Transcripts For BLOOMBERG Bloomberg Surveillance 20161206

I am mark barton in london. And i am Francine Lacqua, right here in rome. We have been in rome the last three days. When you look at the markets, they seem very calm. Be buying some of the bonds to keep that safety blanket in check. We will find out more on thursday, when i am sure mario draghi will be fielding a lot of questions about the political upheaval here. One thing i keep being told over and over is that investors burned by brexit are still burned by trump, but this time took the right positions. Timetable. Talk when will lindsay step down as Prime Minister . Francine at this point, we dont know. We know that the president met with the Prime Minister, matteo renzi. We understand they met twice yesterday, once in the morning and once in the evening, around 6 00, 7 00 p. M. The second meeting was quite long. It lasted an hour. Matteo renzi tendered his resignation, with the president saying, hold on. I need you to first pass this budget law. Means that failing passing of the law, which could come as early as friday it could take until tuesday. There are two houses. This law has already been passed by the lower parliament. The senate is expected to give december approval friday or next tuesday. Nothing huge. Not controversial. But it would put italy in a more stable and equal footing. Mark who is in the hat to zi as Prime Minister . Francine we hear a lot of names the culture minister, the transport minister, possibly the head of the senate. It is clear speaking to ceos here that the next person will have to deal with the banks. Do not know exactly what will happen to the banks or what will happen to the monte dei paschi Capital Raising plan. A failure seem to be in the international markets. This could be the current finance minister, who has already taken quite a big role in trying to fix these banks. Mark francine, we will be back with you shortly in rome. Lets get the bloomberg first word news today. Here is sebastian salek. Seb france president Francois Hollande has named bernard Prime Minister for his final months in office. That came after the current Prime Minister said he will run in next years president ial election. He will officially resign today to prepare for the socialist to run primary next month. In south korea, President Park will step down in april over and influencepedaling scandal, after opposition Lawmakers Said they might have enough votes to impeach her and the motion set for a vote on friday. German factory orders surged in october, suggesting growing growth in europes largest economy will accelerate at the end of the year. Adjusted to seasonal swings, orders jumped by 4. 9 , the biggest increase since july 2014. And the governor of the bank of england has launched a defense of globalization. Speaking in liverpool, mark carney sets out a manifesto for central bankers and governments to boost growth and make the World Economy more people. Carney real earnings have grown at the slowest rate since the mid19th century. Growthhis week income that has focused attention on its distribution. Inequalities that might have been tolerated during generalized prosperity are now felt more acutely. Powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salek, and this is bloomberg. Mark lets look at equity markets today. Other asset classes, starting 600, whichx stoxx initially fell on the referendum results, finished today roughly half a percent higher. That is the euro stoxx 50. 0. 2 againstp by the dollar. It was down by 1. 5 yesterday. Big swings yesterday. It finished the day higher. Rising today as well. Tight trading range today. There is the italian 10 year. Yesterday at one juncture, up by 16 basis points. Down by three basis points. The Market Reaction seems to have been felt yesterday. There is the price of crude today, down by 0. 9 , retreating from the highest close in 16 months. Meet producerso from outside of the group on saturday, to widen cooperation with supply curbs. Just two days and it has been quite a week for the euro, taking a hit after the italian referendum. Investors shrugging off the results. This ahead of thursdays ecb meeting. Economistsof the surveyed by bloomberg expect mario draghi to announce an extension of the bond buying program. Play a year ofb Upcoming Elections and potential political instability . Lets get more with a socgen global strategist, kit juckes. Cast your mind back to december 3, 2015. That the ecb meeting when expectations ahead of the meeting led many of the market to believe we were expecting something. Draghi underwhelmed. The euro surged. Bond yields surged. Could we be seemingly disappointed on thursday, like we were a year ago . Kit i think he is going to work really hard to avoid disappointing us. He is a magician really short on tricks at the moment. He could probably mount an extension of the bond buying program. He might be really like on detail about what that means. In other words, he might not have the support in the council to be explicit about how many bonds they are buying each month as they go through. At all surprised if we read that, there is a slowing of the pace of bond purchases, a tapering coming, sometimes in the spring, sometime next year. Mario draghis attentions to not disappoint the market are pretty clear. It is just what he can get out of the council. Not want so, he does to disappoint. He may extend the qe program because of the italian referendum. How much of the political turmoil we are seeing in rome will affect his thinking . Kit i do not think he is just going to if there were any other reason needed, the current political environment in europe is one which says, you know, steer as straight as you can. The italian referendum itself, there is still the issue of bank recapitalization, and French Elections next spring. There is too much coming down the track. Inflation is not a problem yet, going up in any way, shape, or form. What we need to do is not make any dramatic turns that could be interpreted as a turn away from easing policy, a way toward tightening, anything that could destabilize europes markets and europes economy. I think that is his guide. If i were him, i would try to offer as few questions as possible at the press conference. Francine i ensure he will. The spread between italian and german yields was not whitening by that much. These think the ecb was buying . Kit i do not have any knowledge. The vote itself was not a surprise. Every opinion poll pretty much for a while suggested this was going to be a no vote. It happened. We came in yesterday morning to find spreads wider, the euro lower. Immediately, i think at the beginning of december, position started coming off. I think the market was probably wellpositioned to the extent that it was expecting a no vote. But the positions coming off and everybody settling back to work out what their social diary looks like in the next couple of weeks was probably the main one yesterday. Mark how does that set of next year for the netherlands, france, and germany . The market just the results. They were right the market guessed the results. That was right across asset classes. Kit i think the french one is the really difficult one. Just by its nature. I was in the states for two weeks around the u. S. Election. Could not persuade a single u. S. Hedge fund manager, investor, corporate, anybody of the idea buy the euro on the dip before the French Election. If i told them the electoral map was really difficult for a surprise Marine Le Pen win, i got yes, but. But i forecast in a low in the euro just before the election, because i cannot think what else to do. Kit will stay with us. Germany cap court says utilities are entitled for damages for the atomic exit. Germany must compensate utilities for their loss. This is the top court in germany, the Constitutional Court, issuing a ruling over the nuclear exit, germany pushing back from Nuclear Energy to green energy. The top court says utilities entitled to damages for the atomic exit. Keep on on on keep an eye on rwe, both of my 5 , 6 . Biggeste the two utilities in germany that have been hindered by the push away from nuclear industry. The court has ruled in their favor, to an extent. They never are entitled to damages for the atomic exit. We will continue to monitor shares. Both surging on that German Top Court ruling. Stay with surveillance this morning. Delayedp, renzis resignation as the p. M. Is asked to stay a little longer. Dollar danger is the u. S. Currency flying too high on trump stimulus promises . And as the legal challenge to brexit continues to be examined by the Supreme Court, we get socgens outlook for the pound in 2017. Mark i am mark barton in london. Big news out of germany from the nations top court. Essentially the ruling is that utilities are entitled to from atomicthe exit energy. Germany must compensate utilities a loss of rights. The Constitutional Court has issued a ruling over the exit from nuclear energies. Utility partly winning the Germany Nuclear exit cases. They are entitled to damages. These utilities have been hit by the move away from Nuclear Energy in germany, toward green energy. We rallying on the news today. We will continue to keep an eye on those shares after this big news from the German Top Court. Lets get the Bloomberg Business flash. Here is sebastian salek. I is considering a counter bed for actelion, potentially countering johnson johnson. The french drugmaker is working with advisers as it weighs its options. A representative for sanofi did on couldent while acteli not be reached at set of business hours. The New York Times says it has not seen any role since the election. The executives and journalists have been heavily criticized by president elect donald trump or what he claims is biased reporting about him. Towe have guided the market 100,000 net new subscribers, more than twice as many as last year. We are well over 200,000 already, and nowhere near the end of the quarter. A very big surge. Australia are and to introduce collateral rules for overthecounter Derivatives Trading in march. Financial institutions will be required to have systems ready to exchange the collateral, known as variation margin. The guidelines will also apply to a Global Initiative to make transactions and 544 trillion markets safer. That is the Bloomberg Business flash. Thank you so much. Lets get straight to we are in rome. Of course, we had that referendum on sunday. They gave a very clear no vote. 60 of italians voted against what matteo renzi wanted. I am pleased to say i am joined , one economics professor of the foremost experts when it comes to the Banking Industry here in italy. Thank you so much for joining us. Great to have you on the program. I dont know what happens with the banks. The Political Class does not know what happens to the banks. Investors do not know. Do you . Say, duedifficult to to the fact that obviously the results of the referendum increased dramatically the instability in the economic system. Hence, it is difficult to understand which will be the position of International Investors toward the banking problems in italy in particular, with reference to the monte dei paschi situation. Francine we seem to think that matteo renzi was going to resign straight away, but the president asking him to stay on another couple of days. Does it give the president the upper hand in choosing the right successor to renzi that would do with the banks . Iscello obviously, it difficult for me to judge the political situation in italy. Nevertheless, it seems to me that the most important signal to send to the markets is to look for stability. Hence, we need a rapid solution, and institutional solution. The idea is to find out a new set thent able to budget low, to approve at the parliament, to change the electoral laws, due to the fact that currency currently we have opposite laws in the two branches of the parliament, and it is impossible to vote immediately. But you know it is not so easy to find out the right road to do that. Francine professor, i want to ask you to talk about politics for just one more question. The, we will get back to banks. The electoral law i was thinking about this. They are trying to fix the electoral lawsuit you have the same rules in the lower house and senate. It is basically a measure to protect it from the rise of the fivestar movement or such a populist party. But is it not rigged . Does it not give the feeling that the italians could revolt, because it feels like the establishment are trying to protect their own interests . Marcello absolutely. It is difficult to find a good solution to overcome these difficulties. And it is difficult for me to forecast which will be the actual solution. Francine you and everyone else in rome, i assure you. Lets go back to the banks. You believe it is almost impossible at this moment in time, 60 of italians voting no on the referendum, for monte dei andhi to reassure investors find an anchor investor or other investors to raise that capital . Marcello listen, impossibility is a difficult word to use. I would use very low probability to find a market solution. Up an we have to build alternative. In my opinion, the only possible alternative is a public intervention. But obviously, a public intervention requires an arrangement, a compromise between the Italian Government and european institutions. You know very well that the european gnomes avoid the public intervention except in very extreme cases. Hence, we have to judge of currently in italy the Banking Sector is in an extreme situation or not. Francine professor, we will get back to the rules in just a second. That from a point i covered many crises in my years in bloomberg. A lot of the anglosaxon world, a lot of the people in brussels, have always said, we dont have a plan b. As soon as we say, we have a plan b, the investors discount plan a. Marcello you are absolutely right. Francine so why are they talking about plan b, your treasury saying they are looking for a plan b for monte dei paschi . Marcello it is a probability to find out a Natural Market solution are very low currently, due to the fact that instability implies that International Investors have a lot of difficulty to decide, in the shortterm, a very important capitalization for a bank in trouble, such as monte dei paschi. And as you know very well, there is a time limit put by the ecb. Francine that would be the first step. Do you believe the ecb will extend this deadline . Does it give them more of a chance to increase capital . Marcello listen, it is possible arises. Ight solution otherwise, it seems to me that it would be possible to ask for a postponement, a sanction with respect to the deadline put by the an extension with respect to the deadline by the ecb. Francine you say we should have a plan b, but have something on the table. Looking at nationalization, should italy look at the rules and say, this is systemic, i cannot do anything else, and i cannot take the pain out on my bondholders marcello that is the problem. If the Italian Government is able to manage a situation in which there is a declaration that the italian Banking Sector is in high risk of systemic instability, the european norms allow a public intervention without a suspension of the bailing process. Obviously, it would be necessary to find a compromise with the european institutions. And the likelihood is to involve the holders of subordinated , maybe the institutional holders of subordinated bonds, in the process of restructuring of the monte dei paschi. But it is difficult to say. And moreover, in my view, it is impossible to look just at monte dei paschi. Francine of course. Marcello if you choose the role of instability, of the risk of instability, it is the italian Banking Sector to be involved. Francine are you worried about unicredit . They may look to raise capital next week. The Smaller Banks, do you merge them . Marcello i am worrying on the small banks, due to the fact exactly. Wereour new banks which the consequence of the crisis in november, 2015. Unicredit francine you nationalize them . What do you do with them . Do you build a bad bank . Marcello there is a bad bank. Nevertheless, the new banks have a number of nonperforming loans. They need recapitalization. Is to potential option ask for how do you say it is a possibility to have someone ready to buy the new nonperforming loans, or to have a very favorable condition in order to purchase these banks. So it is difficult to find a solution even in this case. Francine given what you have just said, do you think this is a systemic thing . A Systemic Risk . Marcello i think so. I have to confess to you that i am thinking that the italian Banking Sector has a high probability of Systemic Risk since january, since last january. Francine this is a problem. Do you not need an event to make it more if the bailing rules were to be applied a month ago, the referendum has changed, but you are telling me it has always been a problem. Marcello the problem is which is the reason why the european loans do not allow public intervention, due to the fact that public intervention has distortionary impact on the working of the markets. Nevertheless, there are some circumstances in which a public intervention implies a distortion lower than the market. And in my opinion, the situation of italian Banking Sector is exactly that situation. A public intervention would be less distortionary than the failure of the market. Francine one last question. Do you believe that if something happens lets say that the bailing rules apply. Italian families, a lot of them, would lose a lot of money. With that lead to social upheaval, or the election of the fivestar movement . Marcello that is the problem. Due to the fact that we have hugean banks offer a amount of loans to the real sector before the international crisis. And in order to find the gap between loans and deposits, they issued a large amount of bonds, a bank bonds. And the allocation of these bonds were not just to , investors, but also to households. Italy has a peculiar situation. A number, a large number of households, are owners of bank bonds. And that is a problem for the bailing. Francine thank you so much. That gives you some of the concerns surrounding these italian banks. In many cases, it was the very banks themselves that actually sold these bonds to the families. Mark we will see you in a minute. Up next, the icarus syndrome. Socgens kit juckes down swirling dollar doubt. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Ways wins. Especially in my business. With slow internet from the phone company, you cant keep up. Youre stuck, watching spinning wheels and progress bars until someone else scoops your story. Switch to comcast business. With highspeed internet up to 10 gigabits per second. You wouldnt pick a slow race car. Then why settle for slow internet . Comcast business. Built for speed. Built for business. Tom i am mark barton mark i am mark barton. The news out of germany affects the nations utilities and Constitutional Courts is dutch courses about the exit courses about the exit from Nuclear Energy after the Japanese Nuclear disaster five or so years ago. They heightened utilities due to energy. From nuclear a fascinating grueling which has affected the ruling which has affected the share prices. Up by a significant margin. We will continue to keep an eye on those german utilities probably the ruling from the german cost to show court. Lets get the bloomberg first word news. Sebastian french president Francois Hollande has named his Prime Minister for his last month and office in office. South korea president will step down in april over and influence heading handling scandal peddling scandal. Opposition lawmakers say they might have enough votes to impeach her. Surgedfactory just suggesting its economy will accelerate. Inflation jumped 4. 9 from september, the biggest increase since july 2014. The governor of the bank of dissenthas launched a of globalization globalization. Real earnings have grown at the slowest rate since the mid 19th century and it is this week and come growth which has focused attention on it distribution. Any qualities that might have been tolerated during generalized prosperity are now felt more acutely. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. Iron sebastian salek. This is i am sebastian salek. Dollar, that is the advised advice from socgen. Willnk the fed path continue to retire as donald trump delivers fiscal stimulus, and it will push the currency to new cycle highs. Kit juckes is still with us. Im desperately trying to job a line on the u. S. 10 year going dollar icarus . Flying is in danger of too close to the sun, playing with fire. Saw his wings fail him when the wax melted. We are not going to get back to the levels we have seen in the past. We are probably within x percent of the dollar p. M. 6 of the dollar peak. Rate that isnt down four and a half percent, trying to boost growth but how much does donald trump get and how much inflation . The more he boosts the trade deficit the more there is a problem coming through from that just to lever the debt in the u. S. Means that there is only so far you can push this Interest Rate support for the dollar. He gets help from the politics in europe. He will get help from the fact that the chinese are succeeding to weaken their currency. The japanese are weakening their currency, but holmgren dollar help, we are getting close homegrown dollar help, we are getting close, it is geriatric. Mark many a time since you 1980 2016rk, this is this is the 10 year yield which has been unable run since inning of the 1980s, 16 on a ball run the beginning of the 1980s. How long have they called a bull run . Kit im going to resist. Mark but you say it is an important number. Go some way higher before that series of lower highs, and i think that is what matters. You need a little bit of confidence. We got negative real yields in the u. S. Back in the summer which kind of coming in an economy that was not in recession and where the next move in rates is to raise policy rates where inflation has bottomed out for this cycle, that is all just and overshoot that point. But against that, is globalization dead . Addicted me on unaddicted to get . Debt . No. These are forces driving equilibrium lower. Francine lets back up and talk about what the president elect wants, or what he says he wants. He wants Interest Rates higher. That would mean dollar strength. Is that what he really wants . Kit he does not like the level of low Interest Rate. The sense of economic equilibrium in the United States that mark carney was talking about yesterday in the u. K. , he wants that but he does not want a much stronger dollar because he wants to bring u. S. Jobs home from overseas. He said that in a series of tweets castigating the chinese for their currency. Ultimately he will not want the stronger dollar and will not want much higher debt levels and Interest Rates into an economy where debt levels are so high. I am not sure that what he wants is terribly consisting yet. Consistent yet. Francine what is the level of the dollar that would be optimal . If it makes funding more expensive at a time when he might try to increase the deficit . Kit i think the dollar can probably go 5 to 7 higher from here which is going to add to the strain we see from the global economy, making dollar related debt more difficult. I do not think a stronger dollar from here is good for the global economy. That is not going to stop it happening, given what is happening in europe and the shortterm impulse of the u. S. Economy and the potential of a rise in rates. To have Interest Rates a little higher to start the process of normalization to ease off our addiction to debt. Everything we do above this, the combination of higher rates, yields, and dollars, it is on hopeful not helpful. Mark we have an article out, pessimist guide to 2017. If we had done this 12 months ago and predicted trump would win and brexit would happen it might have seemed far faxed fetched. Kit the first thing that could happen, dollaryen could get to 120 eighth u. S. Real yields hit if u. S. Real yields hit. January we immediately saw higher yields and a stronger dollar. The yen rallied and equities fell and we spent the next six months worrying about all sorts of things. The pace of the rise in treasury yields, the pace of the rise in the dollar cause Global Financial turmoil by the end of january, that is what happened last year. The second thing that can happen is we extend his populist vote to the sense where it causes economic uncertainty. The French Election looms large. Angela merkels markets assume that her cds you alliance will win in germany. A redgreen coalition is not impossible. Nothing is impossible. In, it is possible for the brexit negotiations to go wheres that i think they might go worse than i think they , and grow, and basic go a significant rise in u. K. Inflation so you and i will find our income getting hammered. You can throw those kinds of events in. Lets lob in a seriously worsening u. S. Chinese trade position. Mark which is one of our pessimist guides to chinese america. Kit juckes, socgen global strategist stays with us. 2017, coming up including hottest election in years. Angela merkel braces ahead of next years vote. The swiss sanctuary, with european instability swirling on it doorstep can switzerland provide a safe haven . On hold asignation the search for his successor gets underway. Monte paschis recapitalization plan hangs in the balance. This is bloomberg. Mark Angela Merkel says germanys election next year will be the hottest in years with the party facing challenges from the far right and left. She made the comment to a german tv station. Lets get to matt miller who is there. What will the focus of the parties platform be ahead of the election . I see the german chancellor is speaking behind you. Out, sheave to point has just started speaking. You can see right here, she is currently introducing an thanking all of the Different Party members and factions from around the country who are gathered here today. The focus really for Angela Merkel, and for the party at large is going to be the refugee issue, both internally and externally. They are having problems dealing with this issue. She was the one who almost singlehandedly allowed a million refugees into germany last year which has brought with it some problems, as well as some opportunities. They want to strengthen their language as far as deportation, that has been a difficulty trying to turn away refugees who do not qualify for asylum, and trying to get rid of refugees who cause problems here. They are hoping it will take some of the wind out of the sails of the right, that it is the left that is going to call the German Christian Democratic Party the biggest problem in the election. Francine how popular is Angela Merkel . Issue running uncontested . Is she running uncontested . Uncontested running so there is no doubt she will win to become again the chairwoman of the party and to run for chancellor. The question is, a much support will she have . The last time they held a National Conference she got more than 96 of her party voting for her. Can she hold that kind of strength with the inner strife of this party . As far as her popularity nationally, it has fallen sharply since his refugee crisis erupted. Like it or not, many people are happy about this unhappy about this threat they perceived to their safety and economy. And how will donald trump brexit play into this upcoming german election . Matt i am going to have to stop here. They are taking a moment of silence to honor fallen members. We are going to pull away from that, as a moment of silence is taking place at the conference. We will come back to that. Lets get back to kit. We will move away from german politics to u. K. Politics, and the Supreme Court continues to meet, date to. Yesterday day to. Yesterday was it tough day for the and we hear that emotion could be put forth on wednesday by labored a motion could be put forth by labor to push piecea may to let mp the now mps know what her cards are ahead of brexit before she triggers article 50. Kit i think the horse trading has started. She starts did she has to start to negotiate and she knows that if she jet engineers and election she can get in the conservative party a lot of people who might vote against triggering article 50. There is pressure from both sides to horse trade, which means away from whatever we might define as the hardest version of brexit. Side, awaye other from the idea that we might not ever do this. Brexithere is a grave notion that has been put forward in recent days gray brexit notion that has been put forward in recent days, not black and not white but gray. Francine what kind of brexit are we looking at . I am confused whether the u. K. Will pay to stay in the single market, transition deals for certain industries. Is it more clear what we are looking at than it was a month ago or less clear . Kit it is probably less clear, at least in the detail. Once we start rolling out the extreme versions ruling out not leaving and hard brexit, and try to find an area that is not the European Economic carrier, not a scandinavian deal, and it is not piecemeal from industry to industry. It sounds like a really long, drawn out, messy process. Sogged in onn this one. Francine is there concern that theresa may will see a revolt from her own party because she has been extremely secret about who can talk about brexit, and also the negotiation plan. Kit i think she will get pressure within her party but she holds this one joker, she has the support of the party at large. The party at large employs the mps and it is the mps that will make her life difficult. That is why i think there is this pressure to horse trade. That, athe reality is this point i am not sure we can blame theresa may for any of this. The negotiations, if you are not prepared to just walk away, and if you have got some resistance toward european area european area arrangements, you do not want to be part of a free trade area and want control over immigration, if those are your boundaries it is a shambles trying to navigate what you want through from their. It is going to take an incredible act of diplomacy to get this done on any kind of timescale that i can think. Mark we talked about the german, french, italian elections, the italian referendum, the netherlands election. Lets throw in the possibility 2017. K. Election in i know elections take place every five years and less mps vote unless mps vote two thirds majority. There are ways of getting around that fiveyear law. Probability of a u. K. Election, what pushes the u. K. To election next year . Kit i think the sense that there was likely to be a vote on triggering article 50 with enough conservative mps voting against it would be what would push theresa may. This is the card she holds in her hand to keep her mps in order. Mark after the election result that was successful, the conservatives did not put up a candidate. Will theresa may be confident in an election or not . We would suggest it is still very comfortable, yes. Mark kit juckes, a socgen local strategy strategist. Italyhe limbo means for and europe as a whole. Mark i am mark barton in london. Lets get the Bloomberg Business flash. Potentially challenging a move by johnson johnson, according to people familiar with the matter they say a french drugmaker is working with advisers. Acelion could not be reached. The New York Times has not seen any lull in pace since the election. Journalists have been heavily criticized by donald trump on what he claims is biased reporting. We guided the market to 100,000 net use of drivers, more than twice as many as q4 last year. Ready well over 200,000 and nowhere near the end of the quarter so a big surge. Sebastian singapore and australia will introduce counter roles for Derivatives Trading and march. They will exchange the collateral which covers daily market swings. The guidelines which will also in anto variable margins attempt to make the market safer. That is the Bloomberg Business flash. I am sebastian salek. Mark lets get over to rome quickly. Give us a quick sense of what we are looking for out of rome. Francine we have some great guests coming up. I would point you to two chairman we are speaking to. Is quite a colorful character and wellknown in rome. Former ecbne is a member so it will be interesting to hear him talk about the ecb. I am looking forward to the interview that guy johnson will do with the swiss president. If you think about it, italy and some of these troublesome countries neighboring switzerland. Bloomberg surveillance continues. Francine italys president asks matteo renzi to put his resignation on hold until a budget is passed after a search during a search for a successor. Monte paschi completes its debt swap. Reports swirl of an intervention by the treasury. Switzerland is implementing immigration coeditors quotas. Rome,rancine lacqua in tom keene in new york. We are still trying to figure out the political turmoil, who will become the next caretaker Prime Minister but the president is asking matteo renzi to hold on as soon as they until they pass the budget law. Monte deintioned paschi and unicredit as well. Francine with the first word news lets get to taylor riggs. Theor in south korea president is willing to step down in april over and influence peddling scandal according to the ruling partys floor leader. Lawmakers might have enough to impeach park and a vote is set on friday. Russia will hold talks with the u. S. This week regarding aleppo. The twoe minister says are close to a deal. The u. S. Has condemned bombing of aleppo by russian backed forces. Casanova replaces manual of all. The French Election is next april. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Tom lets go right to the data, a very quiet market. Really something after what we saw friday into monday with the vote in italy. Futures up one. Eurodollar stronger fractionally, confounding the parity crew, and american oil turning, 51. 57. The fix is a big deal, 11. 81 shows the beginning of capitulation toward a bull market. Kate moore will join us from blackrock in the 6 00 hour as we see the vix breakdown to bull market complacency. A weaker swiss franc. We have negative rates. Over to the bloomberg. On where to get a hand we are in europe and emerging markets. This is turkey. The red line is turkish interest lights Interest Rates denominated in lira. Debthite line is turkish denominated in dollars. Turkey is out at 6 . 6 down below and 11 up top. You can see on the right side the hockey stick in both series up. This is the tension in turkey that people are talking about. Unicredit Research Suggesting they will need a full percentage point left to protect lift to protect the turkish lira. Something to talk about into 2017. Francine it certainly is. We also have a great guide to the markets that in the past have been unpredictable. I would suggest apart from the political turmoil in turkey, look at the political turmoil in europe and more broadly onto the emerging markets. Tom absolutely. Tom . Ine tom looks like we have got some technical difficulties right now. Isnt that aitaly, miracle have we have done that . Antonio Garcia Pascual at barclays joins us from the barclays shop in london. I look at all that has gone on. N the last number of days what is the contagion of italy to portugal, greece, and turkey . Antonio i think you should think in terms of contagion of the european periphery. Any look at the spreads between italy and spain, that spread has not really moved much and that shows a little bit how any kind of worries or problems that could be in italy could spread to the periphery. Tom i believe there is a modest meeting in frankfurt on thursday. How will mario draghi react . Election, renzi is out but not out. How will mr. Draghi react . Will it be a question of not saying something at his press conference or will he be more . Antonio i think the latter. Quite a lot of Political Risk events going france,in italy, positions from brexit on the Supreme Court. All of these issues probably will conform desk and found the suv the ecb. Issue andrisks are an they probably want to lean a little bit against those. Francine how many questions will mario draghi try not to answer on italian ranks . Antonio italian banks . Antonio if mario draghi is a little more dovish because of Political Risk, and the banks themselves, it will be tough. Decide this is not the moment to ask the questions but behind the scenes i think the pressure will be enormous on the resolution, because the worst enemy for Monetary Policy is banking uncertainty, and that has to be addressed quickly. Actually the ecb has to take an informed decision on whether they think this is systemic. Extend the deadline which they have given to monte dei paschi to come up with his Capital Raising plan . If they do extended with find out in the press Conference Tomorrow . Antonio that is a tough question. That might not be the right moment because it is a Monetary Policy meeting. Tom antonio Garcia Pascual, thank you so much. Thanks to all of our guests over the past 48 hours. It has been a lot of terrific notes about whether italy, and on europe. We will speak to the president of switzerland. It is a unique set of challenges. The pretzer lynn president of switzerland. Worldwide, this is bloomberg. Francine welcome back. Tom and francine in rome and new york. We need to look at the political up evil in europe. First we had brexit political upheaval in europe. First we had brexit and then the italian referendum. I am pleased to say guy johnson is in switzerland and has an exclusive interview with the president. Romeyou are in beautiful and i am in beautiful berne this morning. In 2014 there was a referendum that would require the government to invoke quotas on immigration. They have to deal with the relationship with the e. U. , imposing quotas would be difficult so new legislation that we think will be completed by the 16th requires employers to list jobs here first before posting them elsewhere. Collectedvotes are there could be a second referendum on this legislation which would lead switzerland leave switzerland back at square one. That is the explanation of where we are at. If there is that second referendum, what is the governments plan b . The president of switzerland is joining us. Thank you, mr. President , for speaking with us. What is the plan b . Unfortunately there is no plan b. To thetraightforward solution of our parliament, and i believe that the solution of the parliament. To the Free Movement versus movement of the European Union, shall be compatible, and that we will have a situation where we found a situation solution. Is by principal that is on the table and was discussed in our parliament, i guess that must be the solution. That is why we do not speak about plan b as well as their as long as there is belief in the plan a. Guy do you expect a referendum . 50,000 votes required. Pres. Schneiderammann that is a very delicate question since i do not want to speculate and do not want to speak for the conservative party. They needed to go for the referendum. Whatpends a little bit on are the relationships between votes and the yes of no votes, on the 16th december. Our Political Community on one side against the conservatives on the other side, it will be delicate for the conservatives to go for a referendum because they obviously take a risk to lose. In this particular question, Free Movement of persons to our country, they do not want to get a defeat. Winners, to stay the and the situation will be extremely i do not speculate. Guy lets approach it from a different angle, how the people will be viewing the situation. The think brexit and the difficulties surrounding it do you think brexit and the difficulties surrounding it will change perspective on in terms of what is possible with the e. U. As far as government Free Movement . Pres. Schneiderammann we realized immediately the negotiations became far more tough and demanding. Buy whatever they negotiate with us, there could be a prejudice of the nk. U. K. They say no for the time being and afterwards we need to be based on that situation where brexit is one thing, and in the swiss case it is another issue. Chancellore german showed her preparedness to deal with us now, and to see what has to be done with the u. K. A little bit later. Guy there is another referendum coming up in february which relates to corporation task tax and this could affect Companies Like Procter Gamble and some of the commodities trading companies. We do not know so we say could. It is required by the oecd and e. U. In terms of changing some of the deals done for Multinational Companies in switzerland. Is there a plan b in dealing with that . No, hechneiderammann came up with a clearcut concept which is some we came up with a clearcut concept which is the plan a. Think there must be a plan b. Offere the offer, a good that this population is going to deal with this offer. Fairume that there is a possibility for the swiss government to persuade our population to follow the government. No plan b. Guy lets talk about what is happening with the economy. My colleague is in rome. The italian referendum is front of mind for everybody as they think about the turbulence in europe. Do you think next year there will be more turbulence in the eurozone and that may make switzerland as more of a safe haven and make it tougher for your economy . Pres. Schneiderammann we are hoping for two thirds of our imports and three quarters of our exports from the European Union. Has a cough, we are sick. We know that it is quite delicate to come up with a prognosis as far as growth rates for 2017. Business with the whole globe, and not only the European Union. The European Union shall hopefully do what they are expected to offer to the swiss economy. As far as the swiss franc is concerned, it is strong and will stay strong. We handle the strength of the swiss franc by investing into education, research, and innovation. We are going to be the best as far as innovation is concerned. Based on that, we can allow for a certain period of time to be confronted with the value of the swiss franc. Guy i should say that you are not only the president but you are the economy minister said you speak with some degree of authority. I understand Donald Trumps Transition Team has requested that you or the president elect hold a conversation shortly. When is that going to happen and what are you expecting to talk to him about . Pres. Schneiderammann it is going to happen within the next couple of days. The message from my side will be my dear president elect, please think about small and midsized countries of this globe. Markets, and an open market philosophy must be your philosophy as well. Based on wto as an opportunity, and i hope that some offers the opportunity to discuss about the might ofthe smaller the future economies. I am looking forward to speaking from an entrepreneur to an entrepreneur. Guy thank you so much for sharing your time this morning. The swiss president. Tom keene, back to you. Tom a good chart right now, euro swiss. Davosrro and i were in when this happened. The collapse of the swiss franc, and what all in switzerland have done is battle with what they perceive is the irresponsibility of europe, with still a very strong swiss franc. Kate rock eight more will join us from kate moore will join us from blackrock. Mario cavalli and search for the thislue go valley is bloomberg. Stay with us. Francine i am Francine Lacqua in rome, tom keene in new york. I got something to play in the background. We are serenading you. I do not know if the banks want to be serenaded. Sciencek the political professor at John Cabot University on what he thinks about the back of the referendum. We are in political turmoil of the markets are ignoring it. What kind of caretaker government will we get . It is impossible to predict. The president will decide probably over the next few hours. We only know that the budget law has to be passed and therefore, it might be renzi who for a month or two will continue his job in terms of a caretaker. New elections are certainly ahead of us. Almost certainly. Francine who do you think they would make win . This is very difficult to answer. I think the very composite coalition, so to speak, unwilling coalition will have a hard time getting together so it will only be a part of it. Five stars to be in. Francine do you predict a coalition between the separatist northern league, the five stars, and the . No, only the first two. In terms of victory. I think the pd is likely to be the opposition but it is too soon to say. There might be people who regret having voted against renzi. Francine thank you so much, a professor at john cabot. We will get back to how to deal with the banks. There is some breaking news. Tom some really important statements there. We will continue with the professor coming up from rome. Isbloomberg daybreak, he , anrman of Societe Generale important conversation. From new york and rome, stay with us. This is bloomberg. Generosity is its own form of power. You can handle being a mom for half an hour. Im in all the way. Is that understood . I dont know what shes up to, but its not good. Cant the world be my noodles and butter . Get your mind out of the gutter. Mornings are for coffee and contemplation. That was a really profound observation. You got a mean case of the detox blues. Dont start a war you know youre going to lose. Finally you can now find all of netflix in the same place as all your other entertainment. On xfinity x1. Francine this is bloomberg surveillance. Realm and new and roma in new york new york. We speak to the former chairman ferrariary and laid and later we speak to the chairman of Societe Generale. A lot of people say look at the italians, they are at their best in crisis. I do not know that that is true but is that way the market is trying to interpret. Tom we are really extraordinary on the fivestar movement. Right now we need to go to our fivestar person of news, taylor riggs. Taylor European Union governments are ready to issue an ultimatum to the british Prime Minister to tell her she needs to seal a deal for the uks trade ties after the brexit. If not she will lose out on the transitional phase. All this according to officials familiar. Nato officials meet in brussels for the First Time Since the u. S. Election and try to reassure each other Donald Trumps policy shift will not weekend against we can defense we can defense against russia. Matteo renzi was asked to delay his resignation until the bar Parliament Passes the budget. The president will have time to figure out how to form a new government. Global news 24 hours a day, powered by our 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you so much. Lets go right to the bloomberg terminal because this is the most important interview of the day if you are part of global wall street. Here is what has happened and what has not happened. Jpmorgan. Upe is a leg up in jpmorgan, 90 from the advent of the crisis. Here is the failure of european banking in yellow, Deutsche Bank in white, unicredit. It is time to bring in Christopher Wheeler with Atlantic Equities. Update on what is actually going to work out and where is the cash going to come from. Where is it going to come from, from the smaller be levered beleagueredly banks in italy . Christopher it is safe to say they are scurrying around trying to work out their options following the weekend events. Not a lot has changed since friday because even if mr. Renzi had one has referendum we would still have had the same problems , but the problem is looking forward. What does it mean for the sector . I think the wary everybody has, have, worry people they are starting to think about a state injection of capital and a compromise around the e. U. Bail in roles. Work on dysfunction and codependency, what is that relationship of cant respect,on with great to mario draghi and his italy . How odd is that relationship for the financial integrity of europe . Christopher it is a nightmare because clearly the key thing is that the hold european banking project, the consolidation under the single regulator has been driven very much by mario draghi. The problem is, he is facing very major difficulties in his home country. I think they are going to have to be some compromises. That is not going to be popular in a number of political circles. Tom you can see Deutsche Bank down 80 from 2007 and unicredit down 97 . I am sorry, those are straw hats and winner. Can you acquire shares of Deutsche Bank and unicredit this morning . Christopher i think a number of people are looking closely that because they might want to look at the jamie dimon chart. I look at j. P. Morgan closely and it may well be the view that in 18 months time they may not be in line with jp morgans share price but higher than where they are today if they get the basics right in restructuring the banks and dealing with the real issues. I am sure john cryan is delighted the spotlight is off of him. There is so much hard work to be done and in the meantime, there is going to be a lot of pain and similar discussions to what we are having now. Francine lets bring you back to monte paschi because this is the story that everybody is talking about. If the Italian Government comes up with a plan b which is nationalization, do you think investors will assume that qatar or some other anchor investor wants no more no part of the recap plan . Christopher it is a difficult question because if i was sitting in qatar and saying, i have a longterm investment deal , i am very fortunate. I am not like black rock or pimco where i have to answer to my investors regularly on my performance. I can take a longerterm view while they are looking at substantial gains longterm. The problem is you do not want to really dive in a mushy feel there is certainty for the future is for this bank died in before there is certainty for the futures of this bank and the italian banking system. There is a lot of people saying that now the Italian Government can nationalize monte paschi because it is a Systemic Risk. I would argue nothing has changed since the referendum. The other markets aside from the banks have not died just. Budged. Why would the rules change . Christopher there comes a point in time where as a government you are going to have to stand up. With thesh Government Bank of scotland and lloyds in 2008, theres a situation where we have to say stay part of the industry. We have been dancing around it. Bankers are trying to come up with solutions and it may just be the simplest one that the government steps in and says we have to recapitalize and work on what to do about failing in senior bailing in senior debtors and not hurting investors. Francine lets get to one of the professors in rome. The problem is that if you talk about theyll in roles, bail does automatically something happening does it automatically give the gift of power to the fivestar movement . It could and it could not, it depends. Here we need to interpret why telecom aid the a new electoral law is no good. It has been passed, no referendum was needed. The only thing open for discussion was to readjust it. Renzi had said, we can discuss. Law, he new electoral could get a majority, could get enough votes to garner the majority of seats in parliament. That is possible because the antibank rhetoric which is quite primitive that has been spread around, that goes from mr. Soros organizes a version from around the world to whatever series hype, could have an effect. Not because people believe it but because people are dissatisfied, angry at the absence of economic progress, and therefore they might certainly need some longterm solution. From the university of chicago, they looked at the flight of italians abroad. Will we see italians exit italy with this turmoil, with the renzi defeat and the political certainty of next year . Will the youth of italy walk out the door . We have a problem. Francine i am so sorry, we have a technical issue but it was an extremely good question. Tom wanted to know are we going to see more italians leave italy because of the political turmoil . Drain is something they were talking about yesterday. There is a percentage of italians overbroad that voted yes, itis proposal so is likely to happen, not in in or miss numbers but it will continue inexorably i am afraid. Tom professor, thank you so much in rome. Christopher wheeler is with us with Atlantic Equities in london. Are 200 23,000 employees roughly at unicredit and Deutsche Bank. How many will be employed in five years . What will be the job situation in europe as they try to rationalize as the american banks did . Christopher i think it is substantial, talking about probably double digit percentages. That will be down to a couple of things, your rationalization, continued retrenchment, and digitalization not just in retail banking, but digitalization across the board. In fixed income we are seeing a massive move toward the fication. We have these greater capabilities of linking up all of these plethora of fixed income instruments so i am afraid there will be big changes. I think all big Financial Institutions will continue to shrink their staff base. Goldman sachs, their numbers always come down during the year and they pop up by about 1500 undergraduates join them in december. The job numbers went up 100 in the Third Quarter which tells you a lot people disappeared from Goldman Sachs during the summer and in came the student. Everybody is involved. Tom lets continue with Christopher Wheeler on global wall street for 2017. We are thrilled to bring you he was with us a few days ago when renzi was in charge. We speak to his lead economic advisor. From rome and new york, this is bloomberg. Francine i am Francine Lacqua in rome, tom keene in new york. We need to look at some headlines coming from the man in charge with negotiation brexit from the european side. He is a magnificent and terrible, terrifying negotiator speaking to some of the u. K. People who have negotiated with him and the past. It is his first News Conference, saying he has a team of about 30 to work on brexit negotiations. He needs to organize an orderly u. K. From from the the e. U. And believes negotiations will be shorter than disco years. When he was announced as the man from the brussel side leading negotiations, every say everyone was saying he is not negotiation, he is a shark and wanted negotiations to happen in french. The News Conference is in english. Tom ian bremmers and set is that brexit insight is that for 2018 an issue rather than 2017. Lets go to abu dhabi to get the perspective of casey tracy alloway. Tell me the research you have seen on the most on love it bull market since time began unloved bull market since time began. Tracy the reason we are talking about exuberance is because it is the 20th anniversary of Alan Greenspans comment. Back then he posed the question of whether or not there was irrational exuberance in the market. Fastforward 20 years and it inms like the basic measures the equity and bond market have gotten worse. Alan greenspan is on the record saying that nowadays he is former concerned about the bond ,arket than about stocks looking at things like the term premium, how low yields have gotten despite a little bit of a pullback in the wake of donald trump. It looks like we are on track, unless something has fundamentally changed in terms of the outlook for the economy. Fromyou see the vix moving 13 to 12 to 11 this morning. Let me go to turkey which i guess is on the abu dhabi watch. We are looking at italy and yet we see turkey unraveling. Bring up the chart very quickly. I have never seen this chart. This is vrableturkish lira. Wrubel ru bleturkish lira. There we go down with the wrubel stabilizing against a week turkish lira. Is there a zeitgeist that the government is going to have to step in and intervene against turkish lira weakness . Tracy let me set the scene for you. We have seen the lira collapse as your chart basically shows, in the aftermath of that failed coup. Political turmoil is alive and well in turkey. What that means is that the spotlight is firmly on the turkish central bank. We have to see what they do to balance the rising risk of inflation, higher unemployment as the economy gets in effect from the week earlier a. Ostensibly weaker lire. Know there is president tension with the president and what he wants for the economy. He is encouraging the local population to trade their currency for turkish lira to boost it. We expect to see economic measures unveiled by the government aimed at helping the economy weather the storm, but of whetherestions those are just pampering over the fax. Fact. The problem with the turkish economy is that we have had a loose economy and this is not going to fix it. Abu dhabi alloway on on maybe a rational exuberance. An important interview, he picks up the pieces. The mining system. In the 7 00 hour. This is bloomberg. Francine welcome back. Tom and francine in new york and rome. We were talking about monte dei paschi and the fact that this political turmoil could make investors shy away from subscribing to the Capital Raising effort. We are back with Chris Wheeler joining us from london. What would be the most simple and orderly resolution to deal with the italian banks . Do we need to look at mergers . Christopher i think we have had a lot of merger activity in the recent months and over the last few years. I think it is likely to continue because i think the most important thing is to create a stable Banking Industry. While people may not like seeing unicredit getting bigger, i think they realize that blindfolding some of the Smaller Banks into the bigger players or medium players, they will create a more robust banking system. In addition there is a lot of talk about creating a bank that can take off the Balance Sheets of some of these banks their nonperforming loans ahead of any reform of the bankruptcy laws. Francine yesterday i had quite an important interview with the unicredit ceo for the first time he spoke on the record. He was trying to break the linkage between a failed market capitalization of monte dei paschi and what would happen in his own case if he were to raise capital. He said if the referendum does not change anything for unicredit, is he right or was he being too optimistic . Wasstopher i think he being a little bit to optimistic. The has hit the ground running. Thatrday we gathered pioneer might be coming to an end as they are in exclusive talks. That will be a great benefit. International big Banking Institution and it has some problems. It is dealing with them. Wille 13th of the month it tell the market what it is planning to do. However strong you are in any market you get hit by contagion. Looking at the u. S. Banks, look what happened when we had the backsliding for Deutsche Bank when people were very worried about the future, and we saw the u. S. Banks in terms of under quite a bit of pressure in terms of their equity prices. Tom if we all agree that nonperforming loans are front and center and there is 20 flavors, who loses when those losses are finally taken . Is it that you late . The government . Elite . Thee government . Who takes a hit . Christopher if you sell the nonperforming loan to equity houses. Om that is brilliant why cant that happen . It is happening. There is plenty of private equity and you know deals will be done. You know how successful u. S. Banks were in the savings and loan crisis by taking nonperforming loans off the balance sheet, scrubbing them up , and managing the portfolio. I think that is part of what is going on but again there has to the bankruptcyer laws because these private equity houses if they want to come in one to be sure they can go after those loans and actually get some of the backing up assets that have been used to support those loans. I think that is what has got to be done. Tom Christopher Wheeler, thank you so much. He is with Atlantic Equities. The markets are on the move for any number of reasons. We need to readjust your 401 k to a point of bull market optimism. Kate moore will join from blackrock. Francine lacqua in rome, i am tom keene in new york. This is bloomberg. Tom a client in the markets as Prime Minister ramsey toys with as Prime Minister renzi toys with an exit from italian politics. Go to cash, find current to buy stocks. And the rules have changed. Mad men, google, and facebook take near all of the marginal modern ad dollar. Good morning, everyone. This is bloomberg surveillance , live from new york. I am tom keene, with Francine Lacqua in rome. Bells in romar tolling the bells in rome are tolling. The boom fell down. Francine, to all of our viewers worldwide, were you hospitalized last night . Francine i was not, but i had a very vocal and decisive italian doctor telling me i was fine. Tomorrow i am in london. Bells and ie no will be a will to do your headlines. Tom we are told you are resting peacefully. With first word news, here is taylor riggs. Taylor we are starting in europe. Angela is taking won her first steps toward running for a fourth term next year. You are looking at live pictures, facing members of her democratic union. Of herused the start Convention Speech on refugees. She promised to avoid a repeat of the large influx of refugees the last couple of years and said not all of the refugees who arrive will be allowed to stay. The head of the European Finance group wants to see a different approach to brexit by the u. K. He spoke to reporters today in brussels. It can be smooth, and it can be orderly. But it requires a different attitude. The things that i have been are tooso far incompatible with being orderly. Taylor some conservative lawmakers want theresa may to quit concealing her plans for leaving the European Union. In south korea, President Park is willing to step down over a scandal. That is according to the ruling partys floor leader. Opposition leaders may have enough votes to impeach park. Russia will hold talks with the u. S. On the status of rubble fires of rebel fighters and aleppo. The foreign minister says the two countries are close to a deal to allow rebels to leave the city. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. This is bloomberg. Francine . Tom . Tom lets go to the data check right now, equities, bonds, currencies, commodities. Unch. We are unched. Euro goes a long way from the gloomanddoom parity. We will talk to kate moore about this capitulation down to complacency. Down to 11. 86 is a big deal on the vix. Yield,. 71woyear today. That is in germany. Mader major shout out to robert sinche, who nailed the strong sterling call. Thanks to the mouse from our previous hour. This is turkey. Turkish debt in red, in lira, and u. S. Dollars in right and u. S. Dollars in white. 6 , 11 turkish lira. This is front and center. I say we look at this next week, after draghi, maybe even into january. Turkey has to do something about imploding currency. Those rates may drive ever higher. That is part of the dynamic that is so important, the confidence to be in the markets. We know the cliche. The most unloved bull markets, and time again, kate moore is at blackrock. Were you surprised by the latest leg up in the stock market . Kate yes and no. At one level i thought we might have upons, but at this same time we were looking at positioning and how much risk people were taking in the equity market. Really not seeing people piling postelection. There was a grind higher. Rotation below the surface. It was not a huge tom first of all, we see vix capitulation. 11 handle. N to an the other thing i see is a thundering silence of people, the gloomanddoom letters that have been secured over the last weekend. Is there a capitulation, or does that wait or does that weight the emotion . Kate a lot of people thought there would be a swift folio downturn, taking down their bets with some of the consensus trades, and then they stopped and there was a real pause in a committee. Do we buy into the new narrative . Is this really a new world . Can we afford to take a huge amount of active risk if we do not know what policy will look like . From they Financial Times today he does not stop talking, does he echo he goes on world. In the etf help me with mark weidmans world. Do i allocate to mid cap . Kate im not surprised that you had a tom we are the world come on. Kate no singing for me this early in the morning. You have to continue to be long equities. You need to be much more discerning when you are looking at long equities. People do not just want to buy the market, they are looking at specific sectors. Tom you did not answer my question. Buy small caps, mid caps, or large caps . Kate a lot of the small and Midcap Companies are part of the Global Supply chain and are not immune to a significant rally in the dollar. Number two, we will have less pressure on the banking system, which will be great news. The third part of it really has to do with a reform in Corporate Taxes, which would disproportionately help the small and midcap space. Tbd, tom. We had to get into 2017 before we know how much of this will hit. We have to get into 2017 before we know how much of this will hit. Francine we are looking at political fallout from the referendum, and political fallout in europe. Then we look at china. If you look at the u. S. , we are not immune to any external shocks in 2017. Where will the biggest shock come from . Kate we are most concerned about the evolution of europe at this point. Have gotten through the italian referendum. It looks colder in rome than it is in new york. We are not through the woods when it comes to political change, and we are focused on the French Elections. And what the implications could be for the future of europe. If there is a huge political change, we are going to see further uncertainty when it comes to european corporates and when it comes to making Big Investments or to be very forwardlooking amidst the political uncertainty. Francine are you not worried about the supply chain . Im thinking about china because of the debt, but also the relationship between the donald Trump Presidency and the leaders of china. The supply chain almost at every point goes back to things being manufactured in china, with donald trump imposing tariffs. Does that not massive pressure on u. S. Equities . Kate it puts a lot of pressure on the u. S. Consumer. In particular, it would be tough on a bunch of the base that voted for trump. It feels right now like any kind of big move on this is extremely in advised, and that is addition to the trade side. China has the treasury side and other political influence that they can exert. Tom very quickly, and then we will come back to kate. Do you believe that the checks and balances when blackrock talks about the politics behind investment, do you believe the checks and balances are there to to thend adjust president elect . Kate there is a fair amount on the trade side that will not necessarily get checks or balance. Of hisre other parts policies that will require a lot more participation from , chinars, but on trade as a currency manipulator, much of that can be done unilaterally. Tom fabulous. On radio this morning, we will continue this discussion on equity investment, on the value left in this market, on media stocks. Mario gemelli. Stay with us, from rome and from a beautiful new york. This is bloomberg. Tom it is a washington in various shades of revolt, chagrin, wonderment as we stagger to january 20. Said,day, as kate moore tariffs are front and center. What will it bring today . We will see in the Early Morning of washington, d. C. Francine lacqua in rome, tom keene in new york. Right now to our Bloomberg Business flash, with taylor riggs. Taylor there is a sign that growth in europes largest economy will speed up at the end of the year. German factory there was a 7 jump in demand for investment goods such as machinery. Nch drugmaker santa fee Santa Fe Johnson johnson is in talks to hasbank act elian and raised its bid to 27 billion. Some Republican Leaders are ,esisting Donald Trumps threat warning a tariff of 35 to companies that move jobs offshore and want to bring their product back into the u. S. House Majority Leader Kevin Mccarthy says he does not want to get into a trade war. That is your Bloomberg Business flash. Tom thank you so much. Kate moore with us from blackrock. Thats do a morning mustread and folders into finance and investment. The u. S. Is a low tax nation. Tom this is an extraordinary thing. Forget about the Corporate Tax debate for a minute. Relative to other nations, we keep our investment gains pretty well. The reduction of the dividend tax was a big deal. Kate the big complaint people should have with taxes is very complicated. Is that it is very complicated. Simplifying it is something we can agree on, but it does not feel that our tax rates are onerous compared to other countries. Tom tell us about investment sentence tell us about investment sentence tell us about investment incentives with that. Kate when im thinking about the tax policy this is surveillance. Two people who do not know what they are talking about, nailing it on a tuesday morning. Kate i am focused on repatriation and the one time tax for cash held overseas. People have gotten extremely enthusiastic and set all of this money will come back and lead to investment or building of plants and expansion. Tom does government have to police that, or can we trust Apple Computer with what to do with the money . Cannot take cash from one area and put it over here and do special dividend buybacks. There is a lot of moving around of money that can happen. I am not sure it is so clean. Read bloomberg view. Coming up, bloomberg daybreak, on the mining world. Bigtintos ceo he has a job. This is bloomberg. Good morning. Francine i am Francine Lacqua in rome. Tom keene is in new york. Look at that thats beautiful. Once again, we are in political turmoil. We are expecting the president 64th government in 70 years per lets talk to one of the most famous business and who has gone from luxury to airlines. He is now the president of alitalia. Thank you so much for joining us today. Us today. Your first thought on the referendum. Does it make it that much difficult that much more difficult for businesses and for companies to raise capital . That is taking frankly that this is the main political issue, not a financial issue. Active. Very we are beating a record of exports. So i think that i hope that these political times will not be so long, but i am not worried for the Economic Situation and i. Ount a lot on the activity this is my position. Francine what do you think the government and the Political Class can do at the moment to andmalize any disruption the continuity and stability to first first half the the first path . Luca the referendum was mainly not only but mainly a political issue. I think the people did not to dotand the necessity something that is not seen as a priority the parity for economic growth, jobs. For economicready growth, jobs. I think that this crisis will have, i hope, a quick solution, and it doesnt affect so much normal ofof the course, there is monte dei paschi, but italy is very vital and sometimes when i was the chairman of the italian i do not want to be we need to beut able to differentiate the political issue from the financial issue. Havinge i think we are a couple of technical difficulties. But you have gone from being the chairman of one of the most recognized powerful brands, ferrari, to one of i guess the troubled airlines. Alitalia is losing hundreds of millions of euros. Can you survive without a Capital Increase or without some kind of government help . Think that, first of all, alitalia is facing a difficult moment in europe along with every Airline Company pretty broken part of alitalia bad, old ave very from the other side, there is the problems with the low cost. We are working very hard. Course, sooner or later, the banks will look at an exit strategy for alitalia, but this is not a today issue. Mr. Cine thank you so much, luca cordero the month is imola mr. Luca cordell od monti is imola. Bring that thes market should not focus on turmoil but talk about the economic activity. It is a little bit better than all of this political turmoil in limbo that we are seeing. The euro ise back up and you see those bond trends spread between german and italian, not whitening too much. Tom he has such a family , inory, such a linkage world war ii, and after that, with his family. What i would focus on is what he said about the italian people, and it really shows the distance between the elites and the italian people. What have you observed about that distance in your trip to rome . Francine the problem is that it is very difficult for me to call matteo renzi part of the elite are a lot of people who know him closely say that is true. He lost a little bit of touch when he was mayor of florence. Around the town a lot more, and people say that since he arrived and became Prime Minister that he surrounded himself by maybe too close of a circle. Is he elite . It is difficult to say. He had progressive ideas that are centerleft. Ie see him as an elite am not saying it is farfetched, but it is clear that there is dissatisfaction in this country. Tom we will continue our discussion. Us. N wieser will join so many distractions in economics and international relations. Inan wieser on the elephant the room, except there are two of them google and facebook. We will get an update on the death of television from brian wieser. Germany, andds in sterling confounds the gloom crew. From rome, from new york, this is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Ways wins. Especially in my business. With slow internet from the phone company, you cant keep up. Youre stuck, watching spinning wheels and progress bars until someone else scoops your story. Switch to comcast business. With highspeed internet up to 10 gigabits per second. You wouldnt pick a slow race car. Then why settle for slow internet . Comcast business. Built for speed. Built for business. Francine this is bloomberg surveillance. I am Francine Lacqua in rome. Tom keene is in new york. We need to look at the political turmoil after Prime Minister matteo renzi met with the president yesterday. Will stay on until he finds a caretaker, especially until he passes his budget law. This could be given the stamp of approval by friday or maybe next tuesday. What we need to focus on is the banks, probably the ones that , as wee at risk understand the treasury in rome is looking at a plan b, some sort of nationalization. Monte dei paschi has successfully dealt with this plan. Has Christopher Wheeler perspective on these beleaguered italian banks. Here is taylor riggs. Taylor European Union governments are ready to issue an ultimatum to british Prime Minister theresa may. They will tell her she needs to seal the deal for you ks trade ties after Brexit British not, to seal the deal for u. K. s trade ties. Foreign ministers meet in brussels today for the First Time Since the u. S. Election, trying to reassure each other that president elect Donald Trumps Foreign Policy shift will not weaken yours defense against russia will not reagan will not weaken europe pass defense against russia. Frances president Francois Hollande has named it the minister for the final months of his term. He has been the interior minister since last year. He replaces manuel valls, who announced he will run for the socialist nomination for president. The French Election is next april. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. This is bloomberg. Francine . Tom . Tom thanks so much. We need to look at the equity market. Kate moore is with us from blackrock. And joining us, brian wieser as we look at media. First, david westin had a conversation yesterday with cbs chairman les moonves on the death of tv. Already paying a lot of money to different cable networks, and we came in after the party started. The broadcast network should be paid more than the cable stations, because more eyeballs should mean more pay. Tom brianne, you have been most outspoken of anybody we have talked to, that tv is alive and well. What is the gloom crew on tv getting wrong . Branko brian right now there is a little too much optimism. This year will be a very good year for advertising with 4 or 5 growth, but that is not sustainable. Overall Advertising Market will have an effect going into 2017. I am looking at a flat year on a normalized basis between the olympics and political. In terms of a terminal decline, tv is aging, maturing. It will not grow very much, but those who believe that tv is dying is wrong. Tom how do you respond to the zeitgeist of 2016 it is old news, sports is dead, the nfl is beleaguered, that the live game is over . I do not buy it for a minute. That is the only thing people watch at home. About everything is advertising is the least battle alternative. Facebook and google are hopeful for a large brand, and lets separate the growth of facebook and google for small advertisers, performancebased advertisers. If you are a large advertiser with a goal, those are your targets. Tom bring up the chart right now. This is facebook in blue and backe in white, normalized to the facebook launch. It is a testament to googles power, this giant normas company doing this ginormous company. At the margin, are they going to take the Second Derivative in their direction for next year . Brian the two of them together take all the growth and then , digital advertising. Tom will it continue . Brian yes. Tom you have to give me a longer answer than that. Brian , digital advertising. Tom the reality with facebook and google is it is so much more efficient for any advertiser to concentrate a budget with those players because they can satisfy the entirety of their goal. Every advertiser wants to diversify their supply of inventory from different publishers if they can. That is when you get room for verizon and aol combined or that is where you get room for snapchat and even twitter tom kate moore, the media stocks when you see something that is leaving like media, roll over and die, do you believe in Brian Wiesers cash flow . Brian there has been a kate there has been a huge rotation immediate stocks, one of the darlings for several years in Global Portfolio managers. People are looking at the relative opportunities and the more kind of value stocks which were not really in the medias face. That is what led to the some of the decline. It is not as severally that we do not have a great growth story from the Media Companies over 2018 and 2019, so several years out. Rather, we are seeing performance is really about the rotation. Tom you mentioned twitter. It is an enigma. Twitter is great for news distribution and that. Has it been a formula for how to make money . Enigmatic is a great word to describe them. The Trump Campaign was a testament to the power, for better or worse, of twitter. The reality is that it is a very Good Platform for building a brand. They have not figured out the optimal way to commercialize it. Advertising is a real thing for twitter, but it is not a growth business. Would you suggest that twitter elected mr. Trump . Brian i think it was an effective munication tool, and i think there are many large ivertisers who see that think it was an Effective Communication tool, and i think there are many large advertisers who see that as an important brand in the future. Tom s or Martin Sorrells has been a great friend and gives a great perspective. Sorrells has been a great friend and gives a great perspective. What would be your advice on what the mad men of advertising will be five years from now . Brian sir martin has led the way for where advertising agencies have to go. Frankly, in this environment, where there is so much uncertainty especially in the United States, when you look at diversification in terms of its global presence, well beyond paid media and creative services, going to marketing technology, that is probably one of the most important areas. I cover salesforce for adobe for that reason. That is the Software Layer for the future of advertising, so the key though the key is in applying the technology. Tom take the finance of Brian Wiesers world. Brian wiesers world is cash flow in this thing down the income statement, ebita. Da. Ebit brian the number 1 kate cash flow is the number one thing we will look at. Companies, cost pressure on labor, and we expect we are in an inflationary environment. The higher cost, whether it is from services or people or bestwhat is your single buy, brian wieser . Ryan probably facebook. Tom you are boring. When does facebook stumble . Brian it does have an impact. Tom that was right inside wall street baseball. Did you hear the strategist with a snide remark . Can we banner that, please . We had to do this. Moore, colon oh, the drama. Kate moore slammed the analyst. They will probably have a fistfight. There we go. Oh, oh, the drama. Down a dollar on facebook. That is enough of securities analysis on the day. Italy withwe go to an up conversation on the lead economic advisor, matteo renzi. On the future of italy. This is bloomberg. Francine welcome back. We are live from rome. This is bloomberg surveillance. We were talking about the italian banks. We have been talking about the political turmoil. We have been talking about the spreads between the german10 germanst between the 10year maybe we will find out from the ecb on thursday, when they also may announce extra qe. I am pleased to welcome back one of the economic advisers from matteo renzi. Gudgel. Defeated, matteo renzi pretty got defeated badly. Is the message that the markets do not care that much, or does the president of the republic have a good handle on this . Yoram friday i thought it would not have either way a major implication on the markets. The issue as far as italy is concerned is more longerterm. That is what is at stake, but right now this is a democratic decision that has been made. Obviously we have to accept it and move forward. The Prime Minister announced he and we will have in shortterm a new government. Francine do you believe we will go to a closer or quicker general election in the next two months . Yoram the Decision Maker on is on the partns of the president of the republic. The call for an immediate election we will see. Lots of moving parts. There is an electoral law which the establishment or the people in power at the moment are trying to change very quickly. Activity put at risk as a backlash . You have the establishment saying you did a lot of things do not quite work now, and the establishment is holding onto power, so i want to yoram we have now actually two electoral laws. We have one for the capital, for the lower house, and completely different fortunately for the senate. The Constitutional Court is going to express a judgment on the constitutionality of the law for the lower house in february, so there we have lots of moving parts, obviously having two completely different electorals. That is not a workable situation. So changes will have to happen in that field. Can you confirm that the italian treasury or the government cannot yoram i cannot confirm anything. As i said on friday as well, our hope is that all banking situations can be resolved with market mechanisms. The fact that markets have not reacted particularly badly to the referendum decision i think leaves us hopeful that that can be done. Francine but why have they not reacted . Banksey looking at the nationalizing from monte dei paschi . Actuallyain, i think i cannot talk as a banking expert. At this point in time it may not be a bad deal. Obviously, i am for the markets to judge. We will have to see what happens in the next few days. The fact that markets have not reacted particularly negatively the plan hopeful that for monte dei paschi can go through. Thee goes through same goes for other plans for other banks in progress. Francine i know you are not a banking expert, but it is the one thing the markets want to know about. Lets say that market capitalization is the struggle, that the deadline or something happens that really unnerves the markets. Would you consider the banking system, the banking crisis, would it be enough for italy to go to europe and say it is at risk . Yoram that is always a possibility. It is important to remind everyone that situations of the banking in italy has really proven over the last 18 months, profitability is up. The first merger that happened a few weeks ago, hopefully others will come. The particular situation that we have with monte dei paschi really stems from a decision of the ecb to call for a recapitalization of the banks. The bank itself is not in danger is a solid bank in terms of its abilities to sustain business. It has been improving its underlying performance. Clearly it has a problem, but this was mandated by the European Central bank. Therefore, if things become more difficult, i am sure the discussion with the ecb will also be important to understanding what is the right timeline for making those recapitalization plans come through. Francine yoram gutgeld, thank you for joining us. He is talking about the European Central bank. I can tell you for certain, having spoken to a trusted source about some of monte dei paschi officials, they will need to have met in frankfurt to get the extension for the deadline that should be december 31. Tom francine, thank you so much. It will be in the discussion. Daybreak, the. Reat economist kate moore next. This is bloomberg. Tom bloomberg surveillance colm from rome, from new york. The sterling is ever stronger, 1. 2746. Euroyanis with the pros are watching. At 122. 40. Churn bloomberg daybreak is coming up. Alix steel, what do you have . Alix we are looking at the rio tinto ceo, jeansebastien jacques, at iron ore and what happens with the print presidency with the Trump Presidency. We are looking at an opecnonopec talks coming this weekend. There are concerns that the deal can get done, so we will talk to an important man behind the deal. Its he was talking to the saudis before the deal went down. We will talk about all things funds, what is happening next for monte dei paschi. We have a big lineup for you, tom. Tom alix steel, thank you so much. Kate moore is with us from blackrock with the single best chart. The chart of the bull market this is the Standard Poors 500, and i randomly the there five times when we went to cash. It is such an interesting bull market, the huge climb out of 2009. Slope matters, and the slope has leveled out. You mentioned earlier the word grind. Is next year a grind . Kate i think it is. It depends on which sector maintains leadership in 2017. We talked about the rotation from the safe havens, value stocks and things, and people closing up active risk. If you look at the sectors that could be leaders in 2017, they are a bigger percentage of the market cap. Tom if there is some form of ing in america, do you assume greater animal spirit, greater nominal gdp, that gives you a better topline across all multinationals . Kate it is fair to assume that we have had a shift in regime or the extent of that shift tom do we pick up one full percentage point on topline growth . Kate that is a fair estimate. I would go back to your chart here, the five bits that you have blocked off. I think you were joking with me that at times we went to cash, but a lot of people had disciplined during these periods and have not been buying in. There is room for people to put more money to work in equity it is inf they believe line with the regime. Tom kate moore will continue with us on Bloomberg Radio. Francine, always interesting news out of europe. What do you have . Francine matt miller is on the at the headquarters of the party of Angela Merkel. ,n 10 minutes, Angela Merkel the chancellor of germany, makes her clearest call yet to delegates on the cdu. She has said, the full veil is not appropriate here, and sometimes one has the impression that people who have already been living in germany for a long time needed immigration course. It is very clear that countries in europe have different bans. For example, france bans all religious attributes. The headscarf is completely different. In some cases it is encouraged. Tom Francine Lacqua, thank you so much. Francine, a number of days here in rome. Much more coming up across Bloomberg Radio and bloomberg television. Mario gabelli will join us on the value of the equity markets. We will do that on Bloomberg Radio. Do not forget, bloomberg daybreak on bloomberg television. From rome and new york, this is bloomberg. Jonathan good morning and welcome to bloomberg daybreak. Im Jonathan Ferro david westin and alix steel. A single digit on the s p 500. Some outperformance on the d ax. Onto bti. Own. 9 on wti. Alix can the bank raise the capital it means to cover it needs to cover its bad loans . Increased tensions. Paper weregships urging citizens to remain calm. Oil slipping from a 16 month high