It means for the rate hike. And a glass halfempty. Bloombergs pessimist guide covers potential for chaos in 2017, including a merkel defeat. Less than 30 minutes to go until the start of your trading day, and this is how this huge market is shaping up. Matteo renzi, there is a plan b, according to the press. The italian treasury considering a plan b for the recapitalization of monte dei paschi. And germany just keeps on producing. Manufacturing comes in at 4. 9 . The market was looking for barely an inch higher,. 6 . It took us three days to recover from the brexit battering in global markets. It took us three minutes for Global Equity markets to recalibrate and reconsider what is happening in italy. This is your gmm function in terms of the g20 function. You can see that, as far as emerging markets are concerned, a little bit better. When it comes to the dollar, the rail up, the renminbi keep an eye on this. A great flash trade went through. It was saying the renminbi was worth 7. 5. Print, orerroneous was it an odious message . What is next for the dollar policy from the United States, including china . When it comes over to this side of the trading board, you have copper down, and the rational prices, one of perhaps the esteemed group of researchers in china. Saying you have a rational market moves, and oil just coming a little bit lower. You have a slight complex coming off in the commodities. This is your burning bright light. This is the credit floor swap. This is sovereign bonds rising in china this morning. Thats the state of play on your markets. Lets get first word news with haidi lun. Good morning. Haidi good morning, manus. The south korean president has told Party Members that she will resign in april. These were in comments made to a television station. Ruling party officials, opposition Party Members, and some of her own party will vote on friday on impeachment. The by minister of france confirms he will run in next years president ial election, but will resign as Prime Minister today to prepare for the socialist primary next month. He warns the divided left that they risk letting Marine Le Pen into office. Euro area finance ministers have agreed to ease greeces debt burden. They are meeting in brussels, to reduce greeces debt by 20 relative to gdp through 2060. At the same time they insisted the government has adopt reforms. Couldk. Prime minister face revolt from lawmakers and her conservative party over her approach to brexit. So far all she has said is that she will trigger exit talks by the end of march. Torys says as many as 40 could vote for the opposition labor party, which is putting forward a motion that makes promises to publish a brexit plan before beginning the negotiation. Is Supreme Court, meanwhile, hearing whether the government needs to consult parliament before triggering article 50, entering its second day. Small crowd of protesters gathering of the court. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. This is bloomberg. Manus thank you very much. Matt miller is on the road this morning, in aspen. This is where the cdu party will set the tone for her bed for a fourth term as german chancellor. Great to see you. Give me a sense, because this is what we have to get our heads around for 2017. How divided is the cdu party . Not as much as it was last time. The last time they had this national conference, National Gathering of cdu Party Members, they had a vote of support and gave Angela Merkel more than 96 , almost a putinesque amount of support from the cdu. This time, it could be a lot lower. Range, 85 , 88 , in that that will be big news, because it shows that a lot of the party is really unhappy about her handling of the refugee crisis. That will probably be the focus of this meeting. Manus its a global focus, isnt it, in terms of what she did and where her policy is now, and the social ramifications. That takes into that very point. Can we expect additional changes . There has been some nuance to change in terms of the party policy toward refugees. Yeah, they are definitely working on a bit stronger language in the party platform, especially when it comes to deportation. Until now, it has been very difficult when they get someone seeking asylum who doesnt necessarily qualify for it to send that person back, or if they have someone that does get a silent in this country and then breaks certain laws severely, it has been difficult to send them back as well. They need to go through the judicial system here, and then possibly end up doing time here in germany, which costs the taxpayers money. This has been part of the crux of the issue that a lot of the right wing of the cdu has a problem with. They are strengthening that language a bit, but really, although two things are interconnected, uncle of merkel will probably focus on europe after the italian referendum, after the austrian vote, which may be gave her a little more optimism. She is going to focus on the fact that she is still proeurope. She stands for continuity and her fourth term is really going to be important to the structure of this grand experiment. Manus what a great phrase, the grand experiment. We have a lot more to get through we have our editor at large, francine lacqua, joining us from day two of the reverberations. Long day yesterday, great reporting. Renzi staying, his resignation on hold for two days, that delivers what . Continuity and a budget, potentially . Francine right. The president met with matteo renzi, so its in his hands about what he wants to do next. He managed to convince matteo renzi to stay on, to hang on for a couple more days until the budget law is passed. This could come as early as friday, and this means two things. First of all, a little bit of stability. Is also hoping that the budget level will be passed to the senate. That has already gone through the lower house, which makes it easy to be in better shape for 2017. It also gives the president more flexibility to look at the names that are being tossed around for the next Prime Minister. Italian president is speculating about possible new general elections. We had to do it in 2018 in italy, and it could come as early as januaryitaly, and it cs early as january or february. No one seems concerned. Manus this is the risk if we have snap elections this is what the fiveStar Movement wants. They want early elections. What is the possibility conferencing, if the Electoral Reform goes through . That fivestar will come to power . How much power will they have in the chamber . Francine i would say it is improbable but not impossible. At this point if there was a new electoral law that came into place, and this new electoral law would make it very possible for the five Star Movement to come to power. What happens is that it enables the two biggest parties that dont need a majority to battle it out, this system that we have for the french president ial election. The Political Class here, mainstream politicians, want to reverse it. The thinking goes that if they reverse it, in means they stamp out the chance of a fiveStar Movement getting into power. However, the fiveStar Movement can turn around and say, look at italy, look at the establishment. They are making it impossible for us to come together, and that may be counterproductive. Manus yep. Politics is a very different game every time we turn around. Francine, selah little later in the day. Our editor at large in rome. Studio here in the you manage about 290 billion pounds worth of assets. Thank you for coming in. When i look at markets i said this at the start of the show it took us three days to recover from brexit, three minutes from italy. Are we being lulled into a full sense of security . They seem to have a lot of faith in the gatekeepers and politicians resolving issues. It is context of germany, really important that we have a der,ng german lea because in the context linking it to italy, the big problem is the Banking System people are the choicemoil, and of Prime Minister and the political landscape. But the big question is, can we change the rules around and be capitalizing on the banks, which will require some german support . The markets move very quickly to say that europeans will manage to fix all of this. Optimistic,overly because it is quite challenging. Matt the uc austria as a turning point at all . Do you see austria as a turning point at all . I certainly think its encouraging, but all the populist battles havent been lost, and i would certainly be expecting in france, we might have a better outcome for the core european, as opposed to someone like Marine Le Pen coming in. Markets,sitive for the but its not all one way. Manus lets get back to markets and what we are dealing with. Have a look at ratios versus monte dei paschi. They are polemic. Ubs. , 1. 12 for when you look at this divergence and valuation, how critical is it that they raise their capital without a plan b, as is speculated . I think in terms of valuations it is quite clear that banks are worth nothing if there is a run on them, and people lose confidence in them entirely. Fall very of banks isckly to zero, because that the actual value of a bank that has lost confidence. The resolution to monte dei paschi they have to raise capital one way or the other, and i think the danger is if you do it through baling and Retail Investors to a greater extent has already happened. Find itif you dont more socially acceptable, then we will have much further toward extreme populist policies. Manus hold that thought. Show, the fedhe refocuses. Dataymakers suggest the and are now watching president elect Donald Trumps fiscal policy with a hawkish i. Then, could one drugmaker hit a new high today . So nthe bid for in demand a tallitalia. And as political volatility ses, we find out why this is bloomberg. Manus data is just so 2016. That was all about fiscal policy and the federal reserve. Three u. S. Central bankers spoke yesterday, leaving little doubt that they favor rate hikes, but they indicated that the pace of tightening is uncertain, and there are questions about Donald Trumps fiscal plans. Have we transition from a data dependent fed to a policy dependent one . William dudley addressed how the central bank is dealing with the transition. We work closely with every ministration, we have done these changes many times, and we are going to go forward and do everything we can to ensure a very smooth transition. I am reaching out to people in the incoming administration, make it clear that we are here to help. The new york fed is the fiscal agent for the u. S. Treasury, so i expect to have a very close working relationship with the incoming treasury secretary and the team he puts together. He has made it clear that plans munro is them voice of the markets, with me this morning. Bond traders are nervous, Commodity Traders are skittish. It sounds like dudley is also curious to see what comes next. Are we going to see a fed move from date of the policy . Continuek the fed will to look at the data. I think they will listen to policy, but many of the things that president elect trump must be talking about, the policy of things that cant actually be implemented in the shortterm. I have no doubt that there will be further Infrastructure Spending, for example, in the u. S. , with further borrowing to facilitate it, leading to a steepening yield curve. But its not going to happen overnight. Time beforeome typ the shovel hits the ground and it has an impact on the real economy. The fed will want to wait and see the data. Manus you in your notes have done some numbers around the trump stimulus, but you also talk about turbocharged inflation. I am curious to apply it to the yield curve. This is the 3d model. We see this steepening turbocharged inflation, does it cause my curve to steepen further, or should i be protected . Certainly, we apply of inflation directly both in the u. S. And in europe, because we do think that trump has managed of ieve a few minutes what he has said has moved markets substantially, and that will increase inflation expectations, both in the u. S. And europe. In europe, one of the features of the expectation of higher inflation, higher rates, higher growth, is that the dollar has strengthened versus the euro. There is an inflationary impact for a weaker currency in the eurozone, and of course we have raised the prospect of trade barriers and tariffs in the u. S. , which raises inflation questions and concerns. That actually, a steep yield curve is exactly what we need, because low bond yields we are imposing a huge burden on private sector, increasing the price of pensions and so on, which is stopping investment. A steep yield curve is exactly what the economy needs, and it seems to be whats being delivered. Essen at thee in ruling cdu Partys National conference. When we see such bullishness out of the u. S. , such optimism that tax cuts, Infrastructure Spending, regulation reform could boost growth and cause Interest Rates to rise, the yield curve to steepen, does any of that translate over to european governments . This German Government is the definition of austerity, right . Historically they are austere. Is there any possibility that it changes to fiscal stimulus . Well, there might be. One tangible benefit to germany for the eurozone is that there is some concern that they might have to taper quantitive easing in europe because they are running out of bonds to buy that meet the criteria because of any of them are negatively yielding. The rise in Interest Rates globally has created opportunity for the central bank there to continue with its Quantitative Easing Program and give the european economies what they need. Manus lets see what it brings for us in terms of stimulus to the markets and how bond markets perform. Euan munro. Fi is said to be considering a potential challenge for johnson johnson. The details next. This is bloomberg. Manus 7 54 in london, 8 54 if you are in paris. You will be waiting for the opening price and print on sonofi. This is a Drugs Company in france and it may be counterfeiting for another under the bid of johnson johnson. The french drugmaker is working with advisers to look at offering 27 billion for it. Bid to just raised their 250, and that will be certainly out there in the market. Sanofi also reached out to roche and a number of sources to see if they are interested in bidding. Builders First Quarter like for like revenue up 1. 8 . A little bit of a mixed opening. A beautiful, frosty day here in december. London down. 1 . This is bloomberg. Good morning, this is the european open. Were in the city of london. London. Good morning, that. We are moments away from the start of your trading day. Here is your morning brief. The italian president asks matteo renzi to put his resignation on hold until a budget is passed. Who will leave the caretaker government . The fed weighs in on fiscal stimulus under President Trump and what it might mean to the rate hike path. And the glass halfempty. Bloombergs pessimist sky covers includingial in 2017, a merkel defeat. It is 8 00 a. M. In europe. What are we looking at . What is driving markets . Into this three days to recover from a global battering of exit. Brexit. Markets are poised after the italian Prime Minister lost his vote. Markets are opening. And it will take you through in detail. We are waiting to see opening rotations on equities. Montis, condominiums coming off. Dolly ones were suggested to trade at 1. 5. It was erroneous. Are seeing volatility at a twomonth low. Renzi is staying another few days. Anna . The german data putting it asked under equities. Securities flat under 0. 03 percent. Real estate not doing badly. Energy, health care and material stocks, bringing up the rear. The broader picture around European Equity markets is about the italian scene. It is also about the ecb and what we will get a little later on this week. Lets have a look at the fixed income markets. Gilt opening up this morning 1. 378 on the u. K. 10 year. Day two. Ing days at the Supreme Court, protesters on both sides gathering. Citedey report being whether we see brexit being an opportunity to bes boost productivity. Some strength in european equities markets coming through, a little strength in the pound is we go ahead into the second day of that hearing at the Supreme Court. But have a look at some of the stock specifics. At the open of the trading day, e got a very as you were kind of trading update. Ashtead, that stock is up 2. 8 in this mornings trading day. They have guided the market higher this morning. Actelion of 4. 8 . That is a quick look at where we are at the start of the european trading day. This tuesday. Manus i will back that be back with you tomorrow morning. In your dollar and the s p 500 has fallen, all in the wake of the italian vote. Went, crescendo involved in eurodollar. Cdu dropping off markets on matteo renzi yesterday. Lets put markets in context. Welcome. , itcorrectly reminded me was three minutes to recover from renzi and three hours to recover from trump. Ofn you look at this kind term, what does it say to you and the cio team . Are we better at understanding risk . Two things. You implied volatility. I think the more relevant line is the u. S. Equity line. Trump is basically flatlining. Markets are relatively bullish. Manus matt, are you going to join in here . What youwell i wonder will think about the fact that afraid ofnt just populism, but it seems in the u. S. , i saw that the st. Louis fed tweeted out moments ago that James Bullard thinks the three keys to Donald Trumps platform at the beginning of his term, tax cuts, regulation reform, and Infrastructure Spending, could put upwards pressure on Interest Rates. Is this a key to investing in europe in the u. S. In the coming year . I think all three of those aspects would be positive for growth. And also positive with respect to inflation. High growth and inflation would lead to higher yields, as well. I think it is quite consistent. That being said, Infrastructure Spending is a longterm problem prospect. It is not like were going to see trillions of dollars infrastructure in the first 100 days. Tax cuts would have to work through congress. Aree things look what they going to potentially happen, but i caution against assuming it will come to the First Quarter next year. Bulls like tose think christmas comes many times over. I will ask you a simple question. Our markets in a bubble . A lot of people are writing about where the u. S. Markets are at the moment. Of the potential fed reaction to a Trump Administration fiscal spend. You guys and girls talk about the greenspan . You talk about rates . What are you talking about in terms of bubbles and rates . You have the dow at alltime highs, earnings are significantly higher than they were and have been growing. U. S. Equity we see growing next year. Willto argue equities change. We dont think they are in bubble territory yet. When it comes to fed reaction to potential stimulus from a trump residency, and upward treasure with respect to u. S. Growth and inflation, that is a pretty positive story. What we have missed the last seven years is growth. Not allowing growth on the whole. There was a lot of concern, simon, about a fixed income bubble. We have seen rates turn around and quickly, but not soaring to levels no one has seen in recent memory. Do you think that looks like a bubble burst . Or just a turnaround . Context is everything. The starting point, if you look at the last three months, yes it looks like a bubble bursting. If you look at the side of the year, we were up 10 basis points above where we began with was respect to 10 year treasuries. Hard to argue we are at a start of a bubble bursting, still very low yields. If you go further up the risk pointsm, 500 basis spreads, you got a floating rate instrument. Default environment is compelling and far from bubble territory. Manus what kind of credit quality is that . All investment grade, real quality paper . Below investment grade. Backdrop, 2. 5 default rates to 3 default rates, in this environment, we think is a compelling risk return. Manus the illiquidity premium, that was above where it was 2016. Next, essen, berlin, eating the burden. Our area finance minister speaks, we are like to brussels next. Plus, what is the worst that can happen . We did he wait pessimist guide to 2017. Thinks 2017market is the europe the dollar. We give you reasons to doubt that. Those stories and more. This is bloomberg. Welcome back to the European Market open. I am matt miller in essen, germany to cover the cdu, the ruling political Partys National conference, along with manus cranny in learning london. Looks like i have taken a little breather. We trying to reassess what is going on. You have the stock is hundred down to sixth of 1 . One or two commodity complexes in question. The dax, it took three days for the market to recover from brexit, three minutes to recover from the italian referendum very. The manufacturing numbers in germany are impressive, but not enough for a new level of wellington the market. 4. 9 . Renzi is staying. What cautionary note one cautionary note, there is a plan b being discussed as a precautionary move for back to monte dei paschi. Lets get to sebastian sarlacc with your bloomberg first word. Sebastian south korean president will step down in 2017. This, after opposition Lawmakers Said they might have enough votes to impeach her in a motion separate vote on friday. In france, the Prime Minister has confirmed he will run in next years president ial election. Prepare for the primary next month. Announcing his candidacy, he warned the divided left it risks letting antieuropean candidate mary le pen into office. Measures that will help ease greeces debt burden. Finance ministers meeting in brussels could cumulatively reduce debt by 20 through two 2060. At the same time, they insisted country about serious reforms to make sure the nation maintains the process fiscal reform. The Prime Minister could face her approach over to brexit. Theresa may has said she will trigger exit talks by march. As 40 tories cumbered with the labour party to make sure there is a brexit plan before beginning negotiations. A Supreme Court hearing into whether can Parliament Needs to be consulted in the triggering article 50. Protestersd of gathered at the court. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more , this iscountries bloomberg. Manus thank you. Euro area finance ministers have offered debt relief degrees. However, the block has also insisted that the greek government adopt serious reform. While, on imf official said measures were an important important step in going forward, but insufficient. It is very important for all sides, including the imf, not to jeopardize this progress with increased uncertainty and confident that all sites will take into account the discussions of the coming days and weeks. The need for reforms and discussions to be within the mo you commitment, within the european framework, and in every be noce, that they should demands on greece that do not take into account the situation, the current political and social situation of greece. Isus joining us now carolyn. , accommodated enough for greece . Good morning. It may be too little too late for greece, according to officials who say this new shortterm measure arent enough. O get the imf on board the greek finance minister said officer sing offered to reduce the debt load by easing the repayment schedule and waving about 200 million euros. Thegoal is to maintain Budget Surplus of greece to around 3. 5 of gdp beyond 2018. The problem is that the second bailout wasnt supposed to be finished it was supposed to be finished by this euro group meeting, but there are a couple of sticking points, including labor reform and mediumterm fiscal adjustment. It is a threestep process. Without the conclusion of the second bailout, it will be difficult to get more discussions on more debt relief workers. It will be difficult to get the greece needsand the imf on board in order to get back into quantitive easing across the eurozone finance issue to bent this resolved as soon as possible so they can move on to other issues , such as the aftermath of the italian referendum and brexit. Manus matt i am wondering what you expect to hear out of brussels concerning brexit . It is going to be the first on the record briefing by chief ofbonnier, the the commission for brexit touring europe over the next last two months since he took office on october 1, traveling the8 european capitals, sting states by january. We could hear more on the format of the brexit negotiations, that no details on the negotiations before article 50 is triggered in march. Once this happens, theresa may will still be part of the eu council, but the 27 will be allowed to meet without pegida to discuss only brexit. Manus thank you very much. Part of the cio team, simon, when i look at europe, history teaches me to be more careful going into 2017. Another roller coaster year for volatility. Of insuring myself against the downside in europe on the be stocks ratcheted to a four year high. I question is, you create and generate wealth with the funds you look after. Moneyu prepared to spend on buying protections on the spikes of elections and referendums next year . 75 will, but not ahead of these events. , but not ahead of these events. I think consistently people are overpaying realized volatility that comes through. Secondly, that shows we are bad at choosing the event we hedge. Destroying returned by hedging events which, as it turns out, three days, three hours, three minutes, didnt lead to market selloffs. It was a losing game this year. It almost always is. When we look at hedging strategies for our clients, rather than being discreet and buying protection because people are concerned, strategies we are looking at are more systematic, constantly having protection, looking for cheap sources of protection, rather than timing markets when it comes to protecting the downside. Manus help me, ive just been punched, matt . I dont think so. Its just a straight answer. Thats what we want. Euro, orat about the euro debt nominated investment . Do you expect us to go to parity or further . Simon no. That is one of our anticonsensus trades in 2017. We expect the euro to appreciate against the dollar. We see inflation picking up in the eurozone. Remember, the ecbs sole mandate is deflation. Support the oil price. So that headwind will reduce pressure. You have ongoing trade surplus, purchasinguations, power is around 1. 25. Positioning,ssed finally. It seems every man, woman and dog is on the dollar. While you have been speaking we have been listening to our chancellor, and he is talking about brexit negotiations. On sterling, where are you on your sterling trade for 2017 . Simon we dont have a strong conviction with respect to cable. It is not overweight or underweight. Manus great, that is Philip Hammond speaking. A very important sector for the u. K. We want to keep all of our options open. And the u. K. Will keep all its options open with the eu and he wants brexit negotiations with flexibility. One could say that is having ones cake and eating it. That is the chancellor, this is bloomberg. Matt welcome back to the European Market open. Cduin essen, germany, the conference alongside manus cranny in london. If you are more the glass half empty kite, we have to list for you. 2017, the bloombergs pessimistic eye covers everything from social breakdown in the u. S. To the defeat of Angela Merkel in them moment. Just as much potential for chaos as last year. These are predictions that show you what your social media newsfeed could look like if everything goes wrong. You can check it out on our bloomberg website. Manus, you have been scrolling through as well. Manus i have indeed. I will go straight to the top. Simon is our guest host. Umplandia, he rescinds orders, you get public outbursts. Exit, california goes against trump. What are your clients worried about the most in 2017 . Simon 100 of our largest clients, we asked where the biggest potential changes in 2017 for the business work. The top 25 of respondents said political answer team. Not necessarily your tr umplandia, but the upside and downside of trumps policy, when it comes to europe and the u. K. , how brexit will proceed or not proceed. That is the key thing. 25 highlighting political uncertainty, this is only 19 for technology. Last year, it was overwhelmingly technological trends. Have a great day, i will see what little later on. This is bloomberg. 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Yesterday, wevery afflicted from a down on futures to rising equity markets. Except for italy. Renzi will stay through the 10 , but dax down by 1 10 of a percent. Manufacturing strong in germany, not Strong Enough to take them higher. Raiseonte dei paschi their 5 billion euros . Reports, we learn there could be a plan b. Somewhere there is a plan b and the new man in charge is in front. A little breaking news now. Names dent of france for the final months of the administration. The Prime Minister has been named in the final month of his administration. He is 53 years of age, he has a variety of ministries. Has been a member of the French Assembly since june 19 june, 1997 and deputy minister to budget from march 2013 2014. That is the new Prime Minister after valls stepped down. What happens next is anybodys guess. We are understanding little more about the political ramifications in italy. It is essentially in limbo after matteo renzi announced his intention to resign, which turned much of the attention to the countries struggling lenders come up primarily monte dei paschi. Francine lacqua is in rome for us. Monte dei paschi one of the Worlds Largest oldest bank. Wouldnt have had a worse week to convert bonds and do it under the radar of the global press. Do you think time is running out, prancing . Francine . Francine this is what investors seem to think. If you think about the situation for monte dei paschi is the most troubled lender in europe at the moment. It had to go through a huge Capital Raising exercise. 5 billion, 10 times the market cap. Today we find out the one billion swaps. They took subordinated bonds. There wasnt a hitch there, there is one hitch there. They need an anchor investor. They need an investor, possibly qatar, that was one of the names we heard that would come in and say, i will buy a billion, that would urge other investors to come along. The problem, because of the political limbo and referendum, was so big in terms of the loss of matteo renzi, 60 of voters here voted against what he wanted. If you are an investor, you shy away from increasing as an anchor investor, you may shy away from a capital increase. A little more trouble than it was last week. We also understand that certain monte dei paschi heads are meeting in d. C. To extend their plan. Matt is there any possibility an interim government, for even the ecb could step in with at least a bridge plan to tide them over until he can move forward with their Capital Raising plan completely, or until they can find a white knight investor . Are two things. The ecb put the deadline for monte dei paschi to sort itself out. Simply by the 31st of september december, there are talks about monte dei paschi asking for an extension that has not been confirmed. Idea which we are also hearing is, although they didnt say their sources, lets take it with a pinch of salt, there is a plan b from treasury here in rome to figure out the nationalization plan. Theyll in rules that are enforced by germany make it type oft is any time nationalization plan would need bondholders, i. E. Italian families, would take a big hit. This is the thing we need to watch out for. I remember covering the greek crisis. The soon as soon as people talk about plan b, investors assume plan a does not work. We are not sure that is the case at this point. Manus never a truer word has been set. This is about real italian families. Potentially at risk. That is what gives. To the likes of the fiveStar Movement, which is a big risk on the political agenda. Great work, francine. Follownow, the brexit has yet to come. Joining us now to speak about why he is underway u. K. Equities, Global Equity strategist at jpmorgan. Oh, the voices of doom, sir. The worst is yet to come. How bad will it get . How bad will sterling go . You should be short the ftse 250. Ae problem is, you will have hit to disposable incomes as inflation picks up, Interest Rates go up. They have to have some credibility. And so far, the pound weakness was seen as a positive. It was helping with the competitiveness of the u. K. If there is further fall in the town, i think it will be a problem for the u. K. We like u. K. Equities this year, we think next year, you should be underrated. Wcrs, youms still up the pound, 2 . How much more pressure could the pound come under . Onyou see more pressure eurosterling, eurodollar, you think we will break down some 120 . Where is the break point in sterling . We think it is likely you break four 120. The problem is there is a huge current account deficit. You have a potential slowdown in the u. K. Economy. Has had a respire, but the is down again. Manus lets talk volatility. Euroyen, euroat rising, again falling, these are when one week volatilities. The one weekoff on imply volatilities. D think 2017 i had a dontsation, he said waste your money on buying protection. Would you concur . Do you think it is a waste of money to buy protection . To ratchetty going and peek at various points next year . We think next year will be constructive for risk assets, but you have so many events which might go wrong. Is low in historical context. Waste of money to buy protection at certain points. Manus one of the phrases you reflation is usually initially priced in. When i looked at what is snp and , at 200 andbeing the blue. When you look at the position, this is fascinating. When you go to the yield of people who are long in the russell, it is the highest since 2013. From a u. S. Perspective, from a reflation trade perspective, do you want to be long russell, long u. S. Generically . Have i more advantage of what might come . It is not all going to be frontloaded in the first two months of 2017 in the u. S. You have one huge factor. That is, if trump gets away with the tax cut he is proposing, the domestic stocks in the u. S. Are being effective tax rates around 3334 . If you go from that level to 1520 , within the u. S. , it makes sense. Especially given the dollar, which has been strong. And we think in the shortterm, remains strong. Phrase, gete the away with, if he can get away with reducing taxes. Is that the mindset is to mark he can get away with esther get away with . Fiscal deficit is there and will increase further. If you are cutting revenues across the board, proposing to increase spending across the board, this is not very viable longterm. Thereestion is how much will be for the proposal he has. Clearly the tax cuts help for a bullish market, but one has to think about longterm sustainability. Manus where can that take me in terms of bond yields . That bond story is yields move is not down. Think about 2013, 10 year went to 3 , unemployment rates were 7 , now they are below 5 . The Global Equities strategist at jp morning, thank you for your thoughts on 2017. Angela merkel holds the convention. We asked a Senior Committee member about the division in the party. This is all next. This is bloomberg. Matt welcome back to the European Market open. I am matt miller in essen, at the christian Democrats National party conference. Right now, i want to give you your Group Bloomberg business flash. Sebastian . A potential challenge to johnson johnson. They say the french drugmaker is working with advisers to weigh its options. A representative declined to comment. While actelion couldnt be reached outside business hours. The New York Times says it has signed on 11 200,000 additional subscribers in the Fourth Quarter and hasnt seen love since the election. They have been heavily criticized by donald trump for what he calls biased reporting against him. We guided the market to 100,000 net used subscribers. More than twice as many for last year. That already,er nowhere near and the end of the quarter. A big surge. Australia introduced overthecounter rules for trading. Systems ready to exchange collaterals, known as variation mark margins, which cover daily swings. Part of a Global Initiative to make transactions for the fight safer. Thats your business flash. Matt . Matt thanks very much for that. As i said earlier, i am here in essen for the christian Democrats National conference. I am with a key member of the cdu, david mcallister. If for joining us. Thank you for joining us. A member of the european parliament. A fascinating time for you. Lets talk about the party. How much support you think this party is going to put behind Angela Merkel for fourth term as chancellor . I think she will get an excellent result at the election today. She is a strong leader, a strong chancellor and we know she is the best for germany. Matt she is running without any opponents in the cdu, so certainly she will win and get to run for chancellor. The weaknesses that we see though, the immigration problem with refugees. Is that going to be a serious problem for which you try and swing to the right and stop that. The resolution, we are going to debate at this party conference. To provide orientation, to provide guidance in challenging terms to europe. That is what is is all about. These are very challenging times, not only for europe that essen germany. Strong andd now is a stable government under the leadership of Angela Merkel. Matt is it possible the cdu faces more a threat from the left that from the right . A red, red, Green Coalition has a stronger chance of pushing you out of your Coalition Power than the afd, the alternative germany. Our competitors will be on the left and the right. The alternative to a cd you let government would be a block of s, socialists and communists from the former east german communist party. We have the option of a leftwing for germany, and the far right. This shows that the cdu covers the Political Center, the Political Center ground in germany. I think in these challenging times, what we need in germany is a strong sector. Center. Matt it is a challenging time for europe, as well. You are a member of european parliament, as well. Have you see the brexit procedures unfolding here . Has been through it a difficult phase. I think the 23rd of june decision of the british people to leave the eu, that was a heavy blow for the integration project. Now the ball is in the british court. We have to wait and see with the British Government will actually be up to. We are waiting for the british to trickle the article 50 procedure. Once the british have presented their program in detail, we can then negotiate with london. As long as the british have entreated article 50, there will be negotiations no negotiations from the european side. Ago, there were ks about hopes for a access to the Single Markets, but their own immigration policy. What are the chances of that . The Prime Minister has been clear when she said brexit means brexit. We have to face the reality that the United Kingdom will leave the european union, even though a lot of people deeply regret this decision. The United Kingdom would like to stay a member of the Single Market, or at least have full access to the Single Market, and they can. But one thing, they have to follow our rules and regulations, and you can only be a member of the Single Market if you accept all fundamental principles of it. That means the Free Movement of people. That is a key principle of the Single Market. If the british are ready to accept this, they are very welcome to remain a member of the Single Market. If they are not willing to accept this, they will have to find another solution. Personally, i believe it is not about punishing the british. We accept the democratic decision, one thing is clear, they cant have favorable treatment because than other countries would like it to. Like it to do. Lets start the article 50 procedure, a deal which covers specific interests of both sides. Brexit was one shocking blow to the establishment. Another was the election of a reality tv star, donald trump. As the president of the United States of america. How is the cdu going to work with donald trump . The Anglo American elections might not have been what a lot of people in europe expected, but this is democracy. The American People have decided that mr. Trump will be the 45th president , and i believe we are very interested in continuing transatlantic relations. The european union, its Member States and the united its are very close partners. Haveed the americans to our own security in europe, we are interested in having good traits contacts. I think the message which all european leaders sent out was, we would like to continue our transatlantic friendship on the basis of our common values. Now it is up to the American Administration to decide if they want to continue the cooperation with us or not. To goif the u. S. Decides more ports isolationist policies, is it going to be important for germany to build up its own military power . The european unions, the americans and canadians are allies in nato. We know the security the european americans provide us and europe is one of the pillars of global security. We understand the americans will expect us to do more for our defense and security him up and germany is a country which knows it has to do more for its defensive security, but we believe we should do this within the framework of our European Partners in cato nato. We have 28 Member States with 28 armies that are not in good condition. Cooperate more closely, strengthen the European Center within the framework of nato. I think this will be the solution. There are European Countries like germany, france italy and spain that want to go these steps forward. Matt david mcallister, thank you for your time this morning. A key member of the cdu and european parliament. We will continue to cover politics out of sn, germany and the European Market open from london. This is bloomberg. Manus will 2017 be the year of the dollar . It can action by many market segments. We have mark with us to discuss conviction trade he has been investigating pursing a part singapore. I make a mistake. I showed the dollar and looked at it twice and said to the viewer the pound was still up 2 today, down 13 . Thinkes most of new york that is the winning trade . It is certainly the consensus trade among the fx community. It has momentum behind it at the moment. There is a great narrative that trumps policies will boost growth and there will be higher inflation and higher Interest Rates that support the dollar. There may even be a repatriation act in terms of tax amnesty to encourage dollars back to the country. Several good stories here, but a lot of them arent sustainable for the whole year. If everyone is on the same side of the trade, that can be good, right . Mark absolutely. People one of the things arent taking into account is a higher Interest Rate for a main driver for the argument, what is happening here is the dollar itself is a disinflationary impulse the stronger it gets. That removes the impulse, the recent have higher rates. It stronger the dollar gets, is selfcorrecting and removing one of the main players of its strength. Manus you couldnt have said it better. We talk about that shortly. This is bloomberg. Francine please dont go. Italys president asks matteo renzi to put his resignation on hold at least until the budget is passed. Bank a monte dei paschi completes its debt plot. What with its recap plan teetering, reports swirl of intervention by the treasury. Mark Angela Merkel braces for a fierce fight. She calls next years vote the most challenging since german reunification