Transcripts For BLOOMBERG Countdown 20151203

It has gone 6 00 a. M. We have got so much to get through. We have janet yellen and we will bring you conversations around those topics during the show but lets start with something that is happening in the markets in that is of movement on the oil story. This goes back three days and shows you the drop we saw in yesterdays session toward the end of the session. Now the bounds were seeing in oil futures this morning, it is an interesting one. It hinges on report by Energy Intelligence suggesting the saudis might propose an eventual cut in oil output. It might be eventual because it might not kick in until 2016 and it might be contingent on support from nonopec countries. Oil has dropped on reports from iran and iranian agencies suggesting there was division among opec as there often is with what to do with oil output. We will continue to watch what is happening with oil and bring you the latest about central banking. Thell eyes will be on European Central bank. Mario draghi is expected to ease Monetary Policy in a bid to boost inflation. He will deliver a dovish surprise that will drive the euro down by as much as 3 to about 1. 03. Stay tuned for our ecb coverage throughout the day. We will bring you the Rate Decision and mario draghi us News Conference at 130. The uks ministry of defense confirmed its jets have taken part in airstrikes against Islamic State targets in syria. He comes hours after british lawmakers back to the plan for such attacks. Jpmorgan and bank of america and citigroup were among a large u. S. Banks that had credit grades cut one level by Standard Poors. The downgrades run the prospect of the government is less likely to provide help for them in a crisis. 14 people have been killed in a mass shooting in california. As many as three attackers at ad fire on a banquet social Services Center for the disabled. The suspect made off in a black suv. Two of them have been killed. President obama has called for a bipartisan response to mass shootings. Proceedings against the brazilian president sparking optimism among investors that the country is close to resolving the political gridlock. The nations Biggest Exchange traded fund jumped on the news. For more on the stories and others had to bloomberg. Com. Anna the week oil price is something that has affected the u. S. Session yesterday. It is working its way into the asian session. That is what was happening before the oil price bounds. About thats all reaction to oil. Saudi mayrts that propose a cut to opecs output and we have seen that happen in the last hour. We have seen a pickup on the close. It was quite negative before that report. We are seeing stocks higher for a fourth consecutive session but that weaker oil price we had living in from the u. S. Session weight into australian equities which closed over an hour ago down by. 6 of 1 . Weakness coming through in korea despite a read on Third Quarter gdp. Has been all about these energy players. One of the worst performers but it closed before we had that report that saudi may have proposed this cut. Petra china and scenic still weaker. And falling to a record low. Spendingp down on hurting the rates here. That is the share price. Certainly a lot of focus on those Oil Producers but we have seen a bounce in chinese equities. Just under an hours trade to go and shanghai. And a fed chair expressed confidence in the u. S. Economy less than two weeks before the highly anticipated Rate Decision. She said financial and Economic Data this october has been consistent with the fomcs expectations. Where the fomc to delay the start of policy normalization for too long we would likely end up having to tighten policy relatively abruptly. To try toing together ensure that the economy will not have another devastating financial crisis. We have to tolerate some dissent. Never the less for the fomc to be successful and to communicate a coherent policy to the public, we do need a certain degree of consensus. At our focus shifts to the ecb. Just as janet yellen braces for dissent mario draghi might be faced with a lack of unanimity over more quantitative easing. There and store. Are we expecting dissent at the meeting today . That could be potential dissent. Bundesbank president it was not that vocal and it was not enough to stop quantitative easing. Readd an inflation yesterday. Inflation has been stubbornly low, coming in at 0. 1 giving you an indication that mario draghi does not move. This is baked into the market. There is so much expectation theyre going to expand the size and scope of quantitative easing , you take a look at the deposit rate, what we could have there. It is at 0. 2 , it could go to 0. 3 . Even a sizable majority is calling that all the way down to zero point 4 . We may have some dissent. We will see what happens at that press conference later. The only thing you can get excited about is how weak the euro is going to get or i will give you this gdp day. That is also a fun day. It is a big one. Im sure you will be tuning in to that conference. Anna one of the dangers of not acting or overreacting . It is a credibility issue. When you look at the market expectations, there is going to be something done here. Heres a great quote i read overnight. Expecting an analyst what they are bracing for. Traders are drunk with [indiscernible] it will be up to the ecb if they can run the risk of disappointing markets having raised expectations to high levels. Expecting a dovish surprise. The euro could go down to 1. 3. I want to take that above and instead of talking about mario draghi, i want to talk about german gluhwein. Christmas markets will be teaming with americans drunk not wein but also that strong dollar. Hans. Plenty more from your excited about ecb face. I am over the moon with anticipation. Give us your topline. He has to deliver on expectations. The ecb fueled these expectations in october. We have to have a deposit rate cut. On basis points. We are necessarily done. He has to increase asset purchases and there will be some discussion about broadening the range. That is so important. There is little choice of cutting back. I would expect just to drop the language about buying bonds until september 2016. How does the euro perform . Goldman sachs talking about how the euro could vote down to as low as 1. 03. A level not seen since 2002. Is it possible for him to be that dovish that it sends the euro down that much . Sent the euro down a lot two years ago when he started this process. The man has history on this. Got used to the idea that he over delivered. Makeld expect to have to between today and the fomc meeting after which we may collapse in a couple weeks of prechristmas exhaustion. There are lots of shorts in the euro. There are many euro bulls floating around. We had a chance that the last time was at parity. Are you in the camp along with barclays, talking about the euro getting to parity in 2016 . I think it will not get a lot below unless something goes wrong. Or if something goes very right. The euro is being driven down because of european rates have fallen. Are prettyry yields much unchanged on the year where we are today. Yieldshen deals bond that have come down. Fed may be raising rates more than i expect. Treasury yields going up more than i expect. If all were doing is driving the euro down as the ecb scrapes the bottom of the barrel on how far they can go, driving their bond yield. The yield was under 10 basis points. Going to stick my neck out and say i do not think it is going negative. If we are not going to take 10 year yields the low zero i think it will be harder work. Unless something goes awfully right in the u. S. Or quite a lot more wrong in the world. Aseven inflation is not negative. Improved in has october. If you look at that data things are moving in the right direction. At how forecasts for gdp grew growth have progressed, they have edged up to 1. 7 . What is sending the euro down is mario draghi is pushing to try to get something more than just an edging up of growth expectations and an edging up of expectations. That is why he has got to deliver today. He is pushing this. And then the second one is the much longer question. Now that we have not the dollar so much, what will we do when it finally happens . Well have that conversation in just a second. Stay with us this morning through the hour. Live coverage of the ecb decision from 1245 p. M. London time followed by the press conference at 130. S p cuts Credit Ratings at eight of the biggest u. S. Banks. More on that story next. Anna welcome back. Lets get the bloomberg is this flash. Jpmorgan, bank of america among eight large u. S. Banks cut. Had grade levels it is on the prospect the government is less likely to provide health in a crisis. Qualcomm surged the most in four years. The company has agreements with four of the top five chinese automakers. Bloomberg sources understand a complaintparing over deceptive and predatory pricing tactics. Reduced frombeen 5. 2 billion to 3. 4 billion. The company was penalized for failing to disconnect millions of unregistered mobilephone customers. For more on the stories and others check the bloomberg terminal or bloomberg. Com. Anna lets get more on Standard Poors decision to cut rates on the biggest lenders. How significant is this, what has s p been saying . Quick delving into the eight banks. There are the eight. They have all been downgraded. They had a cut to their issuer of credit. Reason theyre saying creditors are to be the front nonviablefense for banks. If we see a sudden risk to the financial crisis if we see a bank dose struggling, creditors will take the hit. The government is less likely to provide extraordinary support. It is getting a new stockpile of debt to be held by the banks that converts into equity. They are supported. We were warned back on november 2. Anna this reflects the feds move to make banking less risky. This should help the sustainability of the lenders. Perhaps this is a Silver Lining looking at this from the banks perspective. How would this affect the bund prices . Is this a positive or negative question mark you would think that borrowing costs would rise and banks might struggle to raise more collateral. On many occasions, muddies cut the readings of the banks and it was a really friendly. Not as bad is expected and this was well flagged in reaction to this new regulation from the fed. Also getting to the nittygritty they are showing they have absorbed credit. The nonoperating holding companies, the toplevel structure, they have been cut but the systemically important , thelying is this operating part of the business could be stronger. Bank of America Citigroup are on creditwatch with a positive application. They could be upgraded because they have more additional loss observing capacity in the holding part of the business and operating part could be seen to be stronger. After the jailing of the top financier the country is in another crisis. Charges range from illegally financing her reelection to doctoring fiscal accounts it seems to go from bad to worse in brazil these days. What is the latest . Have beenkets obsessed for the last couple of weeks with the spectacular ceo ofof the founder and the bank. And now this. It really is you do not know where to look next. Things are spiraling into a war situation every time we look at the news coming in. Backdrop to this is a low Commodity Prices. We have a government with a budget deficit that is the whitest in about two decades create we have the economy on track to decrease by 7 this year. It is not looking very good in any way to machine, or form. We have now some economists talking of a fullblown depression for brazil. Anna how much of a surprise was it when it happened . Been a lot of will he, wont he as far as eduardo cuna goes. It comes after several months of his considering these requests. He looked at 34 of them and he will hit with at least one. Interesting thing about this, this whole process is that he is at the center of some allegations and his decision came hours after some members of , they voted toty have him investigated for alleged corruption. In a sense it was not a surprise in terms of the timing but it has taken a long time to get to this point. Anna thank you. Joining us with the latest in emerging markets area we have mentioned the fed. We heard from janet yellen yesterday. Are you expecting a dovish hike from the fed into weeks time when we get it . And expecting it incredibly dovish spike. To price in get us a rate rise so we are not surprised. They need to wrap that in so much cotton will so it does not hurt anybody. Then they can go in quickly. Yesterday she was talking about needing actual progress. Some people interpreting this, it means another rate rise will be slow in coming. I think they are not going to go quickly. Rates all therest way up to 1 if all goes well. Even with all prices down here they are not falling europe year at the rate they were. Cpi heading higher. They can use that to justify moves. That will be hedging higher through next year. I would have thought we will get one, wait a couple of months, get another one. Might needate hike something a little more concrete. Ther this point getting process started without causing Collateral Damage is what it is all about. The ecb has played its hand. See some anticancer emerging markets or has it been so well flagged it will not be any need for that . I hope we do not. There is a risk that you get a reaction because we have postponed this move 70 times. We have talked it to death. A large part of me thinks we do this in december and we go on wrapping presents. Anna they are watching very carefully. The currency looks cheap and huge. Count looks the Housing Market is booming. The rates are too low and they will probably cut them again. And the swiss likewise. Of next on the program, britain joins the battle in appears totin deliver his annual state of the nation address. We look at the geopolitical landscape. Coming up next. Sure, tv has evolved over the years. Its gotten squarer. Brighter. Bigger. Its gotten thinner. Even curvier. But whats next . For all binge watchers. Movie geeks. Sports freaks. X1 from xfinity will change the way you experience tv. Anna you are watching countdown. Lets get the bloomberg first worked with nejra cehic. Nejra this could depend on actual progress toward inflation gains. The is a shift from requirement the fomc set for the initial move. Rates will rise gradually after a widely anticipated increase this month. All eyes will be on the European Central bank increase later today. Goldman sachs says that draghi will deliver a dovish surprise that will drive the euro down by as much as 3 to about 1. 03, at level not seen since 2002 and stay tuned to bloomberg for our coverage throughout the day. Draghis newsyou conference at 1 30. The downgrade on the prospect of the government less likely to provide help for them in a and a shooting in Southern California that less at least left at least 14 people dead. Authorities say they opened fire at a banquet at a social Service Center for the disabled. President obama has called for a bipartisan response to the shootings. For more on the stories and others you can look at bloomberg terminal and bloomberg. Com. Anna but get more details on one of those stories, the u. K. Has carried out airstrikes on the Islamic State target in syria hours after lawmakers voted to approve military action. Labor leader Jeremy Corbyn was opposing military action. Those supporting airstrikes argue that britain should answer the calls of allies including france and the u. S. To join attacks on the Islamic State. Opponents said the u. K. Had little to add and would the more likely to be a target for terrorists if they joined the attacks. There were more than 10 hours of debate that ended in the house of commons voting hundred 97 to 223 in favor of military action. The vote was welcomed by barack obama. It enabled the u. K. To join Nine Countries that are already bombing i. S. In syria and domestically it also gives a boost to David Cameron who is confronting an opposition that is increasingly divided. Wasted no time in taking action. The Defense Ministry confirmed that tornado jets have returned after conducting the air offensive in syria saying that more details would follow. It does look like that britain is effectively at war. Has one in terms of what he wanted to go ahead. We will see if in the years ahead he and the others live to regret this decision. Anna lets stick with the geopolitical theme. The russian president expected to announce new policies to boost the flailing economy which is in a recession and suffering from doubledigit inflation. Ryan chilcote joins us to look ahead to the address at 9 00 u. K. Time. What kind of policies do we expect. He will want to talk about the economy. The central Bank Forecast said it would increase by more than 4 this year. He would be remiss to not reiterate what we hear from kremlin officials of the time and to talk about what he is going to do to improve the economy. The newspaper in russia is reporting that he is likely to introduce a raft of business oriented reforms, the first one being a reduction in the number of regulatory bodies that Business People have to deal with. The second idea is to extend amnesty on inbound capital. Capital that has fled russia illegally. Not declared inside russia. The existing amnesty is set to extend this year. The idea is to get people to bring money back into russia and get them to invest in the real economy. With thewhen i spoke central banker earlier in the year and i said what worries her more than the price of oil and she said its a lack of investment in this country. Thats what they are trying to a dress. Are alarmed byls what they are seeing here in vienna. The have not come because they do not see a point. They are alarmed at the oil price and they recognize with half of their budget dependent on oil and gas they have to do something. So this is an effort that perhaps we will see today to try to diversify the economy but investors will be aware that he has done this before. Hes made the claims that he will do something and they say he has that really delivered on those pledges. Anna russia is still subject to european sanctions of course and recently opposed sanctions of its own. Do we expect any comments on russian diplomat relations in that regard . When it comes to the eu sanctions in a straightforward if he does talk about them is likely to say we can impose them against ourselves, the International Community and forced us to retaliate against the eu. That decemberte 17 or at the end of that week when they meet in brussels, eu leaders are likely to extend those sanctions in any case by six months. On syria and turkey i think you can expect the russian president to play to a patriotic audience to talk about how russia is defending its interests like never before. That is going on in syria, going after terrorism and that is going on in russias spat with turkey. I would not expect them to lower the rhetoric. We heard him ratcheted up, directly accusing president erdogan and his family of profiting from buying oil from United States. A brand new claim that the turkish president said was slanderous. But he might try to calm things down. Anna we will bring you president putins state of the nation address live from moscow at 9 00 u. K. Time this morning. Lets put some context around this conversation. Im specifically talking about the vote in the u. K. Last night and the subsequent action. Lets bring into the conversation the Senior Analyst and Polly Neville jones. Thank you for joining us. Lets start with you, what is your response to the vote yesterday . Airstrikes alone. No presence on the ground the with support in some shape or form of maybe 70,000. I think that 70,000 number needs to be examined were carefully. A big militarily extending the airstrikes makes perfect sense, but to an extent, greater european and International Involvement puts a damp on the possible escalation pathways between russia and turkey. These are countries with many overlapping areas of interest across a broad swath of the world. Having greater european involvement in that is a way to contain the potential pathways to escalation. The crux of the government case relies on the 70,000 suppose it moderates and the transition of the government. I think these are the two weakest points in their in that we have not seen any evidence there is room for compromise or any evidence that there are in fact 70,000 moderate troops. You makeoness, what do of the number and is that crucial . Because what we saw in libya plenty of bombing took place in a power vacuum emerged. It was relevant to the debate last night. To the opponents of adopting a selfimposed section on military action. All of this goes back to a vote 15 months ago when the u. K. Surprised its allies by saying we will not get to react in the way that our allies hoped and expected. Last nights vote had to do with what kind of player is the u. K. And what kind of ally is the u. K. It has to do with a broader issue of the u. K. Political role. Anna does that tell us whether these rates on i. S. Will be successful . It was interesting that we went into action straightaway on oil dumps. The impact on the funding is contained. Oilou destroy all of the that isis is pumping, you are going to get additional refugees. It seems to me that there are certain components that are not sufficiently thought out. I think that you have a choice of evils here. It is certainly the case that they have to supply oil to the territories they are occupying. Equally, its one of the ways in which they fund terrorist activity. This is a big security matter. Its really clear that there are lots of issues here that intersect with each other. I dont disagree with what was of theout the difficulty situation on the ground, or what you can make of the mess in syria. As what you make said, as William Hague said, we may not be able to get the goal that we want to keep syria together. He is very clearly signaling that we may not be able to keep the syria that we do. I think personally he is no more than likely to be right. We will be going to a quite different future, but in the moment it is a question of reducing the terrorist threat and the ideological appeal of these people which partly depends on their claim. Is the expression of what you tackle first. Anna the best of a number of bad looking options. I agree that this is the choice of lesser evils but i think the western community is imposing on itself constraints it doesnt need to. For example the turks and the relationship with the kurds, we know from the data that the kurds have been particularly effective at taking on the Islamic State and regaining territory from it. Anna only up to the place that the kurds want to go to . And only with and strengths imposed by turkey which is unwilling to let the west work with the kurds because that is a threat to its integrity. The same turkey buying energy from the Islamic State because we know they are selling it to the Syrian Government and the turks. Part of the complexity that the baroness was speaking to. The fact that our choices are not really appealing at all. You think this was the law wrong choice, i dont think it was wrong. I think it was wrong to try to bomb it up without syria. Whether or not it was right to try to engage the islamist state military is a different question. Ideology is athe u. K. Ally called saudi arabia. Of factor. If you look at the textbooks they based primarily are disturbingly similar to the textbooks issued by the saudi government. I am clear on the subject of the need for the saudis to do something on the subject of the jihadis. It is very bigoted stuff. However, what we are dealing people a large number of who have taken this doctrinal base and are using it for the purposes of balance and oppression. We have to deal with that. Islam does need to reassert itself. Anna thank you for joining us and we need to get both of your thoughts. Polly neville jones, the former u. K. Minister of state security and counterterrorism. Program, wtie balances after it dipped below 40 a barrel. We will be back on vienna within an hour. Anna welcome back, this is countdown. Jpmorgan, bank of america and citigroup are among eight u. S. Banks that had credit rates cut by one level by Standard Poors. The Nigerian Communications regulator has reduced the fine imposed on the Telecom Company from 5. 2 billion to 3. 4 billion. They were penalized for failing to disconnect hundreds of mobile phone customers. Next year the pound was like to a level not seen since 1985, the year that bit britains miner strike came to an end and back to the future was dumb and usm in a. Bloomberg was dominating u. S. Cinemas. Anna we are looking ahead to this opec meeting today in the next couple of days in vienna. Are you expecting any big change . There is been this proposal overnight that they might propose an eventual outcome wish output cut wish. Does that seleka flyer to you . The saudi arabia and plan all along has been to keep pumping. Why should we cut our output and encourage highcost producers to take market share off. The russians are the one major producer who has been able to allow it, whose currency has fallen and competent in local currency terms and everyone sits back and waits for the shale producers to cut back output to solve the problem. That is working its way through the system. Anything else that changes that story and says that we get Production Cuts sooner gets a pretty violent reaction. One story that spiked Prices Higher for about 10 minutes, we had another one, i expect these are just stories but you can see that down here, anything that comes through and does get Production Cuts coming will start a recovery. Anna the oil price is very sensitive to these reports. Austria a gathering in for the by annual meeting tomorrow. Expecting. Are we they have been suggesting there are reports about who might do what at this meeting. What are we expecting . The big story of the day without a doubt is this idea that saudi arabia would slow it proposal to cut production by one Million Barrels per day pulls. Its an interesting headline but you have to dig into the details of it. That report is coming from an Organization Called Energy Intelligence and is based on one gulf source, and we have not been able to verify it yet. Cut the idea is that this would not comment this meeting, but at some point in 2016. , finally, the saudis and the saudi proxies within opec in the gulf have long said that the idea of a cut is one they would be willing to consider, as long as it was a coordinated cut amongst members of opec and outside opec. Sayingnians are coming the majority of the countries are agreeing to cut production. But the saudis are saying as soon as the sanctions are approved they will let up production right away. None of the other countries iran is talking about are prepared to cut production. It is the saudis and their friends in the gulf that have the Spare Capacity. The International Agency says 92 of the Spare Capacity to make that cut. They are not talking about cutting it this meeting. Arent even here. Before opec sat down, the saudis set down with the russians and the venezuelans and discussed the idea of a global cut and decided it would not happen. Make sure that you Pay Attention to the detail behind that very exciting headline. Anna take us into the minds of the ministers gathered. What will they be talking about when they get together . They will be very the fact that global stockpiles continue to decline. That u. S. Stockpiles continue to climb. They are embarking on their second year of this strategy of allowing production to rise with the idea that eventually the oil price will rebound and many will say, that hasnt happened yet and we are hurting. 11 of the 12 countries will be running budget prices this year if a state where they are. Saudis topect the say, steady as she goes. The other thing is, these guys look at growth and the demand side. They will be concerned about demand growth going into 2016, and the fact that the data says that 11 of the last 12 months, manufacturing in china has been in recession. I think it will be a very serious and robust conversation when the delegates get together. Anna Ryan Chilcote from vienna. Plenty more from him throughout the morning. Cb day, you are looking for 10 basis points . Yes, i think they will do more than up their bond purchases, but that is what we should expect. Anything above that is another mario draghi rabbit from hat. Anna extend the range of assets . U. K. Countries like the and buying corporate bonds, it is hard enough to buy enough to make a big difference. The quantity of assets matters more than what you buy. Anna will we lend emphasis on getting banks to lend to the real economy making the point that excess liquidity has quadrupled to 620 billion . I note you dont think that tells us much. I am not sure that the excess reserves tell the whole story, but the lack of bank lending month. Ated the 0. 8 last anna that sounds like moving in the right direction. A big pickup from 0. 4 . These numbers are terribly weak. System in europe is pretty broken, and this does not solve it. But therelots of qe, is a housing boom and frankfurt and munich. Anna there will be more on that throughout the day. Thank you for spending the last hour with us. An ecbe will bring you special program. Theyat special program, will be discussing what they mean for the bond market. Thats next. Guy draghi decides, how far will the ecb go to boost inflation. Jon fed chair janet yellen marches toward the first rate hike since 2006. Guy the saudis may be ready to reduce output. Packs swell ahead of the opec. Welcome to our ecb special program. I am guy johnson. Jon if you told me this time last year that we would be talking about the potential for qe two, a lot of people would have laughed at us. Guy he only has one decision to make. Do i want the eurozone to become japan. If i dont, how big do i have to go. And if it hasnt worked so far, why would this work. Coming up on this program, a busy two hours. We will get the view of ecb from berlin. Were live in vienna with crude under pressure. Will the worlds biggest producers agree to cut. Guy in the meantime lets get the bloombergs first word news. The u. K. Ministry of defense has confirmed the jet has taken part in airstrikes. Just hours after british lawmakers backed the governors plan for the attacks. Jpmorgan met with citigroup for eight credit banks the had cut one level by Standard Poors. The cuts come on the idea that the government will provide less help in the event of a crisis. Terrorism is the motive for a shooting spree that left 14 dead. Authorities say they opened fire at a Service Banquet for the disabled. President obama has once again called for a bipartisan response. For more on the stories and others had to the bloomberg terminal. Jon i what to check in on markets overnight. Overnight, there we are. The shanghai composite up. That moves a lot over the last few days. Here is the cross in the currency market. Euroyen, dead flat. It is the Kuroda Draghi trade. Kuroda is sitting there saying we will sit this one out and draw draghi saying thanks we will try to do more. Around 150 end down to 130 and you wonder where that goes next. Guy will talk about that a great deal during the next couple of hours. This is how the features boards look, this is how the bond markets are opening up. That is a negative story. Calculations say the same thing. There is so much that will be changing throughout the day. Then we got to price in what we get from draghi a little bit later on. As you can see we will get you those full numbers as we work our way around europe. But i suspect were just waiting and watching. You could see some big moves later on. Jon was anyone even expecting this six month ago . Guy i think three months ago it was becoming clear but six months ago, maybe not. The data have consistently got worse since then and started to pick up. We are in interesting territory. In order to debate draghi today we need to take a look back at the last ecb. He made clear he was ready to obtain the right level of monetization. The council is willing and able to act by using all of the instruments available within its mandate oriented in order to obtain an appropriate degree of monetary accommodation. There were a few members of the governing council which hinted at the possibility of acting today am a but i would not say it was a prevailing theme. The degree of Monetary Policy accommodation will need to be reexamined at our december Monetary Policy meeting. When the new euro system staff macroeconomic predictions will be available. Jon what options does the ecb have. The of economists say they now expect the ecb to accept qe past december 2016 and cut rates even deeper into negative territory. We are joined by the chief european economist and simon derrick, the chief currency strategist. Great to have you with us. Deceitbottom line is how exceed expectations. What can he deliver that we were not expecting today . The starting point is to say that he has a very rich menu to choose from so he can pull many different levers. The main action will come from the deposit rate cut, but there are other issues they can have to sweeten the menu. We heard in the press that prior to the content meetings, 20 internal proposals for technical adjustments have been made so that gives him a fair many to choose from. Guy he doesnt what to become japan, how aggressive does he need to be . Does he need to deliver big shots . Betweena balancing act keeping them outside. You dont want a repeat with what happened in january with the Central Banks having to react and cause a great deal of volatility in the markets. You mightsame time actually get a move. You already have at least 10 basis point cuts and i would argue that you are talking about 15 or you will have to go 20 to show any kind of reaction. I do think they will do that. I want to come back to one thing you highlighted earlier, we been talking about qe. Remember the in it the initial announcement was a january. Just ahead of the great vote. You can make a pregood argument that the initial round was just putting a firewall around greece. This is about trying to get prices down to such a level were people have no choice. Jon do you think they really care about the likes of switzerland or sweden . Does the ecb factor that in . The primary focus is on the eurozone. I think that the crucial difference from earlier this year started in august when china started to show greater signs of weakness that led to a decline in Commodity Prices and oil prices which led to a new decline in Inflation Expectation and made it clear that the return back to 2 would take longer. Secondly but it was the clear how quick the euro zone economy would get hit by china. That was really the game changer. Is at the only thing . Are we looking at other indicators and saying, survey data and some of the other stuff beginning to turn. Maybe we dont have to go as big. Maybe thats true but its quite clear right now that members of the ecb dont believe that. As far as i can see thats the only thing that matters. With interesting to see is how over the past few months has moved from being the fed to it being the ecb. Look the astonishing move to a negative deposit rate. What the ecb does is now become critical to accurately everything will market from the dollar to Commodity Prices and onward. What happens at opec will set the tone for the next six months. Jon janet yellen speaking and a think we can take a listen to what she has to say at the economic club. There is no plan to proceed overtime in some mechanical or calendarbased way. The actual path to shortterm rates will follow and will depend entirely on how incoming data influences our assessment on the outlook. Jon what i thought was interesting was the first one is done with a rubberstamp for december. The on that we will tie the path to december but we actually went to see real evidence that inflation is picking up. Guy does that change the right path or the way the fed will be reacting . Week and extension but now it is inflation. Think with the output caps to be reasonably wide in the short term the Exchange Rate movement and Commodity Prices will be key. In this regard what has arty happened, the decline in the euro is the quickest ensure best tool that the ecb has. Maybe we get more, but eventually we believe you should not ride over it europe. If europe continues to recover you should not write off the euro. On the oil price front, the uncertainty is great, but even here, they have been fairly depressed. Maybe well get a rebound and the inflation picture could change quite nicely because the base effect really kicks in. It has to do with the sharp decline and now it is reversing so by early next year, inflation in the eurozone could be at or around 1 . Jon what a day we have coming up. These guys are going to stick around. We have plenty more to talk about. Jon make sure that you tune into the full coverage. Draghis News Conference at 1 30. On t, push land takes deutsch land takes on draghi. Life in berlin next. Guy thats london. Lovely morning. We are waiting for the ecb to deliver its verdict in at the moment it looks like they will open a little bit softer. Jon lets get over to nejra cehic. Nejra jpmorgan, bank of america and citigroup are among a group to have cut rates by one level from Standard Poors. The Nigerian Communications regulator has reduced a fine imposed on the Telecoms Company from 5. 2 billion to 3. 4 billion. They were penalized in october for failing to disconnect millions of unregistered mobile phone customers. Deutsche bank says it sees sterling weakening by 15 by the end of next year which would see the pound slide into a level not seen since 1985. The other britains mining strike came to an end. For more on these stories and others check the bloomberg terminal and bloomberg. Com. But see whats happening in asia. Theres alec standby in hong kong. We have seen a bit of a mixed picture once again. Asian equities on the whole are lower today but we have seen a good again coming through in the last 90 minutes or so of trade. Certainly all this speculation because it does seem to be a daily occurrence closing higher by 1. 3 . A h worth noting is the premium, the a shares over the alue of the h shares has hit three month high. Of course the asian region has been reacting in europe as well to the oil price. We did have some weakness coming through in australia particularly from those energy producers. A little bit of a pickup in the crude contract in late asian trade did help things along a little and those unconfirmed reports that saudi has proposed some output cuts at the opec meeting. South korea weaker by three quarters of 1 despite some party good data coming through on the thirdquarter gdp. But generally the picture was a bit of a mixed one. In china you can see Technology Stocks were the out performers there. A little bit of oil and gas players down by about 0. 5 . Stocks doneterial by 0. 7 of 1 . China stocks rising for a fourth session. Jon bloombergs juliette saly. You and i were put in this program together and said we should do a morning must read because i can almost predict that the german press on a thursday morning before the ecb decision, we will get something in the german press about resistance to more qe. Guy when we had this discussion what we thought was it would not be that loud. Is it loud . Are they really complaining . Hans, great to have you with us. As you went through the german press this morning you knew it would be there somewhere about resistance, how prominent is it . Ons point i had to page 27. It is here at the bottom, a picture of the president of the german banking association. He is channeling what i heard last week which is a low Interest Rate environment will create risk. What you need a structural reform. He makes this argument you hear all the time which is inflation is basically an oil store and you need to focus on core inflation and then on the other side that there is starting to be a little bit more frustration. More frustration that mario draghi is focusing on the pessimistic side of the european recovery or economy and not the green shoots. Here is one quick quote that i will read. Permanentoes the misery in japan should be a warning. Structural reform cannot be postponed. We have a compound german word. I will let you ask your german colleagues whether or not that is a made up word or a legitimate compound structure structure. Guy i think we can rely on your german. Back ther of a while front page with a number of newspapers that the issue was front and center. It is dissipated. The germans are complaining but not very loudly. Hans point unguided brought up bill because normally any excuse i could have to hold up the magazine i do because there is nudity on the front page. But there is nothing relevant to our conversation or the central bank. Leading thereally charge on the bailout for greece. Part, it seems as though nine months ago it did seem like there was real german resistance and that melted away. We will see whether or not there is a second wave of resistance on the expansion of quantitative easing. Tomorrow it could be bigger. Jon what to bring in our guest. Really fascinating to me that the german press used japan as an example to go the other way. Japan will be the example if it does go as the reason to do more. Does that argument resonate with you . Economics in japan is it that abenomics is about three arrows. Situation in the europe its true that we need more monetary accommodation, but we also need more structural reform. The word means longterm misery. We need to attack it monetary accommodation but if its the only thing that happened it would not work. Guy will it be the only thing . At the moment, the plates are shifting a little bit. We have a migration story that we need to think about. Fiscal spending could become we work ourstory as way into next year and that is a very different narrative. I think thats true and i think the plates are shifting post events in paris. Significant that does show a realization that there is a need to post far greater Structural Reforms. But it is interesting that they mention japan and interesting that they mentioned autonomic. The cynics would argue that one of the main aims was to weaken the currency. Is that really what germans are saying . Here. I could just jump in you do hear a lot in the german press how the need for structural reform is so manifest outside of germany. Germany hase that walked back a lot of their Structural Reforms . They seem to make this argument all the time, but if you take away the week euro, is germany structurally that sound . I agree with this. I think the germans are not in a position to preach. When it comes to infrastructure cup edition and goods and services in particular, there is a lot that germany has to do. Perhaps we have shifted into the reverse, so there is a lot to be done in the broader eurozone economy, including germany. To thee sensitivity german public about the lack of reforms elsewhere is clear. What is also clear is the negative Interest Rates. Women term that is negative all the way out to the threeyear tenor. Deep Interest Rates. How do they handle that . That is a good question. I think i could perhaps speak more generally to how investors react. One of the things that i have heard time and time again is, whenever i have been in continental europe, any of the other major issues from greece to china, the only thing that genuinely matters is, where do i find any kind of yield . The interesting thing to me is, is that already factored into investor thinking, or is that just going to lead to an acceleration . That search not just for the euro but the search for the u. S. Guy that is what he wants. I think that is exactly what he wants. But forcing people into more risk than they necessarily will. One of the interesting things you get is the high burst of volatility. Can see what happened when when yellen makes her moves or january and february. Guy lets talk about the risk story. We get a housing bubble in munich and frankfurt, we start to see bubbles being formed. Can they accept that . Is it the greater good . Something that we need to think about rather than worrying about whether german housing is too high . There are key speeches by policy makers this issue. They say a central bankers we need to concentrate on policy and recovery. If we see certain sectors where bubbles might be building this is a clear case for macro prudential measures. Over the next few years the importance will rise. Guy we still have plenty more to focus on. Derrick hans nichols will be back as well. Jon as u. S. Oil inventories expand for a 10th week we go live to vienna to breathe you tomorrows meeting. The only way to get better is to challenge yourself, and thats what were doing at xfinity. We are challenging ourselves to improve every aspect of your experience. And this includes our commitment to being on time. Every time. Thats why if were ever late for an appointment, well credit your account 20. Its our promise to you. Were doing everything we can to give you the best experience possible. Because we should fit into your life. Not the other way around. Jon good morning from frankfurt. 7 30 here in london. Nejra janet yellen has suggested a space a future rate increase could affect the future tour the current target. Thats after they call for the initial move to be reasonably confident. They expect rates will rise gradually after that widely anticipated increase this month. The u. K. Minister of defense has confirmed that the jets have taken part against islamic airstrikes in syria. It comes after lawmakers back the plans for such attacks. Police in a have not ruled out terrorism as a motive for a shooting spree that is left 14 people dead. Authorities say the attackers opened fire at a banquet at a social Services Center for the disabled. The lycee that to have now been killed. President obama has once again called for a bipartisan response to a shooting. For more on the stories and others had to the bloomberg terminal. Guy we are less than 30 minutes away from the European Equity open. Mode, in waitandsee because as you have seen in asia and here, were watching opec and the fed and europe is waiting to see what happens with the ecb. Were down by 0. 3 when it comes to the wider story. That is the fair value story and a slightly negative open. Headlines, of the the ecb is set to present an Economic Outlook with no major revisions. The European Central bank has prevented policymakers with updated Economic Forecast largely unchanged from those published in september. Guy is an expectation could see an inflation downgrade or a series of numbers. Jon we do have that breaking news on a bff and mueller. Lets cross over to the breaking news desk. Inoline breaking news excess of a 100 billion deal, theyre exploring the sale of some of the european Premium Brands of sab miller. Sale maying the include one or more of these brands and is this is. They will contact purchases for perrone and other brands. These are the Premium Brands that they might have to selloff to get Regulatory Approval for this significant deal. The biggest commendation to create the biggest brewer in the world. Really combining out to harness the Growth Potential of sab miller in africa. To do that they do have to dispel themselves of some of the key overlaps. Europe is one and china is another area within might have to look at selling assets. Growth potential on the sales board. Jon i will get more on that ecb in the forecast that we will be presented later. The key to those inflation forecast is whatever the price of crude i want to talk oil now. Futures rising as much as 1. 8 in new york after a report that saudi arabia is set to propose a Production Cut. Ryan chilcote is in vienna. The opec rumor mill is in full effect. I was looking at the bloomberg terminal. What they consider a cut and dont consider a cut, the saudis want and dont want it. Cut to the noise for us. Im joined by the head of analysis neil atkinson, a regular guest how many years have you been coming . 20 years. Lets discuss the news report everyone will be talking about. The idea that the saudis will propose a cut of one Million Barrels per day. In 2016 . That would be an enormous surprise if that unsourced report doesnt turn out to be accurate. It flies in the face of everything they have been saying. The saudis have said consistently that they would discuss a Production Cut in agreement with other opec producers but also crucially and nonopec producers aimed at the United States. We know that is unlikely to happen. It is hard to see why they would do that at this stage. But we have been surprised before. You reckon this is like a bit of rhetoric that may amount to an empty pledge . Thaty be that someone is thinking out loud but lets see if there is any substance to it. We got the stockpile report yesterday around the world and in the United States they continue to rise. You were talking about the strategy they pushed through at the meeting last year. Opec countries now embarking on their second year of the strategy. Say when the critics they look at that stockpile . They will say that the strategy is inflicting enormous pain on everybody. The shale reducers are finding a andy going on Oil Prices Many members of opec are not as well placed as those in saudi arabia. You can say it has been all pain, but little gain. On the other side of the balance, people will say as we move through 2016 and it 2017, the picture may well start to change. But we will not go back to a time and we have 100 per barrel oil. There is to go too much supply. Will they remove supply from the market . It is already happening because total u. S. Shale production this year has fallen by about 600,000 barrels per day. So to some extent it has worked and we have been reading recently that many of the shale reducers hovering above 40 per barrel will find it difficult to stay in business. So we should see further fall back in shale. You could argue that part of the strategy is showing signs for success. Iranian minister is set to arrive. Going to be able to produce and bring all of this oil to the market . There has been a huge focus on iran since july this year. Notmy feeling is there is going to be a tidal wave of iranian Oil Available the that the moment sanctions are lifted. For the past few years they have had a lot of Oil Production shut in the lock lot of work is needed to bring that back into production. Even if they can bring it up again, who are they going to sell it to . As you mentioned earlier, the world is awash in oil. The saudis, the other government producers, nigeria and they have been maximizing sales. The growing asian markets and india. It is hard to see how iran will find it easy to market large volumes of oil assuming it gets produced again at high levels. When do we see 140 per barrel oil . I will be dead by then. A dramatic point. I hope that is not the case. [laughter] the head of analysis and if i can channel him for a moment i that as to that report they may propose a Production Cut in 2016 of some sort, maybe, dont believe the hype. , very muchyou indeed. Dont believe the hype. Opec, theseabout guys are coming together to have a chat but you know they have one eye on what janet yellen is doing now. That is absolutely right. What are the opec members was talking about the fact that you can see a decline in the oil prices that the fed did hike. If you look at it over the course of the last decade you can see the dollar demand and oil demand are almost perfect mirrors of each other. Look at what happened in 2009 with qe. Look what happened last summer. Actually on the back of the money coming out of europe. Likelihood that we will see a fresh surge of money coming in on the back of this rate diversions is the main issue. That its maybe them just trying to be preemptive. Jon the main issue for the market if there were a crystal ball function on the bloomberg terminal, you would want it to tell you the price of brent next year. If you could get that you can almost predict every other asset class. How important is the price of oil and how uncertain . I think it is very important. We can expect Higher Oil Prices over the next two years. I would like to stress that from an Economic Perspective Lower Oil Prices are positive. It add 0. 2 Percentage Points to eurozone inflation. At the moment, oil prices being so low is a mixed blessing because it depresses inflation. Jon weve also heard from mario draghi that the oil price reflects a headline Inflation Expectation. For the ecb with this narrow inflation meant it, is it a net positive . It seems like it is not. It should be. And you look around the rest of the world and the u. S. Service sector and what is happening in terms of that dividend getting to be spent. Why is it not happening in europe. Because of some of the structural rigidities that we talk about or some of the factors that come into play. U. S. The eurozone economy is on a twoyear lag for the u. S. Economy, when we start to see the effect . I do pick it is that simple. U. S. Isthe you the well advanced in terms of structural health. Europe is liking because of the lack of Structural Reforms and also arguably because the monetary response was much slower. I think we have unprecedented stimulus and Monetary Policy being very accommodative. We have fiscal policy turning pro growth and we have an improving bank lending channel. So after 1. 5 growth this year we can see 1. 8 this year and 2017. Jon next year, what is the risk. A little bit of an overshoot . Given that you will have this. Echanical increase what is the risk of an overshoot in the u. S. . I really dont know the answer to that. Jon but the labor market is quite tight. You dont know when wages will start to take off. The Fading Base Effect is another element as well. With crude, no one really knows. Can we be certain we would like it overshoot in the u. S. Think one of the main issues will face the u. S. Next year which really is the low inflation story. I think it is going to keep the fed on the back foot and that will lead to two things happening. The search will intensify and that will keep pressure downward. Than 2 dont see less on 10 year treasuries. Makes the u. S. Equity market look astonishingly attractive. The key story, exactly the same issue. The late 1990s when we were in this part of the dollar bull cycle. Look what happened in 1990, that was the start of the bubble. We talk about overshoot when you get into the later stages we get that bubble effect. Thats exactly where i think the risk is because we have been dynamic for the last three years for global markets. The dollar rally. Compareder look how it to 98. It was a most a replay and here we are coming out of it with Central Banks that approved themselves to be averse to risk. Lookout yellen did not make the move in september. That is the key story. Guy but underneath that where is the productivity or the economic recovery that you would expect . There are some of the missing pieces here that you would normally hope would be in place by this stage are that they would come through in recovery, but they are not there. You talk about risk, it is all most a throw away line but there is serious risk being built into the system. The neutral growth rate is about 1 . So at the moment if we grow 1. 5 percent or 1. 8 we grow well above potential because we have so much stimulus. If we switch off the stimulus it will accelerate once again because the underlying strength is so weak and for that we need structural reform. This whole issue of how you deal with this recovery differently, are we thinking about things in the right way . We talk about Monetary Policy e it is a magic all it Larry Summers has framed the secular stagnation phrase and i think that is a really important debate. He says, if it is true we are in a secular stagnation environment or have a longterm lack of aggregate demand and Central Banks need to do their best to pump liquidity into the market. However, one day, this might come back to us in the form of weancial instability jon are about 40 minutes away from the open here in europe. Tse futures in the red negative across europe as well. For some of the stocks to watch ahead of the open. Caroline youre talking a oil as it claws back from some of yesterdays losses. Keep out your eye for the oil major. How did they get approval from australia for that 70 billion deal to buy into their group. This is a sign off in a step in the right direction but the deal still needs clearance from the great unknown that is Chinas Ministry of commerce. They say we are set to do the deal by 2016. Shall could get a preuss from the Oil Price Rally or this australian signoff. Abf we want to keep an eye on. We just had that breaking news that to complete the deal that would look to ease concerns by setting off the Premium Brands in europe. Think perrone and many people will be drinking those beers but in the meantime remember the movement into more craft beer that is really been the boost for these companies. Of assets, wepose understand there already contacting sellers to get that deal through. Lastly, do keep your eye on ryanair. Some good traffic nubbers from this discount airline. We could see them spike higher about 2 as we see traffic surge up 21 for the month of november. The load factors are also higher at 93 . Guy Caroline Hyde with the moves we need to watch ahead of the open. We have the fed and the ecb going in opposite directions. In the meantime they have fallen back in recession due to the economic slowdown in china. Is the bank of japan more likely to tag along with the fed or faria Mario Draghis lead . Draghislow mario lead . When you look at expectations you look at how core cpi is back around zero and cap expectations for the boj are growing and yet we do not get it. What they really focusing on . Expectations, thats the households. Theres sort of an issue going on here with the perceptions of everyday people versus those in the market. Lets talk about food. Japan imports half of the food that it consumes. Food prices are rising. We have overall food prices rising at about 2. 5 . Its actually more than 4 . Families are grappling with more Expensive Grocery bills every month. Food prices are part of those readings also factored out of core. So familys perception of whats happening on the ground is different than what we see in some of those readings. Its a problem because wages are not rising so they need to find a way to make ends meet. Jon the labor market in japan is fascinating. 20 year low jobless rate what is this mean for wage trends . Does that labor market and the signals tell us anything about what will happen with wages i think absolutely it does. As you say, the jobless rate at a 20 year low. Remember in japan if you worked one hour and a last week of any given month you are fully employed. That is an important point because a lot of the jobs held by japanese workers are now we think of his quality jobs. 40 of the employment right now is contract or parttime. Its a record high. That means more and more people are taking these unstable jobs that are not highpaying and they also do not have the position to ask for big wage increases. There is not any sort of Wage Inflation and it is something that the boj is concerned about. We had mr. Cutie and i can guarantee you that everyone on that monetary board is concerned about wage trends in japan. Guy it is a story writ large across the world will stop promising to refocus on the economy after he was renamed prime minister. That was all the way back in december september. What has he delivered since then . He has given us a few little tidbits. He promised us an extra budget worth ¥3. 5 trillion. Part of that is one component we just had in the news today that he might give ¥30,000 to elderly pensioners who are in need. That is 243. Another thing, he has been talking about reducing the Corporate Tax rate. Up until now the promise has been below 30 . The news today is that it will probably be 29. 97. That is not exactly aggressive. Other places he has made progress but it is too little at this point. Going back to the wages we have had unions telling us they are scaling back to mans ahead of the annual Wage Negotiations that start in january and february. The jump the japanese trade union confederation. Today had a new story that includes toyota, they will ask for ¥3000 per month. That is half of what they asked for a year ago. That is 24. Jon great to have you with us to break down situation in japan. I want to bring in our chief european economist, simon derrick. Euroyen, 1. 30. I would expect corona to respond, but he is not. Is that a key trade . Euroyen at 1. 30 . Maybe it should be but kuroda is right. Japan is no longer taking those hints that he wants a weaker yen. A dollar yen somewhere between 1. 20 and 1. 25. That seems understandable. For me, if you are talking about whether euroyen is about to make a move, i do think it is about to. You look at the price moves and you get these great peaks. When it turns, it turns aggressively. Me, i expectto that corona will lose and we will talking we will be talking about 120 or lower. Guy is that how we should frame this . I am not so sure. The week Exchange Rate is one of the sharpest tools for the ecb to bring inflation up and to bring growth up. Against this background they have to do what they need to do but we are in a connected world. Why the currency war phrase is coming up, but i think that first of all all Central Banks need to do their homework to do the work at home and see how it affects others. That is a problematic issue that we have. Onezero 587. After the News Conference finishes, where are we . Lower. I think it will be 104. 103 . Would be happy at ask in the short term a week euro what is a week euro . We are in quite week territory. Jon simon derrick, the chief currency strategist. Thank you for joining us this morning. Open,inutes ahead of the futures a little bit lower ahead of decision day for the ecb. Guy johnson and i will continue the conversation on the other side of this break with drew bottom worth from pimco. Jonathan good morning. I am jonathan ferro. Guy i am guy johnson. Jonathan we are moments away from the start of the european trading. Draghi decides how far will the ecb go to boost inflation. Investors prepare for more stimulus. We march toward the first rate hike of 2006. Oil gains after a report that the saudis may be ready to reduce output. Speculation ahead of opec. The Central Banks have dominated for such a long time. Draghi is going to deliver what many people have expected a while. Another bazooka. Another story of excess liquidity thing pushed into a market struggling to absorb that. Jonathan i said the same thing last hour. If i told you 12 months ago, only the synnex would agree with s wouldnly the sinic agree with me. We will debate this ahead of the ecb decision. Should we go to Caroline Hyde for a little bit of a guide ahead of the open . Caroline we are expecting stocks to be down today. It is central bank divergence. That is on the agenda this morning. We are expecting a bit of a followup from the stocks being down yesterday. Today we have the focus on the next 48 hours. We are ready for a rate hike in the u. S. We are going out to make a public appearance. Say, we are ready for a rate hike. What are the ramifications of that . The stocks and bonds drop . To stimulate . Could it be underwhelming . Is there a wary with all of drop,thats continuing to will be rate fail . We are waiting for the market to open, but we are expecting a downward trend. Yesterday in the u. S. We thought stocks drop. We are watching the Oil Companies this morning as oil rebounds after its losses. We are starting to see a sea of red across the board. This is what happened to the bond prices. The twoyear u. S. Debt are rising higher, the highest since 2010. At. 94 on the two year. On the european side, we are seeing the dollar rally. Sachs says at this could go even lower. T