watchdog says its exploring crimes against the bank. They recently published figures that show about 90 billion worth of nonresident money flow through. They have not yet seen the preliminary assessment. Next year tesla is considering cutting the price of trying to build cars. The price could be reduced by at least 20 . Tesla is betting the move will help lure buyers as demand slows in china after the government scaled back subsidies of electric vehicles. Court approval for two multibilliondollar wildfire settlements. They would serve as the centerpiece of the bankrupt utilities giant restructuring plan. Now it has to win over californias governor. T week pg e the governor said the plan doesnt comply with state law. The company says it still in negotiations to resolve the differences. Thats the Bloomberg Business flash. Francine thank you. Lets focus on the u. K. Five days on from the conservative party landslide election victory, too early to tell if he will enjoy a longlasting clinical honeymoon. End aftercame to an the Prime Minister said he plans to pass a law against extending the brexit transition reaction for the momentous result with the chair of the policy and Resources Committee at the city london corporation. Ianos is still with us. Talkve heard a lot of about the need for a resolution. About ithavent talked the Great Service sector in which the u. K. Economy depends. Look at the financial and professional services sector, that accounts for 2. 2 million jobs across the country. Francine are we confused as to what Boris Johnson wants at this point . Think we have yet to see the post campaign of boris. I very much hope in the ambitious timeframe he says he will be able to strike an arrangement with the eu which will help us to build on those great strengths has in the u. K. And enable that sector to flourish. How should International Investors look at what happened last week . There was a relief that there ,asnt going to be corbynism but maybe not an understanding of what this new conservative government will bring. We need to give a little bit of time here. There is a priority. Boris to some extent is signaling hes in business. We need to figure out what that is. I think he will have the tools in one sense i think its one of the first ws more effective fiscal policy that will ameliorate any sort of transition adjustment that would be made, i will still put a question mark in terms of the fate of the services sector. There is an emphasis in terms of with the u. K. And you will have to accept transitions here and i think thats part of the political premise in terms of going to the rust belt in a promising Something Better and delivering on this. I think services will be a big part here but not necessarily the first word. Francine what do you think businesses need from the government . Clarity and certainty. We also need to see what will be in place for immigration because we need to be able to draw on an International Workforce so that will be quick. Infrastructure, i think interesting question there will be on infrastructure, the need for london to have some in infrastructure spending. Of course we need to be balanced but also look at londons needs. Francine do you worry the u. K. Will be to inward looking instead of outward looking . The Prime Minister said he wont be going to davos. I hope we want, its important we reestablish our position on the world stage, we depend so much. Obviously is a question for the Prime Minister if you go to davos or not. My understanding the optics. If you use it carefully, its a great opportunity to meet leaders around the world, we will be there promoting the uks financial and professional Service Sector has to offer. We talk about norway plus, canada plus, could it be Something Else . The think he is aiming for closest possible relationship that allows them some leverage. What that means, it is a matter of negotiation. That will come out in the next few months. The incentives are aligned. Francine do businesses understand . We heard from one yesterday saying the u. K. Wont be leaving the Single Market or customs union. We have yet to see what we will be able to agree on access to services. They are promising there are promising signals in the declaration but we need to build on that. Im worried in the vicious timeframe we may see an agreement that we need to see some to give services the latest possible access to a one of our greatest trading partners. Sure its right that it stays. I have to say im very confident about longterm prospects because what we have got is based on some very strong foundational, its very broad. Eu focus. Imply but our relationship with her closest geographic trading partner will be critical. Catherine, thank you. We will preview a big day of politics with the house of representatives set to vote on impeaching the president. This is bloomberg. Rg. Francine this is bloomberg surveillance. A big day for u. S. Politics with the house of representatives set to vote on impeaching President Trump. He lashed out at Speaker Nancy Pelosi. Joining us now is the bloombergs politics reporter. And exactly happens today what happens in 10 days . Will the president still be present in two months . The short answer is yes. Democratse registering their discontent and unhappiness with what they see as abuse of power and obstruction of congress. Then that goes to the senate which is controlled by republicans and it takes more a majority in the senate. Nobody think that will happen. People ask what are the political ramifications when we get on the other that. Francine its amazing to see the president has united the republican fully behind him on this. Its really a testament to his resiliency among his base is i think republicans were pretty circumspect early on, they werent saying a whole lot. They were watching the poll numbers closely and from late september when nancy pelosi first announced this impeachment effort till now we really havent seen Much Movement in the polls. Trump support among republicans in key battleground states like wisconsin in 2020 in determining who has control the white house weve actually seen his support increase. I think thats why weve seen republicans lineup behind him in lockstep. Francine thanks so much for the briefing. We will have more on that today. Coming up we will discuss the future of europes biggest economy. Ask about the car industry and fiscal stimulus in germany. This is bloomberg. Beyond the routine checkups. Beyond the notsoroutine cases. Comcast business is helping doctors provide care in whole new ways. All working with a new generation of technologies powered by our gigspeed network. Because beyond technology. There is human ingenuity. Every day, comcast business is helping businesses go beyond the expected. To do the extraordinary. Take your business beyond. Francine an upgrade for the u. K. , two credit agencies boost their view after ford after Boris Johnsons election win. Peugeot sign and on the dotted line for a new car giant to take on the world. Donald trump is set to become a only the third u. S. President to become impeached. A crucial vote in the house. Good morning, good afternoon, good evening, everyone, depending on where you are in the world. T over 1. 5 hours until into the trading day. Lets check on european stock movers with Annmarie Hordern. Annmarie lets start with the massive deal in the business world, peugeot and fiat, tying the knot. The psa board tying the knot approving the deal. It will pose a serious competition to vw. His resume motors buying a stake in isuzu motors buying a olufsennd bang plunging to 14 . And a lot of question about his future, especially if you look at how it has done in the u. S. Quite drastic come those two divergences on the chart. Onhad a few premarket trades fedex. It took a dive in after hours trading, down more than 6 . Fedex really in a funk with these results out. Second time the company, Second Straight Quarter they had to cut their profit outlook. A lot of factors going into fedex. One of the ones everyone is talking about is their amazon problem. Francine lets get straight to the first word news in new york city with viviana hurtado. Viviana given the solid Growth Outlook next year, the fed should hold rates. That is according to two regional fed president s for 2020 buses eric rosengren, calls it will positioned. Robert kaplan was less upbeat. Absent from deck months World Economic forum in davos, Prime Minister Boris Johnson. He is branding his administration the peoples government. Johnson has not always been against going, at least twice as the mayor of london he attempted the form. Attended the forum. The view of two senior officials, it is a rare situation of failure to event what the administration believes is a threat to european security. The u. S. Will now pivot, trying to impose costs on other Russian Energy projects. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, viviana hurtado. This is bloomberg. Francine . Francine thank you so much, that the anna. We are getting inflation figures out of the u. K. Remember, this could have an impact on how perspectives. We also hear more and more talk about the governor replacing mark carney, who is due to step down. It could be in days, it could be in early january. This survey offered reassurance for conditions in germany this money. The Expectations Index rose to 93. 8 in december, above the consensus estimate. The president of the Ethos Institute was with us is with us. Thank you for giving us a little bit of your time. Is it Getting Better out there . Will the German Economy pick up in 2020 . Good morning. Yes, it is Getting Better, but it is still a divided economy. Construction is doing fine, manufacturing is doing still quite bad. Within manufacturing, Companies Say the Current Situation is really bad. They plan to further cut production, but they say six months ahead they expect improvement. They have become a little less pessimistic, so that is one factor driving it up. What does a u. S. China phase i deal mean for the German Economy . What is the one thing that could give a boost to the economy . that is probably one of the reasons why governments become more optimistic, trade tensions easing at the same time Many Companies are still cautious. We never know what trump will do tomorrow, but certainly that is a key factor in this improvement in the mood. Francine how concerned is the german industry about potential u. S. Tariffs on german goods . Ens it seems this as faded away little bit. Seems like the trade war between the u. S. And europe is off the table. This is related to the fact that the trade is much less asymmetric when then chinese u. S. Trade. The u. S. Knows that, so it is unlikely this will escalate. Francine how much of an issue will domestic german Political Uncertainty way on the economy in 2020 . Aemens i dont think that is big problem. It is unlikely that the coalition will end. Even if it does, there will be new elections. I dont think this would create great problems. If there are new elections, we will probably get a coalition of and the green,es but i dont think there is a problem. Francine is german business worried about the survival of the grand coalition . Think they aret too worried about that. The grand coalition has mostly it has expanding not done much foreign industry. It has talked about that a lot. Any companies would even think it is not bad to have a fresh start with the fresh government, one that may be does more for growth in germany. Fuest, let meens bring in llanos. When you look at the German Economy, it is not small, but mediumsized, open economy in the middle of europe. How much was it suffering in the trade standoff between the u. S. And china . Llanos in contrast to the earlier period in this decade, the ailing part is the core now in europe. Its is pretty important, and has suffered at least with respect to expectations and confidence as a result of the trade war. I would caution about dean totally relaxed about tariffs against europe. A geopolitics strategist has made a point that once we are dealt with the phase one deal, it is likely that europe will come at the forefront on trumps target. And i think that we need to have something to present while youre are heading to elections, and china might be on the sideline. So we need to be careful on that front. Francine i wanted to ask you about negative rates and what that means for general german savers and businesses. That is a big debate in germany. Overall, Consumer Confidence is not so bad. The Banking Sector is in bad shape in germany, but that is not so much due to the negative rates. It is more to do with the structure of the german Banking Sector. So overall, my impression is that the negative rates debate is very prominent in the media, but in the population it is probably less important than most people think. It does mean that there is little we can do in the case of prolonged downturn. Germany specifically, i dont think it is such a big issue. Yianos i think it is extremely interesting. Looking at the data going back, the german consumer relies a lot on deposits. Theeal term, going back to 70s, they really never faced truly positive real rates. That i think makes sense that they are not particularly worried about this. On the other hand, think we are seeing part of the story. We have to realize Pension Funds, on a forward basis, might have issues. But they have also realized tremendous gains in terms of these tremendous this tremendous rally we have had in fixed income. What this means is that the government is that the government has a strong incentive to step in and provide or recirculate those type of profits to the consumer. That is another argument why i think fiscal policy will become very interesting in the next year. Francine when you look at fiscal policy, and we have heard it from Christine Lagarde when she was with imf and when she is with a number of policymakers. It is now up to especially germany to speak to it german more ands, spending infrastructure. What are your thoughts . Clemens i think there is the need for spending on infrastructure, but this is sometimes exaggerated. Policy isics expansionary. We get the same fiscal expansion this year, that is supporting the economy. Otherwise it is an infrastructure of spending per there is a lot of resistance policies that people do not like to have the new road or train tracks in the neighborhood. We have a problem there. What is much more involved is doing something for private investment in germany. Private investment is almost 10 times as much as public investment. We need better policies there. Corporate tax reform, Energy Policy reform to boost private and that is something the government should focus on more. Francine clemens fuest, thank you so much. Stay with us. Stay with surveillance. Plenty coming up, including the standout year for european stocks, but the economy not so good. After two quarters of sluggish growth, will european gdp finally start to pick up speed . We will talk about that next. And the words of one analyst as fedex cuts its profit forecast for a Second Straight Quarter. Shares plunge and we will bring you the story a little bit later. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash with viviana hurtado. Signing forsa a merger. It will forge a regional powerhouse to rival volkswagen. The new auto giant will have stock market value of about 46 billion. Next year, tesla is considering cutting the price of its china built cars. The price could be reduced by 20 . Tesla is betting the move will with buyers. Sales of electric vehicles has been falling. Raising fundamental questions about the luxury stereo maker future. Sales were lower than expect it. Full year revenue is down as much as 18 . Lender nordic sweden says it is exploring fines against the bank. Seb of his figures they show about 90 billion of nonresident money flowing through its operations. About a third of that figure is set backs. It has not yet seen a preliminary investment. That is the Bloomberg Business flash. It has been a standout year for stocks, but the economy, not so good. After two quarters of stunted growth for 2020, yet no scum topless is still with us. Llanos con topple is with us. His to any 20 going to be any better . To some extent, if you look at it from an economic standpoint, we have had a very substantial easing of Financial Condition throughout this year. We have at least an element of stability in the course of the last few figures. You do not have an inflation problem, so we have what it takes to have a better year in 2020, and the market as always, we look forward as opposed to what this kind of situation is. Francine when you look at individual company countries, we have concerns about germany with the itos president. Does anything look particular strong . Maybe we sayery, greece. That is true. If we look at the data. But greece is not important enough in terms of overweight. The noncore countries are doing better and lifting the numbers. France it, despite the rhetoric, is in the middle of the average numbers across the euro zone, so there is nothing too dramatic there. It has demonstrated the value of right that is why growth rise has stood out. Where they are going to go. It is where the money is, as the old saying goes. That is where they will go with fiscal policy. Europe gethat does from the ecb right now . Hard workst of the has already been done. I think it is a good start for lagarde into next year. An interesting twist because they are going to go through i guess looking at their overall policies, it is never an easy task. If you think about it, the germans are going to come out and say we do not like negative rates, the greeks are going to come out say and we do not like forward guidance. How do we deal with this . In some ways we are lucky to have lagarde dealing with this because she brings tremendous experience in dealing with complex issues and multidimensional negotiations, so i am hopeful. Francine thank you so much, yianos kontopoulos. Describes fedex shares dipping as breathtakingly bad. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance. Thefun piece of news fruit making that adults and kids like. They have apparently been fined 58 Million Euros for fixing prices. We thought it was only some of the bigger cartels, he usually commodities, that have problems. Find 58ote makers are Million Euros. Turning to corporate news, fedex is in a bit of a funk. The company suffered a blow yesterday when it missed earnings estimates. Have been cut,s blaming Weak International demands. Joins us. Fedex shares also dropping 7. 5 seven point 5 premarket. Amazon cut them out, saying they were not delivering packages in time, and then they cut their forecast. What can they do to get back on track . Amazon was a big factor, although fedex is claiming it only affected a small part of their business. The main problem is slow adjustment to the boom in the ecommerce business. For fedex, delivering to business was much more profitable than delivering packages to homes. The sevenday delivery schedule turned out to be much more costly than fedex initially specked it. So they are seeing 2020 as their transition year, but analysts have been shocked by the latest results. Francine how are investors going to react to the news . Will they reset will they expect a selloff . Like you mentioned, the stock sold off already, and we could see some more pressure. At the same time, some investors are sticking with fedex because they do say that for such a transition number for such a major turnaround that they are trying to implement, of course they need time and they are going to give them that time to turn the company around and see if the forecast for next year does work in 2020. Francine thank you so much. Lets get final thoughts from yianos kontopoulos. We went around the world in 60 minutes, but we have not talked about china. How much do you worry about china. There are things we are hearing about possible defaults it i was always told that the chinese economy has such a big handle on their economy, that you see these outbursts of defaults but nothing bad happening. Can we be really sure of that . As the capital account is effectively closed or controlled, you can use whatever euphemism, i think they have enough fiscal space. Their starting point, at least with respect to a combination of monetary and fiscal instruments, which they tend to use anyway, i think we will have enough of a cushion next year as the most likely scenario. , we haveeed to observe seen the first elements of restocking in the Manufacturing Sector and in general the economy. If that picks up, i think 20 20 is a relatively safe year. Francine what makes you worry and what makes you optimistic about 2020 . We talked about inflation. Maybe in some places that is not inflation. The usual suspects are there. At least with respect to volatility, not necessarily in terms of outcome. As i said, the most important issue is inflation, but outside of that, i think europe moving a hugeill also make difference for the prospect of european projects in 2020. What effect will brexit have in 2020 on the european economy . Yianos it will never happen on a sudden moment because policymakers will make sure, even in a bad scenario, that you will have enough time on both sides. Currency volatility is one thing. Liquidity in the market. It is something that we should be mindful of. I think not only mindful, but we should be looking at it as a great opportunity. Fx gives us the best opportunities for hedges in a portfolio where you are long risk. Francine thank you so much. Yianos kontopoulos joining us from seek u. S. A little bit later we have our sluice a conversation with billionaire investor Stanley Druckenmiller. It is not only about a megamerger in the car industry, it is also about what is going on with fedex. German business that outlook improving. This is bloomberg. Here, it all starts with a simple. Hello hi how can i help . A data plan for everyone. Everyone . Everyone. Lets send to everyone wifi up there . Uhh. Sure, why not . Howd he get out . a camera might figure it out. That was easy glad i could help. At xfinity, were here to make life simple. Easy. Awesome. So come ask, shop, discover at your local xfinity store today. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. These are your top headlines. Yet chrysler and peugeot sign on the dotted line. To becomemp looks set only the third u. S. President to be impeached. We will look ahead to todays crucial vote in the house. And an upgrade, two credit agencies boosting their view after Boris Johnsons election win. Good morning, good afternoon, or good afternoon, or good evening. Live from new york and london, francine and tom. I know you want to focus on fedex. What i want to focus on his carmakers. We finally have one and two of the biggest carmakers in the world signing this will create a giant in the car industry. Bit of a blind focus in china because they are not that present there. And the oversupply trade war and the co2 emission rules that are getting tougher in 2020. Tom to me it is about scale, it aint happening in growth, so you want to merge. I should point out, it is an historic day for the United States of america as we consider the impeachment of a president. Francine we will have full Team Coverage to understand what that means for the markets. Lets get straight to the bloomberg first word news in new york city here is viviana hurtado. Viviana that is where we begin, with history shaping up in washington, d. C. , the democraticcontrolled chamber expected to make donald trump the third president in u. S. History to be impeached. Six hours of debate scheduled. Lawmakers will consider two articles of impeachment abuse of power and obstruction of congress. The sets the trial in republicancontrolled senate. That chamber is expected to acquit the president. The Trump Administration ratcheting up pressure on iran u. S. Sanctions already driving oil exports to record lows. President trump is trying to squeeze iran to go she ate new limits of nuclear and missile programs. And after last weeks above political drubbing, former british Prime Minister tony blair will tell the labour party it needs a total change. In 45 years, blair is the only person to lead labor to an election victory. Today he will tell an audience in london labor cannot simply carry on with Jerry Corrine with Jeremy Corbyns policies under a new leader. Global news 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in i amthan 120 countries, viviana hurtado. This is bloomberg. Francine . Tom . Tom let me go to the data right now. Very quiet market. I was considering yesterday the lack of fallout there. You see maybe it is the holidays, maybe it is just looking for direction. Futures with a lift, a curve steepening over the last couple of days. Thats all ive got, francine. Francine i am looking at renminbi. I have not looked at renminbi for quite some time. There is quite a bit of news going on in china, so i wanted to figure out what that means with currency. Ejected tral bank injected liquidity. Now lets get onto fedex. Plunging after cutting its profit forecasts for the second time in the quarter. Blaming Weak International demand, slowing ecommerce delivery spirit lets get to frankfurt and richard who covers european logistics. Yesterday we heard an analyst from an amazon from amazon saying fedex does not deliver packages on time. How does this company get back on track . Richard well, keep in mind that fedex is a repeat offender when it comes to cutting the forecast. This is the fourth time they are doing this in the last 12 months. They started in december of last year, in march with the second cut, september a third one. They have some issues that they need to sort out, no doubt about that. Trade tensions with amazon is among this, possibly slowing global trade. Im not sure they would do the same thing all over again today. They have a lot of homemade problems that they must sort fourbut any company with profit warnings within 12 months will be in trouble on wall street. Francine you say they were part of consolidations phase. Will they now need to downside . Richard that is probably what they have to do. More importantly, what fedex will have to do is to understand and detect the issues that from the legacy, from their past, delivering from businesses to business, often document shipments and business hours. That is something totally different than shipping from businesses to consumers. If you and i order online on the internet, that is what is happening. That is the fundamental shift in the industry. It is totally different when you do that. We have a line here in our Bloomberg News story Home Delivery typically less profitable than drop off at businesses. That is the way to describe the problems that these guys face. When you and i order online, in a place like new york, it is easy to ring the doorbell at Morgan Stanley and drop off to a bunch of contractors a carton, but if you have a delivery truck full of all kinds of christmas boxes, trying to deliver it to people, people are not there, that is a different challenge for delivering. Tom as you look at all these people, i find i get a shipment from france sometimes quicker than i get from dallas. Idiosyncratic to fedex, or will it involve everybody else . Extent it is, because if you look at what dhl is, an International Express company, this just like fedex and ups today are, but it was bought by the equivalent to the u. S. Postal service. Has the merged company best of both worlds. They know how to do International Express and they also know how to deliver to people at the doorstep. So at the time when people, consumers increasingly want small packages at different hours and are never home, you need to know how to get that stuff to these people. If you are a mail delivery company, you know how to do that. Informative, richard weiss, thank you so much. I want to show a chart i have been making up here while francine was getting the show going. I was making a chart. This is boeing and fedex combined. This is the best chart i have ever made no, francine but the basic idea is normalized back two or three years, fedex has been a slow grind over that last 18 months, just completely missing the good performance of ups in america. And also Standard Poors 500. On bonds, which we will go over in the next section. Stephen, what have you changed in the last six weeks on your equity call . What is the distinction right now . It is about six or eight weeks, there were a couple of political events which were diminishing rapidly in gravity. Whichs chinau. S. Trade, the second was a no deal brexit, which it became clear the markets two markets it was being taken off the table. , particularnment relative to cash in fixed income, people are being held back by wrist, and that is what people allocated more. You see markets moving toward twelvemonth highs. Tom within fedex, in every other syncretic story out there, it is about stocks selection. Do i want to be an index fund or a Stock Selection . Which plays best next year . Stephen we have a thriving business within jp morgan. I would not like to pick between the two publicly on your show. There is an opportunity. Ould like to think their there is data that suggests that reasonablyment is good with Stock Selection. That is normally an environment which Stock Selection is healthy. Francine where do you see the markets going in 2020 . I would agree that generally speaking, recession risks have been reduced on the back of a limited trade deal, better brexit outlook, and we are seeing bottoming out of manufacturing indicators globally and some signs that Monetary Policy in the u. S. Is getting traction in the housing market. So i would say that the outlook for risk is somewhat better. Our stance is still cautious, so there are currently safe names. Given the uncertainties. Ould say that lot here on negative Interest Rates as well. Peter hooper in the next hour with Deutsche Bank on their strident call on in negative Interest Rates and what that has meant for a greater economy as well. Much more coming up here. The boeing story continues. In washington, kevin cirilli, this day of impeachment. Bloomberg daybreak this morning. Stanley druckenmiller. This is bloomberg. Viviana this is bloomberg surveillance. In premarket trading, shares of fedex plunging for the Delivery Service cut profit forecast for the Second Straight Quarter. Weak International Demand has hurt fedex, plus the company has ramped up investment to handle the surge in ecommerce deliveries. Deutsche bank calls fedex Quarterly Results breathtakingly bad. Tesla may take a big step to ramp up sales in china. Next year the carmaker may cut the price of its china made model three. Your Bloomberg Business flash. Tom thank you so much. We are considering 2020 we can do that with stephen mack smith of jp morgan. Stephen macklowsmith of jp morgan. An nicola mai of pimco. Pimco has one of the most cautious housecalls i can see out there. How do you dovetail a cautious International Look into the sustainability of negative Interest Rates . Are they here to stay . We think that negative Interest Rates are probably damaging over the long run, so if you look at it so far, you could give a thumbs up to negative rate policy and bank rates have fallen and credit growth has generally accelerated. If you look below the surface, there are significant issues. Bank Balance Sheets have been weakened by that, Insurance Companies are struggling. I think the longer these policies maintain, the more damage will be inflicted. Our perspective, we are kind of the amount Interest Rates can fall into further negative territory. The longer these policies sustain, the more damaging it will be for the financial system. Tom how does it damage the actuarial assumption, the gross actuarial assumption of the institutional debt in business . They have liabilities and obligations of seven years, 12 years, 32 years. They are doing that in an environment that is a fiction, right . The issue is that Insurance Companies provided a lot of life Insurance Companies, for example, they provided minimum income guarantees. Pension funds have targets they need to meet, and these are hard to fund on the asset side when Interest Rates are so low, or are actually negative. Several of these institutions have thoughtfully hedged their liabilities, so what is happening is you are having a mismatch between the liabilities on the asset side of these Balance Sheets. These are tolerable for now, but the longer this persists, the more you would imagine solvency concerns over the medium to longterm to potentially come up. Francine how beneficial are negative rates for equities . Stephen i think it is a mixed blessing, frankly. If you think why you have negative rates, weak growth fors it is difficult companies to grow. On both sides of the atlantic despite the fact that the u. S. Is growing in the euro zone, there are expectations now around zero or slightly negative. That is why we have negative Interest Rates. To stimulate growth. I am interested that the fed and the ecb are conducting formal reviews of policy objectives. It will be interesting to see what they tell us that they have learned about their experience of eight to 10 years. Francine we will see if that view is too ride for the moment too wide for the moment. Stephen macklowsmith and nicola mai stay with us. We will have plenty more coming up. This is bloomberg. Francine this is bloomberg surveillance. To europes global car giant. Peugeot and Fiat Chrysler have biggest to become the auto manufacturer in europe. Let me take off with you. If you put these two groups together, is there blind spot china because they do not have a huge presence in china . Yeah, absolutely. That is a blind spot. The second biggest carmaker in europe, clearly a main composite a main competitor of volkswagen. You are giving access to the u. S. Market with a cheaper brand. The missing spot is china. , the Chinese Investment in favor thes will also approval by u. S. Regulator. But clearly this is where they have to work more. Frenche if the government gave its blessing to the megamerger, what with they have gotten back in return . Clearly what they have gotten ,ack in return would have been that psa would not close any plants in france. Remember back in june when they tried to merge with the other french carmaker. That is one of the main reasons why this merger fell, so clearly this time there were some guarantees. He was going to be very vigilant , and this may have an impact on some analysts say that it could have been bigger, if there was not this guarantee. Tom let me cut to the chase. Are 410 thousand employees, combined employees. Scale, about scale, scale, against no revenue growth. How many bodies go out the door . Maso it is about how to share investment for the future. Tom come on, stop with that. You have written a book on this. To sustain cut costs you bit. At 11 . How do it . Tomasso they do it by sharing investment for the new technology, by sharing the power , by having bigger power in the procurement so that the savings will be used. But essentially if you count that in the next five years they had to invest more than 200 Million Euros for electric cars and self driving cars, fiat is getting essentially the electric platform from psa, to invest 10 billion euros in the next three years to build it itself. Tom caroline, culturally this is a train wreck. Are they going to run this out of a ski chalet in chamonix . Where are they going to base the merger . Caroline it will be listed in paris, in milan, and in new york. Willf course the carmakers work mainly on two platforms, as tomasso was mentioning. Have opal. We see a lot of investments there. This new entity will be very reliant on europe. At thee if you look concerns for the industry, trade wars, co2 emissions, you have new rules coming in 2020, and does this m a consolidation help with that . This is clearly one of the reasons to do it now because there is the 2020 cliff. The new emissions rules in itope essentially makes necessary for carmakers to introduce much more electric and hybrid cars. So you need the platform, investments. You need to fund buyers for those cars, so you need to Share Investments and do it as soon as possible. On the other site, you have to cut costs as much as possible because volumes are probably folding in the next couple of years. Francine thank you so much. Very good. Thes an historic day in politics of the United States of america. It is a day of impeachment. For those of you who are younger, that is absolutely remarkable. The president , a blistering letter to Speaker Pelosi overnight. This is bloomberg. Surveillance. Good morning and thank you for being with us. In the United States, a day of impeachment. Viviana that is where we begin, on capitol hill, six hours of debate and then the house will vote in favor of impeaching President Trump. He is accused of abuse of power and obstruction of congress. That sets up the trial next month in the republicancontrolled senate. Mitch mcconnell promised ands it a partisan affair promises acquittal of the president. Fitch improved the Credit Outlook since Boris Johnsons decisive election victory. Fitch taking the u. K. Off what it calls ratings watch negative, meaning the threat of a downgrade. In hong kong, canceling a traditional new years eve Fireworks Show following issues of security. It is the latest popular event to be canceled in hong kong. Parades and Sports Events have also been scrubbed. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. Hurtado. Ana this is bloomberg. Tom thank you so much, and thank you for those images of hong kong. For all our team in hong kong this 2019 that truly have worked seven days a week. Kong, it isng another world, president xi visiting macau. You know it in the modern year of casinos, a chinese 10 year effort, 442 years of portuguese pollinate colony. President xi managing the message in macau and this is poignant after you see the year in neighboring hong kong. Francine it is actually a way to show hong kong that if you stick with china, you will prosper. Macau has suffered little of the unrest that has gripped hong kong this summer. If you look at what the main message president xi will be giving, he will praise macau for earnest implementation of the one country, two systems framework that governs it. Tom very subtle, with hong kong canceling so many events. We have stephen macklowsmith and nicole and my with us. Lost confidence in china or the adjacencies of hong kong and macau . A i would not say so in that the hong kong protests are assigned of the worry. Recession, butin our baseline is one of gradual deescalation Going Forward and we would not expect hong kong as a Financial Center to change its status in a significant way. In terms of asia, we have investments. We are very selective. I would not say we have radically changed our outlook for asia or china. Tom there has got to be an opportunity. Hinges are hearing is em off the recovery of the stabilization of china. Do you buy that, or can em prosper separate from china . Stephen china is such a large proportion and it has an impact on the upper asset class, but the emerging market seen, there is disparate opportunities within em. You can think about Eastern Africa and north america which will not be affected much by the perceived issues with china. Another thing investors are learning over the last five years is that a lot of what we hear in the News Headlines is a form of negotiation. Our view on negotiation is that in the end, you settle on a benign outcome for both parties if you can get there. Francine are we peak globalization now for the World Economy and if we are, what does that mean for bonds . Nicola generally speaking, we are moving into a more protectionist world and a last globalized world. Less globalized world. The trade tensions are deescalating but the geopolitical issues between the u. S. And china will be longstanding, so what that means for investments over the long run as this could mean somewhat lower Growth Potential and somewhat higher inflation potentially, but these are more mediumterm trends rather than immediate trends. Francine lower growth, higher inflation, this would be a nightmare for the fed. Are you expecting surprises to the upside on laois in . Nicola i am on inflation . Nicola i am talking about a longerterm issue. Inflation will likely remain anchored. Inflation is very low and the fed will remain cautious, so the outlook for low Interest Rates in anchored duration remains. Rates goodw interest for equities . Stephen it is a really interesting question. It is a reflection of endemic we low growth that makes lifecycles problematic for companies because of the impact it has on operating leverage. We just published our longterm market looking ahead 10 to 15 years, and while it will be difficult to get inflation to target and to keep it there, the target for dust outlook for real gdp outlook for real gdp growth is relatively benign. There should be some scope for companies that prove profitability. Lower inflation means Interest Rates lower for longer so we do not think we are exiting any time soon from a low Interest Rate environment. That poses a paradox for investors. Tom these two guests agree with each other, which is not appropriate on a wednesday. Stephen macklowsmith and nicole mai as well. Nicola mai. Lets listen to mr. Kaplan. I have already got baked into my outlook weak manufacturing, sluggish global growth, sluggish is this investment, but with a strong consumer. There would have to be some Material Change from that outlook. Hooper,ing up, peter and we readjusts on the u. S. Economy with the head of Economic Research for Deutsche Bank. This is bloomberg. Are watching pg ebergs surveillance. Taking another step forward toward restructuring. Caseudge in the chapter 11 signed off on two multibilliondollar settlements and now they have to convince the governor. He opposes the reorganization plan and could block it. New york Life Insurance will buy a business from cigna, according to the financial times. The price, more than 6 billion. Cigna would get a cash injection needed after its 67 billion dollar takeover last year of express script. Beert murdoch fox will not the movie producer wanted to promote it on the fox network. Weekend. L opens this that is the Bloomberg Business flash. Francine the u. K. , five days on from the landslide election, Boris Johnson will enjoy a longlasting honeymoon. Worries over a no deal exit, the party on the pound. To pass itter plans along. The pound erased all of its gains. Still with us are stephen macklowsmith and nicola mai. If you look at this honeymoon period, businesses want to have more certainty about where things stand, but it feels like we are coming to an end of uncertainty. Stephen that is fair and yes, the pound is down strongly in the past two days and was up strongly the previous two days before that. We know where the pound to to sue, when the markets are worried about a no deal brexit pound gets two, when the markets are worried about a no deal brexit. This notion was that you can entrench in law a refusal to extend to december 2020, but when you have a majority and you pass an act of parliament you can pass another act to adjust that. Francine it is more about the psychology. Prime minister johnson, people thought if there was a large majority he would soften, but the negotiating tactic go down to the wire and the exit, not a deal. Stephen he is managing policy and his intention is to try and is deescalate the way this is dominating the headlines and push other parts of his domestic agenda. From my point of view, i am interested to see what the next budget will hold because we will get a clue as to how much fiscal expansion we should see in the u. K. Over the next year. Tom the game of the season is called fiscal space. Give us an update. Wheres the fiscal space in the United Kingdom . Nicola you could argue that with gilt yields so low, there spaceifferent amount of for the u. K. Government to spend. Story,look at the latest manifesto, fiscal easing this year will be low welby below will be below 2 . If the u. K. Wanted, they could afford to do some more. Tom is their opportunity within domestic u. K. Securities . Audience, theobal partition between u. K. Multinationals and u. K. Investments. Stephen if you think about the 80 dominated , by overseas traders and trades inversely with sterling. The ftse 250 is more domestically oriented. We are not concerned about valuations in small and midcap, and if there is a fiscal expansion that improves confidence domestically, those companies could benefit, but we need to see exactly what direction that easing uses. One thing that came out of the Election Campaign is Boris Johnsons specific ruling out of tax cuts across the board. The conservative party is traditionally for lower tax rates and he seems to have rejected that approach. It looks like fiscal expansion will take the form of high government expenditure rather than tax cut. Francine the slogan of the peoples government is something that people need to adjust to. It feels like a lot of money being spent in the north, more socially aware. What does it mean for gilt . Nicola at the margin, the higher the fiscal stimulus the higher the gilt yield. Our sense is that gilt yields have some room to rise relative to treasuries Going Forward. If you look at gilt yields versus treasuries, the gap in the 10 year space is as close as we have seen, and as brexit gets results and fiscal stimulus is implement, there is room for selloff in gilt relative to treasuries. Francine which would be good for stephen which would be good for Pension Funds and Insurance Companies. Francine is this a new conservative party . Stephen it is a Material Change from governments we have seen. If you just looked at the tv pictures of the socalled tories arriving yesterday for their first duties in westminster, it is a major change when you think about what has gone on electorally in the north of england. The conservative government has to deliver for those new voters. , bothne thank you both stay with us. The focus shifts from parliament to the bank of england, and policymakers delivering their first Rate Decision since the election. We will have a look at what pound movements we could see and we could see the announcement of a new governor shortly. This is bloomberg. Surveillance, all sorts to talk about. Thank you for being with us on economics, finance, and investment. Francine lacqua, stephen macklowsmith, and nicola mai. Both of you have seen double digits 2019. What happens in the bond world after a bang up double digit year . Nicola i dont think we can expect a double digit year in most asset classes. Assete seen exceptional returns across the board in 2019. I dont think we can expect that for 2020. When it comes to fixed income, we think duration will probably remain anchored. We do not see a significant rise in yields given low inflation and the gradual rio acceleration of growth. Ray acceleration of growth. Reacceleration of growth. Growth isctuarial ugly. How do you dovetail double digit equity returns into a low actuarial assumption . Stephen you have to think about the starting point. 2019 has been a good year for risk assets but 2018 was a nightmare, with a steep selloff in the fourth quarter. What is interesting about the rally rally in equity markets this year is earnings expectations started around plus nine, plus 10 and at the end of the year they are minus two. In equity markets, there has regradingrating rerating. If i were to put my money on something in 2020, it would be difficult because i can that see a single asset class that will give a doubledigit return. I can see an environment where something he changed on the trade side, you could see Risk Appetite surging in lots of asset classes. From the trade point of view, the mood music is troubled. There was a headline the last few days that Robert Lighthizer has talked about President Trump having come to a kind of deal with china and will start to turn his attention toward the european union. I dont see the trade tensions going away anytime soon. Francine if there are extra tariffs on european countries, it could be germany or french wine and cheese, what does it mean for fixed income in these countries. Nicola for sure it would mean nd yieldsbond yield bu because that would mean lower growth. Many is an export go furtheran the ecb into negative territory . Nicola it can, but we do not think it will, partly because the ecb is recognizing the side effects of the negative rates on the financial system. Our view is the ecb will be idle things like keeping they are and not cutting. Do inhat will the banks the equity market . Finally they have begun to catch up. Can you overweight banks internationally . Stephen yes, you could because you have an attractive valuation proposition. We were running some numbers and at the moment, the euro zone Banking Sector which used to be 10 or 11 market capitalization is closer to 6 and 7 . They are trading on half times book, so clearly if the environment in which they operate is not as negative as people fear, there is scope for those valuations to improve. Although we are in a low interest environment, we do have some steepness in yield curves and that means the banks are still able to generate a small amount of net interest margin. In countries where you are seeing mortgages offered at negative rates coming with a hefty whacked of fees, that is how most banks are defending their profitability. Tom stephen macklowsmith and nicola mai. This is an extraordinary day in the United States. Kevin cirilli will join us in a little bit, the day of an impeachment. I read the president s full letter that was written last night and it is an absolutely historic document, the kind of document that 50 or 60 years from now will be in a museum that people will study, the anger, the grievance he feels towards Speaker Pelosi and this process. We will have full coverage from our washington shop. Later this morning, Erik Schatzker with Stanley Druckenmiller in the 8 00 hour. This is bloomberg. Good morning. Tom this morning, when it ,bsolutely, positively matters fedex creators on breathtakingly bad guidance. It is bezoss fault and amazon. Thereg it in with boeing, their impact on economic might. This wednesday, all of america must consider impeachment. Good morning, this is bloomberg surveillance. From our World Headquarters in new york, tom keene. From london, Francine Lacqua. Can i say brexit is not a news story today . Francine it is always a news story because we are focusing more on brexit, even though we dont know what kind of relationship the u. K. And e. U. Will have. Some markets have taken it as we have a landslide majority, brexit will be done and we move on, but the brexit he was talking about was the Withdrawal Agreement and then you have to resolve the trade and that could take a long time. Tom forget about fiatpeugeot. The photographs in marseille and , likere extraordinary something out of the 1950s and 1960s. Francine we talked about the strikes and pension reforms, and we will figure out whether macron has been doing a good, ok, or bad job pushing through the Structural Reforms Bond Investors have been looking for. Tom interesting stuff happening at yearend. With our first word news, here is viviana hurtado. Hey historic day in the house viviana a historic day in the house of representatives as they expect to make donald trump just the third president to be impeached. Lawmakers will continue two articles of impeachment, abuse of power and obstruction of justice. The senate is expected to acquit the president. The Trump Administration is ratcheting the pressure on iran and have driven iranian oil experts to record lows. President trump is trying to after lastn to force weeks political drubbing, tony blair will tell the labour party it needs a total change. Blair is the only person to lead labour to an election victory and he will say they cannot continue on with Jeremy Corbyns policies under a new leader. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom real tight ranges here, one data screen. Futures a little bit of a lift. Curve steepening over the last number of days. Francine, what do you have . Francine i have a data check. I want to look at what the yuan is doing. Renminbi is significant, trading sideways. There was noise about Chinas Central Bank injecting liquidity into the financial system, and there is always something going on with the pound as we talk about brexit, extending losses after tumbling yesterday. There is concern a no deal brexit is still possible. Tom this is a quick chart i made up and it is not linked, but it is boeing and fedex. Boeing, this is the dropoff we have seen over 2019, not all that much, contained three or four years ago when they split. Fedex has been a train wreck since late 2017, early 2018, and it just cannot get it going. I want to make clear, this is distinctly different than a chart for its great competitor ups. Francine i love your chart. Has been is ecommerce squeezing margins for fedex and ups, and you have the feud between fedex and amazon. Fedex plunging after cutting their profit forecast, laming week demand blaming weak demand. Lets get to a bloomberg Senior Intelligence analyst. When you look at the concerns fedex has, do they how do they get out of this quarter . Lee we knew this year would be a transition year because the company has made a number of investments and is changing their network dramatically. Acquisition years ago was plagued with issues following a cyber attack on their network that paralyzed the european parcel carrier. That showing some promise, but will not be fully integrated for another six months, so the company is operating dual networks. Closer to home in the u. S. , there Ground Network which suffered bad margins, probably worse than people were forecasting, that has driven the companys change. It is changing because of ecommerce. Used to be five day delivery and now they are doing 6, 7 day delivery, and as they build out that capacity it will take longer than thought to fill the capacity. We have some nones we knew about, knowns we knew about life walking away from amazon business and thanksgiving to christmas time was six days shorter this year, compressing the peak season where volumes can move up 75 for a normal day. Francine citing poor service, amazon band thirdparty banned thirdparty members from using fedex. What were the statistics . Lee the statistics said fedex ontime delivery was 90 , 91 while ups was around 74 , so maybe amazon had some concern about that. There has been a lot of titfortat from the companies. Walked away from some amazon business because they cited it was lowmargin. The announcement we got yesterday will impact revenue by tens of millions of dollars. It will not be a huge hit to the company. Amazon is a huge ecommerce 50 of thethere is ecommerce market in the u. S. That they do not control, and that is what fedex is going after aggressively. There is the targets and walmarts of the world, and you will see fedex getting into some amazon businesses, amazon getting into some fedex businesses. Tom the cfo has enjoyed a 22 year tenure at fedex. Have they worn out their welcome . They have completely dropped the ball versus their competitors. Not only smith, he is in charge but he is the founder and a big shareholder, so it will be hard to push him out. Luck, somen of bad of it the management should have probably seen like the condensed period this year with thanksgiving, like the fact they fromthey would walk away amazon business and the impact of that. Three of their senior managers are on the job for less than a year, so those individuals probably have a lot to prove and they are the ones that are really doing the daytoday, especially on the sales and marketing side. Tom thank you so much, working all night on this story, Bloomberg Intelligence on transportation, the logistics of the nation. We are thrilled to bring you peter hooper. We are all securities analysis analysts this morning. Boeing, with their suppliers you United Technologies and overlay the litmus paper like home depot or fedex, and they dont want you to talk about individual country does companies, but does this make down the numbers q1, q2 . Peter the boeing disruption will take something close to half a percent. Tom you are going to give me a. 5 . Peter . 5 on the annual rate of growth and the First Quarter. You have seen deliveries come down of the last couple of quarters. Inventories are rising and now we will cut production. That will have a noticeable impact on fourthquarter growth. First quarter growth. Tom i did not know that peter would say this, but heres the gdp line, and the regression of the slowing American Economy from the 3 tax stimulus at the beginning of 2018. Mate fromhe guesti bloomberg. You are guessing one half a percent. Peter we were expecting First Quarter growth to pick up a bit. This kind of disruption levels thing out things out, maybe a slight weakness, but it is temporary. We are expecting a resolution of this deal. We think it will be coming back stream and our expectation is growth is getting back word to percent in the year ahead back toward 2 in the year ahead . Francine what is it that you worry about, inflation, the trade were coming back in full force . Peter the transition from trade policy and Brexit Brexit uncertainty is certainly not off the table after the indication that we could get a cliff at the end of 2020, but the transition from those uncertainties to election uncertainty. Election years historically, we have tended to see some drag on growth because of the potential for shift in policy postelection. We have never seen that kind of uncertainty combined with the kind of impeachment related stress here. Impeachment is purely a political it is breaking down along political lines and people are not expecting it to have much impact on the election, but it is hardening the positions on both sides and the potential for disruption should we get a close election, that kind of uncertainty will build through the year. It is a factor to keep in mind. Francine peter hooper of Deutsche Bank stays with us. Coming up, we will have more from Erik Schatzkers full conversation with Stanley Druckenmiller, 8 00 a. M. In new york, 1 00 p. M. In london. This is bloomberg. Viviana you are watching bloomberg surveillance. It will be a 50 50 merger of two automotive diets these dynasties. Fiat chrysler and peugeot signing off to create the fourthlargest carmaker. The company will be led by the psas ceo. Tesla will take a big step to ramp up production in china. They may cut the price of the china made model three by as much as 10 , bedding it will alert buyers. Buyers in the Worlds Largest market. Francine just to give context on the Fiat Chryslerpeugeot combination, the acquisition will create a 46 billion company that made 8. 5 million cars last year. Tesla made less than 250,000 cars last year. Tom scope and scale, complete coverage for our global audience in the United States of america as we look to 1868 and 1998 and now 2019. It is the impeachment of a president , widely presumed. As we go to kevin cirilli, the New York Times wrote up the trump letter last night and its length and annotated each idea and question point on it. Down at the bottom, they look at the american divide on this and rounded up 47 , the equal division of debate of a greatly split america. Measuring the split is our kevin cirilli, bloomberg chief washington correspondent. Let me cut to the chase what will you look for today as we go through the process . What are you focused on, on the hill . Kevin in terms of where this heads is battle creek, michigan where President Trump set to have a Campaign Rally later this evening, and likely he will time that around the vote. This will be the first time the president speaks and will take the stage at a rally in a key battleground state where he is leading. Every democratic denzel does president ial candidate president ial candidate. At 9 00 a. M. New york time, the house convenes for six hours of debate. In the pomp and circumstance and ceremonial procedures, we are expecting the vote to occur sometime between 4 30 and 7 00 p. M. New york time. Only a handful of democrats that the president won in 2016 are expected to break with Speaker Pelosi. Whether it comes today or the next several days, Speaker Pelosi will name the impeachment managers, the prosecutors who prosecute the case in the senate trial. That is the trial where the president will likely be acquitted in the republicancontrolled, and the first couple of weeks in 2020. Tom the senate trial, which mcconnell saying of course it is partisan. What is your read . Why shouldnt they be partisan . Kevin in terms of the dynamics of the senate, they will say that has been an equalizer to the politics of the house where the democrats control. Inare now at a historic day terms of the impeachment vote, and we end this calendar year in the impeachment round the same way we started it round, the same way realm the same way we started at, with an impeachment. Have been able to successfully convince the president to come around to supporting a short trial, one in which people like hunter biden and others would not be called. Chucknate minority leader schumer saying he would not allow Mick Mulvaney or john bolton to testify in the senate trial, or to hear from them. Francine President Trump will still be president at the end of this process, right . Kevin yes, he will definitely still be president after the impeachment vote. He will again be giving a Campaign Rally later this evening in a key battleground state of michigan. I will take you behind the scenes for second in terms of the Democratic Caucus meeting in the house yesterday, where Speaker Pelosi met with members of her party to try to get the temperature. She is not whipping this vote. She is allowing each member to vote as they feel. That has been carefully choreographed and lawmakers passed a budget bill yesterday to keep the government open, and tomorrow is the usmca vote. Tom Susan Collins of maine will continue in the senate and will make every effort to continue, as she has done for 22 years, to represent the state of maine. Is that timed with this impeachment and discussion . Kevin Susan Collins was the key vote during the Justice Kavanaugh proceeding. She is a centrist republican and how she votes will be interesting. As of now, we were talking about this with republican and democratic strategists, as of now, it is looking like there will be a handful of democrats who vote against impeachment and no republicans. Tom thank you for the earlymorning effort, a historic day in washington. Please stay with us. This is bloomberg. This is surveillance. We are just getting headlines iserg surveillance. Speaking in frankfurt, a couple of headlines coming on saying ecb actions have been effective but the ecb should clarify their mediumterm inflation goal being at 2 . Lets get back to peter hooper. Also talking about this wideranging view that Christine Lagarde has asked for. Is the review currently too wide . Is there a worry it could confuse markets more than give them certainty . Peter this review is a good idea. My sense is one of the central issues is exactly this inflation around the confusion close to but below 2 as the objective. Growing is there is a sentiment in favor to moving something a little more symmetric. Inflation expectations, we have seen in the u. S. With core pc averaging below 2 and drifting lower. The fed will strengthen the idea , in their own policy view, of moving towards some sort of inflation averaging, a makeup strategy, overshooting 2 as an objective down the road. I would not be surprised to see the ecb move in that direction. I think it will be a central focus of this upcoming year of the review. Interesting that they want to get it done in one year. The fed took one year and will take another six months to give us a final report. Francine peter hooper stays with us. Says he has no doubt the European Central bank can ease further with current tools. One of the last speeches before he goes on to be in charge of additional currencies that additional currencies. This is bloomberg. Tom good morning, everyone. Surveillance. Right to our bloomberg first word news. Viviana we begin with a historic day shaping up on capitol hill, six days six hours of debate and then the democraticcontrolled house is expected to vote in favor of impeaching donald trump, accused of obstruction and abuse of power. The Senate Majority leader calls it a partisan affair and promises an almost entirely partisan outcome in the senate, and acquittal of the president. The u. S. Is conceding defeat trying to stop a pipeline project between russia and germany. The u. S. Has viewed it as a threat to european security. It highlights how allies such as germany have ignored pressure to abandon the pipeline. Hong kong has canceled its traditional new years eve show. It is the latest popular event to be canceled. Parades and Sports Events have also been scrubbed. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom thank you so much. 2019,ages of hong kong of and 41 miles away in macau with the gambling and the 20 year tenure of the chinese, president xi visits today. A choreographed photo, and images as well. The portuguese for over 400 xirs, with china, and mr. Managing the message 41 miles away. With us is peter hooper and we are pleased to bring george friedman. Thrilled you could be with us on this day in macau. The symbolism is stark. Is this experiment working for beijing, the idea of a different hong kong and different macau . George it is not an experiment, it is a reality. Hong kong and macau are different. He will focus on macau and ignore hong kong, but hong kong is so much more important to china and the world, that you can try to shift attention. The reality is that they have an unhappy hong kong. It is important financially for them as a gateway to the world, and you cant get by. Tom will there be an effort by beijing to get greater control on hong kong . Do you suggest with a new year passing, with all the other news flow including maybe some cure to a trade war, they will be more assertive in hong kong in 2020 . George at this level of unrest, they can live with it. The problem is they have a real pr crisis. It has not played loudly, but they are running concentration camps. If they wind up with a human rights crisis in hong kong, their entire position in the world as a modernizing developing country that has 5g and is moving places, it gets hurt badly. They dont want hong kong, the place where the cameras are, to wind up with repression, so demonstrators will get further out of line. The chinese will try and not do anything. Francine how long can they not do anything . At some point will they have to replace carrie lam . George at some point, she will be replaced. That is not the issue. Can they live with a crisis of this level . They have lived with that for quite a while and have no intentions of cracking down. It would be silly to bring in the Peoples Liberation army and crush it. It has to get worse and so long as it remains within these bounds, the chinese have shown every intention to survive. About thetalk to me cross hairs between hong kong, the protests, and trade. Were they ever linked . George they are linked in the sense that china is having serious economic problems. If you look at the data, there banking system, production, they are not doing well. Somewhereave unrest in the Central Committee. The Central Committee of china has got to be unhappy about xi maneuvering himself into a trade war with the United States, having this hong kong crisis, with the matter becoming public, they have a basic problem. Plus theall linked, South China Sea, they have made no progress expelling the americans. A lot of ways when you backup, chinas policies and xi has not done well. Some faction has to be asking some serious questions, and the link is the political question. We all assume that xi is invincible. You cannot do something this wrong and not have someone raise a question. Tom with us as well, peter hooper of Deutsche Bank. We listened to the politics and defense and military structure, and the economy as well. Vector downhas the to sub 5 gdp on china. Does chinas gdp actually migrate down under 6 or dare i say, even lower . Peter hong kong is taking a big hit, no question. Isna, our economist relatively optimistic and he says this because we superimpose upon efforts to stimulate things by monetary and fiscal stimulus. Cycle in china is about to turn up. We have had for the last several years a decline in purchases in the rate of growth of purchases like cell phones. 4g has pretty much run the course and we are getting into 5g. That will set off a cycle that will pick up those purchases. There is a cycle in autos as well. Our forecast is for growth to continue at or slightly below 6 next year. Tom just as we wrap up the year with you and your great assistance to us, does the United States navy need to show the flag in the South China Sea . Is that what we will be looking for next year . George we are showing the flag, and that is the important thing. We are showing the flag, playing it down, but the chinese have been careful not to engage too closely. We are doing all these things, and the important thing for my point of view is that we talk about the economy going up or down. I dont know how reliable chinese numbers are. They issue numbers and you wonder where they come from. Obviously, it is going to be cyclically for a while, but you have so many problems closing in. Tom this has been wonderful, george friedman, thank you so much for joining us. We will come back with dr. Hooper and look at the u. S. ,conomy, and that means the fed which means it is important to listen to the individual and distinct fed president s. Here is kaplan of dallas. Mr. Kaplan trade issues will go on for years, not months but years. Most businesses are adjusted to that. These issues of intellectual property, Technology Transfer, and the deeper issues with china will go on for a long time. Phase one is better than not having phase one, but does not mean there will not still be trade uncertainty. Have already got baked into my outlook, we will have weak manufacturing next year, sluggish global growth, sluggish Business Investment but with a strong consumer. There would have to be some Material Change from that outlook. Tom Robert Kaplan with one view. There are 12 fed president s and they are all unique in their own way. Peter hooper knows this. This was almost my chart of the year. I went with a trade chart instead. The fed funds target rate 2007ted for inflation from , down to the altar accommodative stanley fischer. Accommodative stanley fischer. We made it back and then rolled over. Stamps be in asymmetric stance by this fed in an attempt to refate reflate . Peter inflation is still too low. They want to see it go back. Increasingly you are hearing them say they would like to see some overshoot, or would be comfortable with overshoot of 2 . Our expectation is they will not get there for the next few years. Goingpectation has them around 2 . There are questions about how accommodative they are. Rstar, thete of neutral level of fed funds, has come down a long way to about. 5 in real terms. 2. 5 is their nominal neutral level of the fed funds rate. We are at Something Like. 5 now on the real measure. We could be well below that in terms of how far we have to go to really stimulate this economy. There are a number of key questions. At jacksoni think hole a year ago, gave an interesting speech about uncertainty about the stars. Rstar is a key one. The neutral level fed fund has to go lower and they are not quite as accommodative as they are thinking. Another uncertainty is you star, unemployment ustar. Tom it sounds like a bad abba song. Technology is driving over most of this. Some people are benefiting, some are not. There is a new form of globalization which mr. Did mr. Kaplan is right in the heart of this. We have a mercantilistic president in a trade war. What is the chairman of the fed to do, given the societal realities of technology, culture , and a new globalization . Peter he is doing the right thing. He is saying there is a lot of uncertainty. It is a good thing to be moderately accommodative because inflation is too low. Yes, productivity growth could be picking up very slowly, but wage growth has kind of leveled off. We are not seeing substantial wage pressures yet. I think it is appropriate for the fed to be trying to get , have up above trend policy be accommodative. The question is, are they accommodative enough . Andur call, matt luzetti his team put out a call that the fed will be flat this year and the next move will be down in 2021. Tom like the edge of the ecb. Francine a little bit. Is an outbreak of inflation in the u. S. Really unlikely in 2020 . Ofer yes, an outbreak inflation is very unlikely in 2020. The dollar has been strengthening as of late. That is a negative through the good sector. The labor market looks tight and some antic totes anecdotes say we will see wage pressure, but we have not seen it. Core pce inflation is still well below 2 , so we have a ways to go. My prediction is we will have to get down into the twos on unemployment, below 3 before you see a real surge on inflation. A couple of decades ago, and economist mark watson said you need to be a full percentage point below the natural rate of unemployment before you start to see inflation rise. We have a ways to go before we get there. The natural rate of unemployment anddropped to four or below we need to get to three or less before we see inflation, certainly not in the next year. Francine peter hooper stays with us. Signchrysler and peugeot on the dotted line. From them next. This is bloomberg. Viviana you are watching bloomberg surveillance. Pg eupt california utility taking another step forward toward restructuring. The judge in their chapter 11 case signed off on two wildfire settlement. Now pg e has to convince the governor who rea pup who opposes the plan and could block it. This is according to the financial times, the price or than 6 billion. Cigna would get a cash injection that is needed after its takeover last year of express scripts. Withis Annmarie Hordern your stock movers. The biggest corporate story of the day, peugeot and fiat inking the deal, creating the fourth biggest carmaker that will rival vw in germany and europe. From car consolidation to truck consolidation, volvo up 4 . Isuzu motors is buying a unit of volvo for more than 2 billion. Bang and olufsen down, absolutely plunging. Its fourth profit warning for the year and concerns of what this means for the year. Song, u. S. , fedex in a down 7 in a funk, down 7 . Everyone is talking about these factors weighing on them, thanksgiving later in the year, the trade war, but i am hearing its prominence problems with amazon. Francine europes new global car giant have combined to create the fourth biggest auto manufacturer. Concern is they dont have exposure to china. How can they get it . Michael peugeot has exposure to china. It was a decent player years ago its market share has jeep has a Good Opportunity to expand in china because the chinese want suvs. There is an opportunity for them to do better. Francine is that there blind spot . They can do better but if you were to create a world Auto Industry giant, would you have put these companies together . Michael it is the missing link. China is the missing part of their business. Francine how many job cuts will have to happen . Michael at the moment, there are no plant closures and the french government agreed because there will not be job losses initially. Francine the industry is under increased pressure for volumes, people buy less cars, and the emissions and new rules in andpe in 2020, how does m a becoming bigger help . Michael it is a tough environment, but the huge amount of spend they have to make for the ev transition will thwart new technology. If you look at what they will spend next year, over 35 billion euros in r d, so if this is spread around bigger amounts of cars it is beneficial to individual names. Francine with this new entity, 46 billion worth producing a. 5 million cars. Tesla is 68 billion dollars in market cap and they produce less than 250,000 cars. Michael fiat needs peugeots technology and the combination will allow them to spend more in r d. It is a reflection of all Car Companies trading on 50 discount when historically they traded on 30 discount, because of the tech transition. Francine are there too many carmakers . Will we wind up with three or four big players in 10 years . Michael i think so, there will be more consolidation, but in the short term there will be more cooperation. They still have to cooperate with the likes of ford and electric vehicles, more cooperation from bmw and mercedes. Francine michael dean, thank you so much. Coming up on daybreak americas, Erik Schatzker speaks with Stanley Druckenmiller, who will have a thing or two to say about bonds. He has been very vocal in the past. That is 8 00 a. M. In new york, 1 00 p. M. London. Investors are trying to figure out results from fedex, what that means for the u. S. Market. Sterling declining on fears of a hard brexit. This is bloomberg. Alix merger of auto dynasties. Psa and fiat agree to a historic tie up, relying on each other to adapt to trickle cars to electric cars and a cushion to economist vehicles. Bad. Htakingly ecommerce squeezes profit margins. And three charts show things could be betting could be Getting Better from small caps to emerging markets. Welcome to bloomberg daybreak on this wednesday, december 18. Volume solo. S p volume so low. Yesterday crude rolling over, so watch that risk off field. Time now for global exchange. We