Transcripts For BLOOMBERG Bloomberg Surveillance 20161212

We have a great show to kick off a big week for the markets. We will discuss what 2017 holds for u. S. Monetary policy. As italy lines up another new premier, in turkey comes to terms with the bombing istanbul, we will focus on the market and Political Risk in europe. As crude oil surges, we also speak live to the Nigerian Petroleum minister on surveillance at 9 40 u. K. Time. Lets check on the markets. This is a picture for oil, gaining 5. 1 at 54. It surged the highest in 17 months as efforts to cut production sent the 10year treasury yield above 2. 5 . Chinese equities tumbling. European shares holding to what we saw last week, pretty much flat. Lets get to the bloomberg first word news. Heres nejra cehic. Nejra president elect donald trump says hes close to naming his secretary of state, dropping hints it could be exxon mobils ceo. A person close to the transition on hasnt beenrs formally offered the job yet but is likely to be the pick. Italys prize minister designate has been holding talks. Hello gentiloni was given the mandate to form a new government yesterday. That is after matteo renzi quit following his defeat in last weeks constitutional referendum. Urgency ofe of the giving italy a government with full powers in order to reassure and to face with maximum dedication and determination the economic and social priorities, starting with the rebuilding of the areas hit by the quake. Phil english has been named new zealands 39th Prime Minister. He was elected unopposed after two rivals withdrew from the race. English succeeds john key, who stepped down last week. He inherits the party riding high in the polls and a solid economic platform. Hong kongs financial chief has resigned. The move signals that he will run to become chief executive in the First Leadership contest since massive protests two years ago. Hong kongs current chief executive, see why long, announced last week that he wouldnt seek a second term because of pressure on his family. Global news 24 hours a day hours by more than 2600 journalists and analysts in more than 120 countries. Francine thank you so much. Crude is surging after the first global oil cuts in 15 years. Saysas Energy Minister there is widespread support for the output reduction. I have to say the situation is different country by country. But i was pleasantly surprised to see so many countries respond to the invitation by opec and russia to participate in this deal. I would have to say that most of the countries which joined, and it is important to say they joined voluntarily, so no one is going to force them to reduce production, most of these countries will be taking active measures to reduce production. Francine lets introduce our guest. , madhur jha,oli thank you both for joining us. Madhur, let me start with you. The oil price at 60, how much of a boon is that for emerging markets . Madhur definitely, weve seen emerging markets in africa and the middle east really suffering because of the slowdown in oil prices that youve seen, and some of the big producers have gone into negative growth. You see countries like saudi arabia having massive deficits, doubledigit current account balances, fiscal deficits, so any improvement in oil prices is going to help stabilize the situation for them. On the flip side, you have large importing countries such as india and these countries will start to see pressures on top of inflation. Oneall, the impact would be which is going to be slightly negative for e. M. Overall, but for the oil producers, definitely a positive story. We do expect prices to go back to francine overall, what is the one thing you would be watching out for the markets . We have not even three weeks left until the end of the year. We are expecting a fed hike. We are seeing a rotation from equities into bonds. What surprised you the most . Wolfango in some ways, the resilience of the markets. Theyve taken with stride the important events, brexit, trump, the italian referendum. Markets, itemerging is becoming more of a counter story, putting all of them in more of basket is even a mistake looking into next year. There are some countries that are wellpositioned. Example, they for projection is negative. There is a need in terms of emerging markets to focus more on specific countries. Francine is it clear that a fed hike is priced in the markets, so emerging markets can withstand it . Madhur this rate hike is completely priced in. If they dont do it, it will be more of a surprise. Weve done work on what happens when there is u. S. Monetary policy shocks. Emerging markets are quite vulnerable. In place. O markers some countries really stand out as being more vulnerable than others. The countries that really do stand out are indonesia, turkey, brazil, malaysia. They tend to see their currencies really be the shock absorbers when it comes to adjustments. Francine youre talking about a shock, so not this time around. For example, five hikes next year . Madhur right now we are expecting, the market is expecting, Something Like two hikes. The focus at this fed meeting will be what the dot plots show. The dot plots will show a gradual cycle in 2016. We only expecting one next year, but four in 2018. Markets are recalibrating what to expect from the fed. If they expect much sharper rate hikes because more stimulus is coming through, because mr. Trump is putting in place a more hawkish fed, then clearly markets will move in anticipation of the height. That is where e. M. s look more vulnerable. It is the currencies which will do a lot of the adjustment. We will getlfango, onto to more politics, but if the fed hikes, it is a stronger economy. Is that good or bad for the world . It feels like it could be a good thing unless you have a president elect that retrench as an you cant than if it from the growth. Wolfango i think i would agree with that. The big question for us is what happens to trade. Is a policy area where the u. S. President has plenty of room to maneuver, meaning he doesnt need to go through congress, it is trade. We have seen some fairly belligerent statements from trump about trade. Lets see what happens there. There is a risk that you might have positive news coming out of the u. S. Globally, theres a benefit of that that could be mitigated. We could see a downward spiral because of what happens to trade. Francine thank you so much for now. Wolfango piccoli of teneo intelligence and madhur jha of standard chartered. Stay with surveillance. Sunday coming up, including, as Rex Tillerson is emerging as president elect Donald Trumps favorite for secretary of state, how policy is shaping up the white house. Plus, Paolo Gentiloni and Political Risk. And as the oil market catches up with the first Global Market cuts deal in 15 years, our exclusive interview with the russian oil minister, plus we speak live to the Petroleum Minister of nigeria. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Has agreed to buy pioneer Global Asset Management from unicredit. They will pay about 3. 5 billion euros in cash. The purchase of pioneer will make the French Company the worlds eighth largest asset manager. Phillips has agreed to sell a majority stake in its licensing component to apollo management. The deal values the business at 2 million. Todays agreement comes after an earlier sale fell through due to u. S. Opposition on National Security considerations. 21st century fox and sky executives have worked to nail down final terms of an 11. 2 billion pound takeover deal. According to people familiar with the situation, Rupert Murdoch and his son have been intimately involved in the discussions. While the preliminary agreement is backed by skys directors, some issues remain under discussion. Representatives of sky and fox declined to comment. That is the Bloomberg Business flash. Francine thank you so much. Americas Foreign Policy hangs in the balance as donald trump considers his pick for secretary of state. The most recent front runner is Rex Tillerson. He is a supporter of close cooperation with russia, fueling speculation that a muchanticipated thaw in relations with moscow is near. Wolfango piccoli is copresident of teneo intelligence. Madhur jha is with standard chartered. With you. Lets start if you pick the ceo of a Big Oil Company that has many relationships around the world, is this good or bad for u. S. Foreign relations . Wolfango i think we have all sorts of names over the last couple weeks for the job. For someone that is experienced with contacts across the board and lots of emerging markets. I think overall it indicates that trump is willing to shake Foreign Policy in the u. S. , is understanding Foreign Policy is much more transactional. It is about deals. Kind of the structure of Foreign Policy is not necessarily the constraint. Is tillerson the right guy . We will see about that. We should expect a Foreign Policy which is much more transactional. B. Ive you a, you give me francine if it becomes a business relationship, what does it mean for the relationship of emerging markets . Madhur clearly that is something we all have to be cautious about. Whatlfango mentioned, happens to trade is going to be key, especially in the asia space. Given what mr. Trump has said over the past, hes likely to may be imposed something more punitive on china, to try and get some concessions from the other side. There might be some bargaining going on there. I think the key to focus on is that for asia, really the biggest region in emerging markets, and also the biggest driver of global growth, it is important what happens to the asiau. S. Relationship. The main impact comes from china. If china is stable, asia will continue to grow. The links to the u. S. Come through financial chan nels. Although at this fed meeting, you are not expecting anything to happen, it is the messaging which will be important. If the messaging is more hawkish than people expect, pms francine talk to me about the chinau. S. Relationship. We are seeing it a little frosty because of Donald Trumps refusal to say he will stick to the one china policy, which means you dont speak to taiwan. Do you expect that to change or will it be a reset . The way we are viewing all the comments that mr. Trump has made and clearly there is no clarity yet. It is only once he has his cabinet in place, when hes elected, that we will get some idea what his platform looks like. Given what he said, what we think will happen is that he will try and get concessions from china by maybe imposing punitive measures on certain sectors. He has said he might call china a currency manipulator. Right now it is very difficult to do that. So it is very likely he will try to get concessions by imposing punitive tariffs on certain items, but we really dont think it is in either countrys interest to have an outright trade war. He might go back on some of the more hardline stance he has taken. But clearly these are tactics that hes using to get some concessions, to get them to the table and negotiate. Francine will that work . Just the tactics premise and we dont know how he will negotiate or do we think this is who he will be . Wolfango i think i will discounted a what has been said until the 20th of january when he gets into the white house. Hes still creating a team. I think what is going to be important to Pay Attention to is who is going to be around who is going to be running Foreign Policy . Are we going to see more china in the trunk team . Early days. We still dont have the secretary of state there. That is something we will monitor before determining the trajectory of the relationship in the future. Francine thank you so much. Wolfango piccoli from teneo intelligence, madhur jha, both stay with us. Up next, turkey in terror. As turkey deals with the aftermath of bombings, what do the attacks mean for president erdogan . We will discuss that next. This is bloomberg. Francine this is bloomberg surveillance. Turkey is dealing with the aftermath of this weekends bombings in istanbul. A Kurdish Militant Group has claimed responsibility for the attack which killed at least 38 people. What do the bombings mean for president erdogan and his grip on power . Lets get the thoughts of Wolfango Piccoli from teneo intelligence and madhur jha from standard chartered. Wolfango, when you look at turkey, some horrific attacks, you have this failed coup back in the summer, a lot of worrying economic data. It doesnt paint a stable picture for turkey for 2017. Wolfango it doesnt. Now they push ahead with constitutional changes. Politically, turkey is doomed. It was doomed before. [indiscernible] they will waste the First Six Months of next year to pass through these changes. They have to have a referendum to get them through. And meanwhile, we shouldnt expect much at all in terms of reforms. Last week they announced this. Ackage to help the economy the lira is down. The package was pretty much a joke. There was nothing substantial there. Now we start seeing the numbers indicate the economy is taking a toll. Erdogan will blame everybody else for that, foreigners, the external backdrop, europeans, whatever comes to your mind. Francine do you agree . Madhur i think turkey is going through a very tough time. Obviously the focus will be on how the economy copes with a lot of external uncertainties. We are looking at 2017 as welcome to the jungle year. It is going to be different from the past 7, 8 years. Weve already mentioned that countries that have strong macroeconomic stories that are doing structural reform will be more resilient in a very uncertain external environment. Turkey unfortunately does not sit in that category of countries that are seeing macroeconomic adjustments that would warm investors sentiments. As a result, turkey does remain one of the more Vulnerable Countries in terms of what could happen and we are seeing that in the price action in terms of its currency move. Francine wolfango, do you see 2017 as even more troublesome for turkey than this year . It is difficult to talk about terrorist attacks that may come. But as her to one gains more power, holds onto more power, is it more likely you will see more extreme activities . Wolfango it is hard to go more extreme than youve seen so far. More than 120,000 people arrested. 70,000 lost their jobs. They are throwing journalists in jail. 600 companies plus seized since 15th of july. Can it be more extreme than this . Certainly the external backdrop will get worse. The dollar will go up. We are to see the fed moving. This will make it harder for a country like turkey. Oil prices are going up. External backdrop will become weaker. The country will be distracted, doing these changes that erdogan wants. We are not going to see reforms. How bad is it . Depends on the external environment. The central bank eventually would be forced to move, but that will come at a cost politically as well. Francine thank you so much. Wolfango piccoli, madhur jha, both stay. Up next, a renzi return in the works. Could Paolo Gentiloni just keep the seat warm for his former boss . Francine bloomberg surveillance. Im Francine Lacqua in london. Heres nejra cehic. Nejra donald trump says hes close to naming his secretary of state, dropping hints it could be exxon mobils ceo. A person close to the transition said Rex Tillerson hasnt been offered the job yet, but is likely to be picked. Hong kong financial chief john son has resigned. The move signals he will become the chief executive in the First Leadership contest since protests two years ago. Hong kongs current chief executive, cy leung, announced last week that he wouldnt seek a second term. Christine lagarde heads to court today on charges of negligence before a special panel that includes judges and french lawmakers. Shes accused of failing to prevent a massive government payout to a businessman eight years ago while serving as frances finance minister. Lagarde could learn the verdict as early as friday. Global news 24 hours a day powered by more than 2600 journalists and analysts in 120 countries. Francine thank you so much. European markets mixed this morning. Lets head to mark barton at the terminal. Mark stocks are falling for the first day in six after the best run since early october. Last week, the stoxx 600 registered the biggest gains since 2015, rising as much as 16. 7 of stocks reached overbought levels last week. Sinces the highest level april 2015. What a wonderful stat. Look at the yield on the u. S. 10year. That is why the yield is up to 2. 5 for the First Time Since october 2014. Hedge funds and other large speculators raising their bearish bets on 10year treasuries to the highest in almost two years last week. Westpac in wellington says a break higher than 2. 5 would open up an attempt at 3 . Keep an eye on treasuries this week. Oil rising today. Saudi arabia signaling it is ready to cut output more than earlier agreed. Nonopec countries like russia pledging to pump less next year as well. 11 nonopec countries joining forces to trim output by 558,000 barrels a day. Between rivals in years. 20th century fox offering to buy sky. Shares rising as much as 33 on friday. Down today a little bit, still up 25. 8 . That tells us investors have some concern a deal wont be completed. Some elements of the deal remain under discussion. A key decision for fox is whether to make an outright offer or pursue a scheme of arrangement that would involve u. K. Courts but make it easier to mop up smaller shareholders who refused to stir. Still a twoday jump of 26 . Francine thank you so much. Italys Prime Minister designate , Paolo Gentiloni, is drawing up a proposed ministers list. Hes told the countrys president he will refer back to him as soon as possible. Im aware of the urgency of giving italy a government with full powers in order to reassure our citizens and to face with maximum dedication and determination the international, economical, and social priorities, starting with the rebuilding of areas hit by the quake. Could Paolo Gentiloni just end up keeping the seat warm for his former boss, matteo renzi . Still with us is Wolfango Piccoli and madhur jha. Wolfango, when you look at italy, is it better or worse than you would have thought . We werent expecting the referendum to come up with 60 no but the markets have largely ignored this transition. Chaos andso the apocalypse that some commentators mentioned was absolutely groundless. Now we have a new government. It is a government led by somebody who is their for tourism. He is loyal to renzi. This is going to be a government with very little aspiration, a very small mandate. Then it is about electoral change and picking up some of the pieces left from the renzi administration, like building earthquake areas and some legislation that has been rejected by the courts. That is what gentiloni and his cabinet will do. Francine and what comes afterwards . Do you agree with this . What is the prescription . Madhur clearly we have to pass through certain reform agendas. I think the context of italy is, we werent looking for any major moves in the market because people were expecting that a government would be in place before the next Elections Come into play. What this does is it delays the reform momentum. It creates additional uncertainty in a period where markerts where markets have been quite baffled by 2016. So italy will be one of them. Then youve got netherlands, france, germany. In this environment, where people will be a little more cautious, what is likely to drive growth in italy or other euro area economies is going to the of concern. The only game in town is likely to be the ecb. You are not going to see a pickup in investment. You are not going to see the market improvements you would have expected. Francine what does it mean for the banks . Do they have to fix the banks . You mentioned priorities but you didnt mention the banks. Wolfango yes, we are in the final countdown for monte dei paschi. The hope is that this is going to help somewhat. We put a floor under the political crisis. It is going to be extremely challenging. They are trying to collect a bit more money, this time involving investors. Monte dei paschi is a big priority there. Should we expect this government to be able to address all the world banking issues in italy . Certainly not. Then they will deal with other emergencies. Francine are we looking at early elections . Wolfango most likely but we look at an election after a certain sequencing. Theres court ruling, electrical change, and maybe an election sometime in may, june. Francine is there a danger that by changing electoral law, it gives a free hand to the fivestar movement to say the establishment are changing it so that we dont get in . What is the probability of a very populist rightwing or left wing like the fivestar movement coming into power in italy . Wolfango it is clear that any change to electrical system, anything they do with the banks, the nomination of gentiloni as a Prime Minister, are all going to be used by the fivestar movement. To a certain extent, they have a point. Will they win the election . Hard to say. The electrical system will be changed. It will most likely be in a way that nobody will control an outright majority in parliament. They are going to struggle to find collusion partners. They might end up being high and dry. The other way around, it is clear that the longer we thepone this reckoning, higher the reason the eurosceptic sentiment in italy will increase. Now we know we are going to lose at least six months with this government, so we are wasting time. We are wasting quantitative easing opportunity to help the economy. Francine thank you so much, Wolfango Piccoli. Onnty coming up surveillance, including the Nigerian Petroleum minister, about why hes confident that the Historic Oil Deal could push crude above 60 a barrel. Then, lagarde on trial. As a french kiss put her position in play . And monte dei paschi steps up efforts to win investors after the ecb refused to extend the yearend deadline for its Capital Raising plan. Tune in to radios daybreak europe. This is bloomberg. Francine it is the first global oil cut deal in 15 years. Crude is jumping to the highest since july 2015 after saudi arabia signaled it is ready to cut output more than earlier agreed. Nonopec countries pledged to pump less next year. Bloomberg spoke to the Energy Minister of russia. As far as prices are concerned, we try to stay away from forecasting these prices. If the markets decide them, it is quite unpredictable most of the time. What i can tell you is the current price level is satisfactory to us as a country. Russia is not a member of opec and doesnt have any plans to join the cartel, but russia is ready to enhance its ties and cooperation with opec countries. Francine that was russias Energy Minister, alexander novak. Im pleased to welcome the Petroleum Minister for nigeria. Thank you for joining us, as always. We value the time you give us. What is the situation overall . This is the first cut in 15 years. How can you be sure that no one over supplies, that no country cheats . I wish i had a barometer to check that. The reality is theres a difference this time. There is a voluntary consensus. Everybody realizes what the overproduction and supply was causing to the market. The urgency in taking the barrels out, making sure theres a good rebalancing, unlike lotterywhere we had a of volume and value, we do not have this right now. I think were likely to see full compliance. Do you think this is almost a, we will do whatever it takes, moment . Do you think that if prices dont go up to the level you are happy with, you will cut production further . I think the indications are trending toward that. Arabia is putting a lot of reputation behind these numbers. If you have those jumbo producers in the block, i think everybody is willing to do that. Francine how important is it that saudi arabia is signaling that they may drop below 10 million a day 10 Million Barrels a day . That is the most significant. Signal very strong coming from the biggest producer amongst opec that we are willing to do what it takes. That sends a very strong signal. Francine what is the price targeted . 60 would be ideal . 60 i think would be ideal. Once it begins to go past those numbers, we worry. Francine so you believe 60 is the amount where u. S. Shale producers come back online . Yes. Technology is improving every day. The cost of production is continuing to drop. I think that once you begin to trend past the mid60s, you have shale producers jump back into the market. Pricet crashes back the and creates a responsibility to shore this up. Francine how do you know it is 60 and not 58 . That is a fine tuning balance. Nobody knows. Nobody has the right numbers. Us, it is significant. It is probably not as material as the fact [indiscernible] francine what do you believe a donald trump residency means for the market . I will expect that it will be bullish, like any businessman, making sure u. S. Production is sufficient. Whatever incentives need to be given to shale will be given to shale. Francine so it makes your job harder. It makes our job harder. Prices affect oil the whole world, not just producers. Numbers, hing his [indiscernible] most Oil Companies are from the u. S. Businesses will fall. The ability to maintain this result it is a cyclical issue. Francine if he appoints a secretary of state that used to be the ceo of exxon mobil, what does it mean for opecs relationship with the u. S. . Positive, i think. Rex tillerson is somebody we all respect. He has solid credentials. I see him bringing in a lot of momentum to that appointment. More importantly hes an oil man. He realizes the significance. [indiscernible] that is a positive. Francine what does the growth of nigeria if you have 60 a barrel, what does it mean for gdp growth . Major. Right now we are in a recessive environment. [indiscernible] we are looking at 3 , 4 , maybe 5 growth. Francine do you believe the nigerian delta is safer . Security concerns remain, but is it safer than it was 12 months ago . Definitely. A lot of progress has been made. A lot more needs to take place. A lot more policing needs to take place. The military needs to provide security without necessarily invading. But showing a presence of force to prevent criminality. Weve got to get very robust to make sure that people understand that we appreciate the contributions theyve made to nigerias production, and we are addressing longterm issues. Francine why is it taking so long to come back online . Not so long. It came back online. There was another militant explosion. It came back and was on for about three weeks. Francine you are right, but we were expecting it to come back online and remain stable. Coming back online isnt the issue. It is how to keep the militants from reoccurring. Takes 100 million to bring back those pipelines. It takes months. Three weeks later, same thing happens. You have to ask yourself, do you want to put 100 million back online again . We are trying to deal with the issues. [indiscernible] francine how many midnight calls did you have with other opec producers in making this deal . Many, very many. Everybody francine every couple days . Couple of hours sometimes. It is a jigsaw puzzle. Everybody was on board. Secretarygeneral did a huge amount of jockeying positions. In 2015. E job saudi arabia has done a huge amount of work. The outgoing president of opec from qatar also. Everybody has been on edge. Francine why now . What has changed . You didnt have a consensus. They felt you could get away with this. Everybody wanted to protect some political beliefs or whatever. But one of the things i tried to do was get away from geopolitical considerations and back to markets. [indiscernible] francine right. I think it took a matter of time to send a message. Everybody has to contribute. If we do, we will solve the problem. Were not just going to keep yielding ground. It is a neverending cycle. Once the nonopec members began to get that, they began to come back together. Then there was an avenue for a solution. [indiscernible] francine one last question. We were talking about Rex Tillerson. Have you spoken to him since this rumor . I havent. Francine why not . You should call him. Let me let him deal with the stress of being around trump first and then we will talk. Francine thank you so much for coming on bloomberg. The Petroleum Minister of nigeria there. Lets get the Bloomberg Business flash. Heres nejra cehic. Nejra a monday has agreed to buy pioneer Global Asset Management from unicredit. Will pay about 3. 5 billion euros in cash. Willurchase of pioneer make the French Company the worlds eighth largest asset manager. Phillips has agreed to sell a majority stake in its light in component unit. The deal values the business at 2 billion. Todays agreement comes after an earlier sale to a Consortium Led by a chinese buyer fell through. 21st century fox and sky executives have worked through the weekend to nail down file terms final terms of a takeover deal. According to people familiar with the situation, Rupert Murdoch and his son have been involved in the discussions. While the preliminary agreement is backed by skys independent directors, some issues remain under discussion. Representatives for sky and fox declined to comment. Bill gates and the worlds wealthiest individuals have revealed a new 1 billion Investment Fund dubbed Breakthrough Energy ventures. The fund is backed by Technology Luminaries and heavyweights from the energy industry. The goal is to pump money into risky longterm energy that could reduce Greenhouse Gas emissions. Boeing has agreed a deal with iran, its first since 1979. 0 planes. Es 5 it is boeings first deal with iran since before the Islamic Revolution and will force donald trump to balance diplomatic priorities with american jobs. Tension is already high. That is the Bloomberg Business flash. Francine thank you so much. The head of the imf is in court today, accused of failing to prevent a Big Government payout while serving as frances finance minister. Caroline connan joins us now from the court in france. Great to have you on the program. Her lawyer has been speaking about the case. What did he have to say . What can we expect in terms of a verdict . Caroline we heard from the main lawyer on the radio this morning. He said that Christine Lagarde made no error when she was finance minister back in 2007 under french president nicolas sarkozy. He also said that Christine Lagarde conformed with the rules in place. I want to show you where Christine Lagarde will be facing trial. Lagarde will be sitting here at around 2 00 p. M. French time. Behind her will be her three lawyers. This is the court of the republic. Around here, there will be 15 judges, three professional judges, and 12 lawmakers from the lower and upper house of parliament, with in the middle the president of the court. Some witnesses will be called here. We will hear from former ministers, from the chief of staff for Christine Lagarde at , the orange ceo. For these past few months, Christine Lagarde has denied any wrongdoing. Shes facing trial for alleged negligence in this arbitration case that resulted in the french state paying more than 400 Million Euros with interest to the business tycoon back in 2007. Francine could the trial jeopardize her job as head of the imf . Caroline under french law, she is presumed innocent until the verdict. This could happen as soon as this friday or early next week. Under french law, her job at the moment is not on the line. The imf board has been supporting her. She was even reelected for a second term as head of the imf earlier this year. And she has denied any wrongdoing all along. So she is not going to lose her job until of course found guilty , if she was found guilty. She could face up to one year in jail and a 15,000euro fine. All the lawyers weve been talking to have said this is very unlikely. Francine thank you so much. Bloomberg surveillance continues. Tom keene joins me out of new york. We will be talking to Oxford Universitys George Magnus. We will also be talking fx with jane foley. This is bloomberg. Francine pushing oil to 60. Saudi arabia signals deeper cuts as oil seals its first output cut deal in years. Italys primary designate and starts building his team. Is renzis return on the horizon . Trump considers tillerson. The fed preps for a hike. The president elect considers exxon mobils ceo for secretary of state. This is bloomberg surveillance. Im Francine Lacqua in london with tom keene in new york. We have an interesting week. I believe oil is up 6 . A lot going on in italian banks. We have the fed on wednesday. Tom just sort of a swirl here to that fit meeting on wednesday. Weekend. Dd the politics of the United States is something weve never seen before. Weve never had these dialogues. Kevin will brief us in the 6 00 hour with bloomberg politics. Francine i just had a conversation with the Nigerian Oil Minister, who knows Rex Tillerson, one of the names out there for secretary of state. Quite fascinating, what he had to say. Lets get straight to the bloomberg first word news. Heres taylor riggs. Jumped oil prices have to the highest level in almost a year and a half. Saudi arabia signaled that it is ready to cut output some more than it agreed on. Nonopec members say they will pump less next year. It is the First Agreement between the cartel and nonmembers in 15 years. Bloomberg spoke to russias Energy Minister. I have to say that the situation is different as we go country by country. But i was very pleasantly surprised to see so many countries respond to the invitation to participate in this deal. The agreement on cuts involves about 60 of the worlds oil production. Kurdish militants lamed responsibility for two deadly attacks in turkey. The explosions outside a soccer stadium killed at least 41 people. Turkish Security Forces were targeted. Police have detained dozens of people linked to a kurdish opposition party. In italy, Matteo Renzis foreign minister has been asked to form a new government. Paolo gentiloni may just be keeping the seat warm. If gentiloni does not become Prime Minister, hes likely to face pressure to step aside. Renzi wants early elections and is plotting a come back. China is warning donald trump against using a one china policy on taiwan as a bargaining chip in trade talks. Trump says his support for the policy will depend on cutting a better trade deal with the chinese. Trump told foxnews he doesnt want china dictating him. The president elect decades of protocol i speaking on the phone with taiwans president. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Tom thanks so much. Lets look at equities, bonds, currencies commodities, down. The s p 500 futures, later in the day, weve seen them reflate and moved to higher equity prices. The euro, that was weaker earlier. Theres the crude oil story. We will have a chart for you later on. The fix, 12. 26. That is where it ought to be. The dow, extraordinary. Bond, that red color is wrong on the screen. To 3. 19 . Higher move that is an extraordinary move. That is the only time today that im going to say extraordinary, but it is an extraordinary move. Francine we are three minutes into the show and it is three times now. But i believe you. Tom im working on it. [laughter] francine this is my data. Crude oil surging to the highest in 17 months as efforts to cut production help the 10year treasury yield. Chinese equities tumbled. They are currently closed, but they did tumble 2. 4 . European shares pretty much holding to what we saw last week. Level, 3 tom this is a really cool chart. For a global audience, i cant convey the oddity of a dialogue on politics in these United States. You wonder, as we sort out this new president , what will be those checks and balances, what will be those constraints. Maybe it will come from the market. Heres the dollar from the financial crisis right here. That didnt go. Hold on. There we go. One, too im getting set up on a monday. Cut me some slack. From the beginning of the financial crisis, theres the big dollar move. Heres the brutal move in the strong dollar right here. This morning, we breakout to new highs on the dollar. Im not predicting any dollar direction, but i wonder, on a geopolitical basis, if dollar will play into President Trumps first 100 days. Francine i love your chart. It also goes back to what the fed can or cannot do. Despite everything that is going on in the markets, oil, italy, the banks, i also chose something that goes back to the fed. This is the 10year yield. 2. 5 for thetopped First Time Since october 2014. Let me bring you to my terminal chart. We did the spread between the treasury 10year yield and the 10year jgb in japan. This is where we are now. The red circle is the depth of the financial crisis. Joining us now for the hour, George Magnus, Oxford University associate at the china center. Also with us, jane foley. Jane and george, thank you for joining us. Jane, what is priced in, in the fed move . Everything is priced in and more, so how much are the markets expecting the fed too high . Jane i suspect that perhaps too much is priced in. Whether im right is going to determine the direction of the dollar and some other asset prices. Weve had trump come in. Weve seen the stock markets rally. Weve seen speculation about reflation in the u. S. That goes along with the market anticipating that the fate is going to have to react to that. But if the fed does become more hawkish, then we get the dollar rallying even further. That takes me back to the second half of 2014. We had the dollar rallying significantly on anticipation that the fed would cut four times in 2015. In the end, it didnt have to. I think yellen is going to be wary of getting that reaction again. I think shes going to not want to produce a huge dollar rally. Other Central Banks are still in easy mode. Francine if you are the only one hiking and the rest of the world is easing, the divergence play points to dollar strength. George which is what your chart is now starting to suggest, that yield differentials are back. Actually, i kind of dissent a little bit from janes comment. I think not enough is priced in. Obviously there are going to be issues about Janet Yellens reappointment, whether President Trump will choose somebody else, a republican, to take her place. But until then, the u. S. Economy is on a bit of a roll at the end of the year. The trump residency is going to up considerably further. I think the upside is bigger than the market is saying. Tom Gary Shilling joining us in the next hour. Jane foley, help me with the monday morning linkage. How are correlations within the Financial Exchange market . Is everything in lockstep . Jane i think if you look at the yield differentials, that does tell a story. During the course of 2016, the u. S. Yield curve was important in driving Foreign Exchange rates. The movement of the yield curve dictated the dollar. Whether the dollar was going up or down had a dominant effect. The yield curve is important. Weve seen that. Weve got this enormous divergence in market views about how much it is likely to move in terms of fed policy during 2017. As a consequence of this divergence, we have this divergence in Market Opinion about asset prices. Theres a lot to play for out there. Theres likely to be quite a lot of volatility. I think right now that is perhaps the only thing that most market commentators agree upon. Tom what does yen say . Im interested in yen breaking out. Now 115. We are getting towards 120. What does a ¥120 single . Yen signal . A 120 jane expecting the bank of japan to carry on. Whether or not yellen signals a hawkish stance or a dovish stance this week really could make or break that trend. If she does signal they are going to carry on hiking and are concerned about reflation in the u. S. , the dollar goes up and the yen goes down. If she does say, look at in the year on in wageructural issues inflation, and if shes more concerned on that side of the coin, i think the dollar will go down. I think the fed, the tone that yellen takes, is a playing piece in the direction of the dollar going forward. Tom this will get us started on a monday. Jane foley and George Magnus with us. Lots to talk about. In the next hour, on the , reallyn, Gary Shilling interesting to see if he throws in the disinflation tell. And chris whalen on banks of various persuasions, including italian. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. Lets get to the Bloomberg Business flash with taylor riggs. Taylor theres a report that Swiss Company lonza is close to buying a drugmaker. The price would be more than 5 billion, more than twice what its owner paid for the company five years ago. Banks monte dei paschi wants to avoid a government bailout with a 5. 3 billion Capital Raising plan. The bank will step up efforts to win investors. Monte dei paschi is trying to clean up its Balance Sheet by disposing almost 30 billion in bad loans. Lagardee, christine goes to court today in a negligence case. Lagarde is accused of failing to prevent a massive government payout to a businessman eight years ago. That is when lagarde was french finance minister. She has denied the charges. That is your Bloomberg Business flash. Francine thank you so much, taylor riggs. Crude oil surging to the highest level in 17 months after saudi arabia signaled it could cut output more than the agreed levels. Countries agreed to pump less next year. Javier blas is our chief Energy Correspondent for bloomberg news. We are also joined by George Magnus and jane foley. We had a pretty exciting weekend. We spoke exclusively to the russian oil minister. Is it a kind of whatever it takes moment . I think the big highlight of the meeting over the weekend, one was russia and nonopec producers committing to reduce production. It includes some creative accounting. Some of the reductions were happening in any case. They are dressing that as actual cuts. I think the other big highlight was saudi arabia saying it is ready to cut production below 10 Million Barrels a day. That was a redline for saudi arabia in the past. By hinting that they are prepared to do it they are not saying they are going to do it, but they are prepared to do it, it is kind of that mario when therent in 2012 was a speech in london saying the ecb will do whatever it takes. Francine the problem is, how difficult is it to keep it at this level . We spoke to the Nigerian Oil Minister. He said 60 will be comfortable, but anything above 60 and you have shale producers in the u. S. Coming back online. One is incentivizing shale producers in the United States to start to drill more because they know the saudis are going to be there. You could be incentivizing without from within and that opec and nonopec group of countries that they are providing the support to saudi arabia. You say you are going to do whatever it takes. You could get other countries, angola, olivia, algeria, and saying if the saudis are going to do it, we dont need to do it. The saudis are offering a good option to the rest of the market. That is a dangerous position. Tom it is newtonian monday here at surveillance. Theres like six plugins to where oil ought to be. The general question is, where should oil ought to be . With the elasticity of supply in america, with all the dynamics you described on opec, the cartel, where is the best market clearing price for oil . I think that 60 probably is that price. Above that price, you start destroying some demand. Oil is pretty expensive now in nondollar currencies because we have a strong oil price appreciating at the same time we have a stronger dollar. You are in china, india. That is the demand side. The other factor limiting the think is,or oil, i youre going to have shale producers in the United States. We have record inventories they are going to be releasing to the market. About onee releasing Million Barrels a day of oil supply. That is more than enough to meet the demand of a european country like the netherlands. Francine, let me bring up the chart here of oil. Weve got the 100 level over here. Down wheel. We go down to 29 a barrel. We come back. Javier blue,s in a a sensitive vienna blue. This is 60 a barrel here. Francine what i really want to know is, if you have a secretary of state that used to run one of the biggest Oil Companies in the world, is it beneficial for Oil Companies . First of all, we dont know if hes going to be. But if you think the Global Oil Industry say you and i were in davos earlier this year, the oil industry was coming on the back of cup 22 in paris, massive Climate Change agreement, coming from a very tense relationship administration, and battling low oil prices. Now you have a president elect coming in january that doesnt really believe in Climate Change. You have potentially a secretary ofnow you have a president elect coming state that is coming from exxon mobil, the Worlds Largest publicly traded oil company, and you have higher oil prices. You almost could hear the champagne flowing in the boardrooms of big oil. , mr. Blasrd editorializes. I hope it was the good champagne. Francine always the good champagne. Tom with a big oil, im sure it is. Oil, later big today, really looking forward to this. He is so good on domestic oil and the International Architecture of hydrocarbons. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. Italy, the next italian Prime Minister will need to explain to the next german chancellor, reasonably angela merkel, that her choice will not be between a Political Union or no Political Union, but between a Political Union or italys withdrawal from the euro. George magnus and jane foley are here. George, i dont know what to do with this. Half the people we speak to save the euros demise will happen in some shape or form. Others say, weve been through this before, it will be fine. George yeah. I wish it were kind of a black and white situation. Clearly, there is the problem that europe faces now, not the problem, but a very substantial problem that europe has right now is that two of its biggest members, italy and france well france, we know will have elections early next year it is likely, i think, that italy will have elections next year. Obviously, there has to be the president has said the electoral laws have to be realigned and so on, but it is possible. The danger, as we all know, is ,hat the rise of nationalist populist sentiment, particularly as expressed in italy by the fivestar movement and the northern league, is, we are going to take this anymore. The establishment and the elite that has been running italy for income is lower than it was about 10 years ago, and lower than it was actually when italy joined the euro. Theres only so much you can kind of push this economic stagnation. It is not all the fault of the euro. Berlusconi had a lot to do with it too. I think the problem is, how far can you push people before they throw you overboard . Francine jane, what does it mean for euro . Said, there are so many permutations and combinations. If you thought germany, the netherlands, austria, that would be strong if they just held the euro. Then you would have the euro going up. It depends on the permutations and combinations. Tom i like that, permutations and combinations. Weekendof sums up the and now we launch into this week. Lets look at the data. It is a market on the move. Not equities, but everything else. The dow, the yen weaker. 30year bonds, that is up. This is bloomberg. ,l syracuse. No, not italy. Syracuse, new york. There are a lot of history similarities between syracuse in new york and syracuse in italy. Southeast of the the snow machine known as lake ontario. They measure their snow by the foot. This doesnt quite show the glamour of the snow pounding down across central new york. Syracuse, italy. If this was syracuse, sicily, italy they havent seen snow in 250 years. Tom very good. Lets go to our news. The first word news with taylor riggs. Taylor we are going to pave it to england. Theresa may features a new legal challenge for her brexit strategy. Campaigners on both sides want the government to review its position on the single market. Theyve asked whether they need a second parliamentary mandate. The governments position is that it doesnt. The European Union will sound out japan this week about a breakthrough in the trade talks. The eu underscoring the commercial imports. Donald trump is expected to euu. S. E plan of the trade agreement once he takes office. Choicele, Donald Trumps for secretary of state may have trouble winning over the senate because of his ties for russia. Exxon mobil ceo Rex Tillerson marco rubio said that being a friend of Vladimir Putin is not an attribute he was hoping for for the secretary of state. And trump is rejecting the russia helpedat them win the election. I think it is ridiculous. I dont believe it. I think they just talk about all sorts of things. Anotherhink it is excuse. We had a massive landslide in the electoral college. And she is down to a low number. So no, i dont believe that at all. Both republican and Democratic Senators have called for an investigation. They say that meddling in the election is a threat to National Security. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Im taylor riggs. This is bloomberg. Francine thank you. Happened on thursday. The ecb met. What we got was a dovish take although the markets were initially confused. Does that reinforce banks . Tom keene has two charts to show you. Magnus here. E and jane foley. We keep going backwards and forwards with this. If you have a dovish central bank, does that mean we will get parity . They will not be a will to hike as much as they believe they can . Jane this is the very interesting part. We haveuse we think done reflation consistent with that, we are not expecting parity. We have spoken a bit about the italian elections. Yes, that is a threat. Have the french elections and if we look to see what are the is likely to bring if we look at the dutch election, yes, populism. Possibly the dutch elections could bring relief. Then we get to the french elections. , the more round liberal minded are expected to rally behind other candidates. And last monday it was adjusted 35 le pen would only get of the vote in the second round. Again, we could see some relief. In the market now, there is a diverse view. And there are banks out there. Were looking for that. Tom i totally agree with that idea. This is zero and this is parity. Talking. Some people here is the consensus idea. I want to make clear about the parity. Here is the strong euro proof. Certainly not going below this blue line. Francine i guess the question how much strength in the dollar does the president elect want . It goes back to what they can and cant do. We talk about this every 16 months. George i think this is a shoe in. There is a trace argument here. The euro can only weaken so far if the politics fall apart completely and somebody votes to leave. The big picture in my view is all about the construct of americas economic policy. That is really the bottom line to me. So i referred earlier to the fact that we have a situation where after five quarters of any , the American Economy is finishing 2016 on a roll. Know, ityear, as we may not be as much fiscal stimulus. But there will be some. And it is going to rev up the Economic Growth and that is why i think the dollar has got a long way to go. Huge numbers of problems for the administration down the road. But as you said in your chart with a it it is broken record high. So the set of value doesnt really mean anything here. The question is, how far will this thing go before it picks up . I think it has a long way to go. I think this is the important thing. All of the discussion is about dollar dynamics. Buzz anded at the euro the question is who is driving the euro buzz, americatrump americachinaamerica. Year,if we look at this we really see the bank of japan and the bank of new zealand as well. If you go back to earlier this year we have the bank of japan easing. We have had the rba easing. September, when we had was the dollar weakening cominge u. S. Yield curve down. And that was overwhelming the impact. This is a disproportionately dominating effect. Usually. It also depends on the positioning. , it ise the dollar goes likely to be dominant, irrespective will of what you see the bank of japan do. Francine how much do we trump and donald janet yellen. There are a few members seeing their few members living there. Jane right now, we going with the assumption that the fed will carry on looking at it. , there is a huge amount of fiscal stimulus. It can be expected that they would have to tighten more and the dollar would go up. However, what we havent talked about is the impact and that could have a detrimental impact on growth. We are quite concerned about that. Tom help me with what you learned with what you said before. I think it is so important. Here is the strong dollar. This is the map. It is a little bit more sophisticated. Is the strong dollar from the summer of 2014 at the end of 2015. Are you suggesting, george, that we would see another moved to saw . Rutal level we george im not sure at this juncture if you will see as strong a move up in the broader index as you have seen since the middle of 2014. But i think we have gone past the foothills of this dollar, the dollar. N in it could go further in 2017. We touched on the european dimensions. And the problem there is that there is no policy induced phenomenon that is actually going to change the course of the euro in an upwards direction in my view. And most of it is about politics. China, ifappens with the Trump Presidency starts off by labeling china as a currency manipulator and now we have this latest come up from the president elect about china policy and the bargaining chip in trade and the South China Sea issues dont be surprised if the chinese response is retaliate,ot only to but also to let that go even further. Which will let it go higher still. Death or yourere friend. We will come back with George Magnus on china in a bit. Jane foley is here as well. We didnt plan this but we knew it would be about china today. The nations authorities on the dynamics of china. Look for that on bloomberg radio. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash with taylor riggs. Taylor boeing has announced it will sell billions of dollars of airplanes to iran. The first deal of its kind since 1979. They may have to sell the deal to donald trump. Trump is opposed to the Nuclear Agreement with iran that eases economic sanctions. Has agreed to sell the majority stake in the lighting facility. This is a deal that values the business at 2 billion. A year ago, they block the transaction with a chinese buyer for National Security reason. And an allstar list of billionaires have signed up for a clean energy Investment Fund. Bill gates, Richard Branson are among those. It is to invest in longterm energy technology. That is your bloomberg is as flash. Weekend, theres were many challenges. We have talked about this with our team. All that changed this weekend with a terrible bombing in has simply adjusted the dialogue for all of turkey. About how fast things are moving for turkey. This is the turkish lira versus the russian ruble. We have a longterm chart. Here are the ugly times for Vladimir Putin. And here is the moonshot down. The plummet. I left the blue circle where it was a week ago to show you how quickly this is moving. Tracy alloway joins us. This is clearly horrific news for the people of turkey. Help us with the linkage of their finance and economics with the political dynamic in ankara and istanbul . Tracy i will attempt to make that link for you. Manyviously, they have had terrorist attacks in the country at this time. We see the president attempting to consolidate his power after the failed coup attempt. This means Political Uncertainty for the country. The turkish lira is a risk sensitive currency. It means it has taken a. Beyond that, the turkish economy has also been suffering. Big indication of that out today with thirdquarter gdp numbers. A contraction of 1. 8 for the third quarter. Worse than economists had expected. Turkeys worst quarterly performance since 2009. Tom which way is turkey looking right now . I showed the turkish lira and the russian ruble. Is turkey focused on russia to the north . Any looking to the west . Or are they looking south . Is, i thinknswer theyre looking inward at this time. An indication of that on the finance side, take a look at the announcement that came from the turkey statistics agency. They announced a change on how they calculate gdp figures. We knew the methodology change was coming but it had an even bigger impact than we had thought. They said on the revision, the turkish economy grew 6 last year versus the 4 that was originally reported. And remember, that was the year in which turkey had two general elections, a 20 percent evaluation of the lira and multiple terrorist attacks. So it is interesting to see the way turkey is responding to the economic crisis on all fronts. Doubling down by on the figures and encouraging the domestic population to boost the lira. One final, unfair question on a monday. We like to give Tracy Alloway and unfair question. Whohat price of higher oil we really see behavioral change in the middle east . You love putting me on the spot. Im going to say that anything below 80 a barrel is probably a crunch spot. We have already seen some indications of that. We have seen budgets being treated with a bit more austerity than they have, historically. See other big thing to watch, and i dont think it has gotten enough attention, is the rig count in the u. S. , right . As soon as they come back on board, it will put even more pressure on the gulf economies and opec. We did see the u. S. Add Something Like 27 briggs last week. The first count of the opec production deal was announced so that is another Pressure Point to watch carefully. Om i totally agree with this a change this time around with higher oil prices. Dhabi. Lloway is in abu francine and want to the back to our guests. Jane foley and George Magnus. Erdogan is talking about consolidating power. Jane he is trying to get businesses in turkey by back. He is putting pressure on institutions to do this. The reason the International Investors matter is because it is a deficit country. So that slows up the matter. We did have european politicians they were pushing back against the reaction to the coup in turkey. Turkey doesnt like that but against that backdrop, it makes them very worried about the Political Uncertainty. That is negative for the currency. Dollareuro. We will have George Magnus coming up on china. Without question, our interview of the day admiral stavridis of tusk university. After the weekend that the nation has had. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to china. China is warning the to using taiwan as a bargaining chip. The support for the policy will depend on cutting a better trade deal with the chinese. Lets bring in George Magnus, the associate at the china center in Oxford University. Jane foley is also with us still. George, when we look at china, this unclear to me whether one china policy is used as a trading chip does this get you in a better trading position . Or will this come back to bite . George this is a big deal, actually. It is as everyone knows, it goes back to an agreement that was reached in 19721973. And it isnt obvious what trump wants. He did talk about trade and also andt chinas attitude influence over north korea. And obviously, also, the South China Sea. Effect, what he has done is put u. S. China relations in play. Scriptkind of fits the that donald trump has written for himself. During the campaign and up until now, about making America Great again and being strong. At the same time, we should remember that is also a strong man. Cant afford to be seen to be weak in the face of america or china. And particularly with this Important Congress coming up at the end of 2017. So what is it that trump wants the chinese to do . I think it donald trump starts off on the foot that is basically about currency manipulation and the threat of terrorists and investigations and so on, the chinese will retaliate. And i think there is a serious danger that these guys are going to have to manage tension. Tom what is the madness the two are three ideas or challenges that the leadership faces . George the biggest challenge up until now is the economy. And the global times published something today which basically of therates the view leadership. Stable economy, stable industry, that is all that matters in 2017. This new twist in u. S. China relations will add something to chinas priorities this year. Because as i said, they cant subservient toen trumps rhetoric. Tom cole and this has been wonderful. George magnus and jane foley, thank you for getting us started. , the interesting rap of the politics in america and europe and the third world, as well. We need to talk about the new bound of reflation. Whalen on ther banks. This is bloomberg. Morning, theyve reflation trade continues. Oil surges. Yield as well. Shilling. , raising cash. Will italian depositors write the check . In this hour, Christopher Whalen. And what a weekend on the on thepher president elect, Vladimir Putin and the american checks and balances. Good morning, this is bloomberg surveillance. There are eight ways to go this morning. Help me here with an immediate update on the italian banks . What have you learned on the weekend . Francine if you are an investor, you have a new prime and wer in charge learned that the ecb would not extend its deadline. The markets will reprice for 2017. Tom Michael Mckee will be there for the press conference. We are going to switch to oil here for a minute. Oil prices have jumped to the highest level in almost a year and a half. Saudi arabia signals that is ready to cut out put more than it had agreed on. Nonopec members including russia will produce less next year. The First Agreement in 15 years. Bloomberg spoke to russias Energy Minister. I have to say that the situation is different as we go country by country. But i was pleasantly surprised to see so many countries respond to the indication by opec and russia to participate in stabilizing the market. Taylor the agreement includes 60 of the worlds oil production. Have claimedants responsibility for two attacks in turkey. Killing at least 41 people and wounding more than 150 others. Several Security Forces were targeted. As you were mentioning, in prime Matteo Renzis minister has asked to form a new government. Becomes Prime Minister, he is likely to face pressure to step aside in the first half of next year. Early elections. China is warning donald trump against using the policy on taiwan as a bargaining chip in trade talks. Foxnews hep told doesnt want china dictating him. He spoke by phone with taiwans president. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Tom here is the day did get you started in the week. The markets move, move, move. Yields are higher. 2. 51 . In basis points. The eurodollar is churning at 1. 06. Onto the next screen. There is where the dow is. The dollar is stronger and the yen is weaker. A higher yields, it should be green. A higher basis point. Francine i also put crude oil surging to the highest in months. Up almost 5 and it is also up in london after saudi arabia signaled it would cut output more than previously agreed. This is the picture for treasury yields. This is my chart. Chinese equities tumbling. European stocks flat. We showed this chart last hour. This is the litmus paper for the global system. This is the dollar with a big rally. 1. 5 years ago. The massiveness is actually pretty good. All you need to know is that beginning a crisis there, and theyre ready for a breakout. You did hear George Magnus say that. You can be sure of a stronger dollar. Francine this is similar to your chart. The 10 year treasury climbed for the First Time Since october. 014 tom that is a cool chart showing the tensions. We love to get two people from two different worlds. With different historical perspectives. Jerry schilling the arts inflation missed. Whalen, his book is a one volume mustread. Gary, is inflation dead . Gary i dont think so. We talked a minute ago. We are in a world of excess supply. We will see if opec can pull this off. Think it is dead. Tom look at the italian banks the certitude now is that everything is great for american banks. Christopher they are slowing. Lending is decelerating dramatically. Down more than 10 low growth. You look at that and you look at real estate which is also slowing after years of upswing recovery, we are now at peak rates. Tom when you write your newsletter, what is your number one theme of this newsletter . Gary the strength of the dollar. Tom currency markets . Gary i think that is where we are. Everyone would like to have a weaker economy. The global currency. So we cant evaluate it. I think the currency is the most interesting play. I think whether it is against the developed currency, i think the dollar is a play. Say you areen you still concerned about deflationary pressures, where would it come from . It president elect trying to reflate the United States and oil doing whatever it takes or majors doing whatever it takes to keep the oil up, where does the deflationary pressure come from . It is an excess supply world. When you look at the tremendous capacity expansion that took place in the last decade, that has not yet been worked off. And when it is slow growth, it simply is not. Remer, we are in a globalized world. This is the tremendous capability of china and vietnam and bangladesh. The 500 pound gorilla well really, 800 pounds. Look at the manpower that is available on a global basis, i think it is a world. Asking you this later, but you are an expert on preferred shares. Shares that are more subservient if that get a bigger yield. Legendary for doing preferred trade action. Action qatars preferred if they could bailout italian banks . I cant figure it out because it isnt in the literature. I think theyre trying to test them with a higher yield but as an investor, look at the italian banks and you dont know what you are buying. This doesnt give you a lot of comfort. And this is the problem. The International Rules have allowed the europeans to mask a problem that is probably two times or three times bigger than the size they are willing to admit. You have to write off all your bad loans by the end of the year. But the numbers they are using are quite low. And we have been writing about this on and off for most of the year. You dont know what you are investing in. Francine this is largely true for all banks. The italians have pushed back against that. With the nonperforming loans. Christopher that is a fair point. The europe resolution process is. O lengthy and problematic we have a federal structure for dealing with a couple of days, the courts the process along. In italy, talking about a decade or more of troubled assets, especially commercial assets. What they call in mobile assets. And there have been Reform Efforts for sure. The europeans have tried to fix this. You are aely, if creditor or a bank today and you are looking for equity, youre not going to get it in this lifetime. This like japan, a decade ago . The village doesnt want problems. They avoid confrontation. The Political Class had to wait until he italians had a new government. Gary as opposed to both japan and europe in this case . Christopher i think that it is our founders embedded bankruptcy in the constitution. Get on with it. They are really more social workers band courts. But they do move the process along. The systemample of working. It takes a while. Gary a certain amount of it is the socialist approach. It defends the rights of creditors, ultimately. If you are a creditor in europe, you dont really have recourse or protection. Withim not really sure the details are for the new italian banks. We will continue with Gary Shilling and Christopher Whalen through the morning. Francine coming up, we have more from Christopher Whalen and Gary Shilling and we will be talking about m a. We will speak to a pioneer from unicredit. This is bloomberg. Tom this is bloomberg surveillance. Our esteemed guest this morning are Christopher Whalen and Gary Shilling. He is in washington where, if you are global, it was the oddest, most interesting weekend for american politics. Head is spinning as he has been following the president elect trump four months and months. Let me start with a general question. How odd was this weekend . In the context of covering trump for a year and a half, it ranks up there as one of the more newsworthy weekends. But all the headlines over the weekend are being dominated by Rex Tillerson and whether or not the exxon mobil head will be chosen as secretary of state. And trump went to the armynavy game. Tom there was a criticism and review of that. 1, 2 and evenave three senators saying no. Is the Trump Transition Team democrats and certainly, two republican senators . Or are they not . Kevin i think they are and here is why. I try to ask some senior sources on the Trump Transition Team about the timing of this pick. Of course, there were reports over the weekend that this was all but done. But the sources im speaking with our walking that back. Topng this is only the choice. I would anticipate a pick this week. But people like senator marco rubio and john mccain within the president elects own party have concerns about his ties for russia. On the campaign trail, we frequently heard donald trump bomb middle Eastern Countries to take the oil so this pick fits with that type of rhetoric. Francine so who is number two . The Nigerian Oil Minister was with this pick for secretary of state. Is mitt romney in the running . Kevin mitt romney and ava petraeus are the other names we have heard. Clearly, this was a little bit more than a trial, trying to get out front should the Transition Team and donald trump ultimately pick Rex Tillerson, a fascinating choice, coming right on the heels of a controversial choice within washington circles. That is gary cohn to lead the National Economic council of advisors. Francine undoubtedly, the most important relationship for the United States is with china. We heard about the president elect talking about the one china policy and he is trying to use that as a bargaining chip. All that work or will it aggravate china . Kevin the interesting thing here is that china has picked Terry Branstad ahead of picking his secretary of state pick. Rudy giuliani also coming out. A consideration for the top diplomatic post. So i think what he is trying to is telling whoever he chooses for secretary of state that he is going to be assembling his own team. Statet the ceric terry of filling his own picks. And want you help our global audience help discern the difference between the cia and the fbi. With all of the uproar over russia and the cia and donald trump help our global audience. What is the difference between the cia and the fbi inside the beltway . Kevin the cia is much more responsible for the internal investigations. That being said, it has been criticized for being perhaps a little more political than the fbi. Raised unnamed sources questions about whether or not Russian Hackers did try to elevate donald trump during his candidacy to defeat clinton. But the rnc are saying that did not happen. Theyre adamant that didnt happen. So they have stirred the pot here in washington, raising concerns about whether or not president obama did enough to address Cyber Security and threats. Not only within the Democratic Party but with the security and Cyber Security of the entire nation. He is facing a lot of intense criticism from democrats within his own party. Dallas Kevin Cirilli there with bloomberg news. We will be back with Gary Shilling and Christopher Whalen. Up, we speak with after they manage to buy this is bloomberg. Francine this is bloomberg surveillance. We are pleased to tell you that we are joined by the ceo of the moon day. They will pay 3. 7 billion in the eighthchase biggest global asset manager. Joining us by phone is yves perrier. Thank you for joining us from milan. First of all, how important is it to be a big asset manager . Yves excuse me, the sound was not good. Can you repeat your question . Francine how important is it for an asset manager . Is he noise francine can you hear me now . We will get back to you . Yves not very good. Try and fix will the audio for you. That was yves perrier who just announce this big deal in the markets that they would be buying unicredit pioneer. We do have questions for him if we can get him back on the line. How many job cuts and whether bigger is better . Tom there are two backstorys here. Legacy of and many years of valued investing. Tome, the real backstory talk to Gary Shilling about is the future of the mutual fund business. Gary shilling is with us along with Christopher Whalen. And opened and investment is the concept of a mutual fund basically dead . In other etfs do well investment vehicles . A fair question. It was interesting seeing mr. Bruegel criticizing the sector which is growing. Because the structure is so competitive. But you do raise an important question. Tom the idea of a merger of credit agriculture buying bostons iconic value shop, it is bizarre, at best. It is, particularly in boston because that is where the mutual fund started. But im always looking for, why is the current trend going to be reversed . And i think we probably will move back towards value in investing. We now do to the point when it is indexing, indexing, indexing. With garyll come back shilling and Christopher Whalen. More on that on a monday. Yields are higher. This is bloomberg. Tom it is new york, that is on the back side of trump transition, midtown coming up with protests. It is sort of miserable and cold. Lacqua in london, getting you ready for the week. Right now, to our first word monday news. Said it hasa has regained control of 98 of eastern aleppo. That part of the city had been a rebel stronghold since 2012. Syrian troops backed by russian warplanes launched an offensive against aleppo earlier, this month. Serious oil minister says 60 a barrel would be an ideal price for crude. He spoke with Francine Lacqua after that deal between opec and nonopec countries to cut oil. We do want to go for about 60. It is enough incentive for investment. Taylor saudi arabia signaled they would cut by more than previously agreed. Negotiations between the european and European Union and japan are a commercial importance. Expect donald trump sesidentelect donald trump potential pick for secretary of state is facing possible conflicts of interest over his ties with russia. Senator marco rubio tweeted that being a friend of russian president Vladimir Putin is not an attribute he was hoping for from the secretary of state. Francine what do we know about him . Lets get a brief from new york. We are with Gary Shilling and Christopher Whalen. What we know is that the ecb actually said they want to extend the deadline. We also know from the commissioner, it is constructive to contact with monte dei paschi. Attemptis a lastditch to bring as much money as you and the government will so got any remaining problems that the bank any funds that the bank has to raise. You try the market first with a backstop from the government. For 4ne they are looking billion. What they are trying to do now is get more to make it easier for some consumer investors to take that off. Another billion, and then you have potentially an anchor asset we are hearing talks about, coming in and that would leave the remainder for the market. It is about getting that momentum going. Francine if the government has to step in, does that mean they will have to bail in certain creditors . It is something called a precautionary recapitalization. Sharing the burden of this cost. In many cases, that would potentially see the stock going close to zero. Tom i want to go over unicredit. Bring up the chart, and jpmorgan with a diamond moonshot. Here is deutsche bank, and unicredit is dog of dogs. Is this going to be a roadshow for some 12 billion euros of cash for your and a credit for unicredit . I dont buy it for a minute. We dont know exactly what the amount is going to be. There is a we organization that will accompany the need for more funds. It is businesses in poland, and Asset Management business. We dont know what the bank is thinking about in the way of cost or reducing the cost burden. Determineising will raising and what we are expecting to be a large amount. Tom chris whalen, help me with this. Nothing seems normal, but everyone is job owning norm jawboning normal. The heart of the matter is you are taking senior better debt or jr. Subordinated debt and you are saying hi, equity. Chris youre not raising new cash for the bank. In the case of unicredit, they are selling assets and getting cash. This whole notion of equity swaps, made by the bureaucrats in europe over these policies, they dont address the issue which is that the enterprise needs duke needs new cash. Is what does april oh like you watch what does a pro like you watch . Chris the accounting in europe gives you no confidence. You dont know what is really happening. Our approach to Financial Disclosure and Bank Solvency is why the u. S. System is so strong, today. There is no comparison. You have a reasonable idea of what is going on inside most u. S. Banks. In europe, you have no idea. Someone who offered an opinion on credit, this is troubling because you have nothing to in your hopes to. Francine you guys had talked, you went through a lot of pain in the central crisis. A lot of investors argue that the bank has to take that. American banks were not immune to anything. Chris you are right. It was off Balance Sheets transactions that were hidden. That was our achilles heel. If you look at the u. S. Industry, a cleaned up its own mess and if you look at a general disclosure of losses and a way that loans have to be written off, that certain way from a perspective, you have a much higher degree of comfort with a u. S. Bank then with the than with the International Rules. This is a problem. Francine i like reminding americans that they had lehman brothers. Tom this is serious. What im talking about is that there is a difference wave the american investors look at the italian banks and the way the italians view it. The italian banks are struggling because of growth. It is not all about the fact that they are hiding it. Knowledge ofthe the nonperforming loans in a good bank like unicredit . Do you have a clue . We have their accounting statements. Regulator has come in only very recently. What it is doing is providing some consistency because each country was looking after the supervision of its own banks. What the ecb is doing is creating a standard that is portable we are seeing now is a reflection of that. The ecb is going in and taking a closer look and applying the same standards across the board. It is driving some of what we are seeing. Francine if you look at monte government if the had to step in, which is more likely now because of the referendum. Under, i dont know what the potential for that is, is it a Systemic Risk . Yes. The bank has been deemed sufficiently large to be systemic. The effect it could have on the broader confidence in italian banks, of course. I think at the moment, there is more question about the bank being viable. Raising sufficient funds to clean up the Balance Sheets. Francine Gary Shilling watching the bank debate go. This is a remove from your bigger view, or maybe it isnt. Do the italian dynamics play into a shilling euro view . Last couple of decades, we have had a tremendous expansion of finance. Gave a dissertation on the debt versus the nonfinancial economy. The newly the financial on top of that, and you have a youendous amount of then lay the financial on top of that and you have a tremendous amount of a lot of this is really unwinding that, and we have done much more of a job in this country of doing that than they have in europe. If you look at that coming out of the big bailout. Congress basically said we want lendingou back to spend and get rid of these profitable areas like ron trading and derivative origination and offBalance Sheet activities. The banks pushed back, but the point is there has been a lot more project progress on that in the u. S. Francine chris, is there any doubt in your mind that the Italian Government would not let monte dei paschi down . We have investors coming on this program saying it is a safe bet if you raise the capital because the entire Banking System and the government cannot let it go. Chris you are quite right, but this is the problem. If you go back to 2013 when mario draghi allow the merger of that was an insolvent bank. He needed to be wound up and instead they merged it with monte dei paschi. It illustrates how the central bankers refuse both in this country and in europe, to deal with insolvency. Instead they merged good banks with that banks. Tom this has been fabulous. Chris whalen, thank you so much. We will continue with Gary Shilling. We will drive the conversation forward, later today. Peter fisher, barely describes his a compliments. Mr. Fisher on trump, economics and investments. This is bloomberg. Francine this is bloomberg surveillance. Lets get straight to the Bloomberg Business flash. Itlor boeing has announced will sell almost 17 million of airplanes to iran. Now boeing may have to stop the deal with president elect donald trump. It is the worst december in six years for the London Housing market. According to a property website, asking prices are down more than 4 from last month. Prices in inner london are down 6 . Worries about brexit have hurt luxury home prices. In france, and imf managing director goes to court in a case. Failing toed of prevent a massive government payout. She has denied the charges. That is your Bloomberg Business flash francine lets get back Bloomberg Business flash. Francine we understand that donald trump is looking at the ceo of exxon mobil, with two decades of dealmaking in russia, he has been called by the russian president an ideal man. I spoke with the nigerian here ism minister and what he had to say about exxon mobils ceo. He is somebody that we all love and respect. Credentials and is a major driver of policies, so i see him bringing a lot of momentum to that appointment. He is an oilman. Francine that brings up about a million questions. Gary shilling, a Gary Shilling whalennt and christopher are still with us. He was joking if or saying it have seriously, that he believes he would be extremely favorable to oil majors. What does that mean for investment in oil majors in the u. S. . Chris exxon mobil is like a country, one of the largest credits in the world, still aaa from some of the agencies. In many respects, it is an interesting choice, and would certainly not be a negative for the industry, but the question is, would it change any of the dynamics in the oil market that we were talking about with gary . I dont think so. Cycle,look at the credit we were expecting much worse losses due to energy in the u. S. , last year. What happened was the private Equity Community showed up, they put new money into these companies, so they sorted awarded the efforts by the saudis to clean out the smaller Shale Oil Producers and others, so we still have the capacity to produce oil as prices go up. Dynamic,he interesting and i dont think any appointments in the trunk are going to change that. Francine gary, what do you make of this . Is he a person that russian russia can do a deal with, or does it mean automatically that he will look after the interests of big oil . Gary i dont think it makes a big deal of difference. Is veryhuge company, it eric craddick, if you want to use that term. Running that is running a huge empire. That is what the federal government is, as well. The idea that this is a dramatic shift and chris is right, you have a tremendous amount of oil production. The crackers frackers on resilient and increasing. They were trying to for somebody else to cut production and guess who ended up cutting production. Tom chris whalen, we enjoyed having you on the set, today. Have you ever seen a cabinet like this, before . Is it original or gilded age . What kind of cabinet is mr. Trump pasting together . It is a very conventional republican cabinet. Tom 1905 . Tois the left ties tries paint this picture of robber capitalism, but these are technocratic bankers who are very familiar and it is fascinating that the golden contingent is willing to tom other any other investment firms out there . Chris the goldman firm has been extremely astute at following the art of operations. They know how to combine access and information and personal relationships in a way that no other firm can. Tom i can see the love note coming in. We have to go to a commercial. We will come back with Gary Shilling, chris whalen. Timing, what oppenheimer and company surging this morning with oppenheimer and company surging, this morning. Tom a stronger dollar and you can see that in the yen. Canadian hydrocarbon currencies, canadian moving strong. Francine coming up, bloomberg daybreak americas with david westin and alix steel. Guests, thepecial former senior official of the state department and white house will be here to talk about that impending apparent appointment of the ceo of exxon mobil as secretary of state. What this means for russia and our other allies around the world. We have David Rubenstein of the carlyle group. Last time he was here, he said we were due for a recession. We will ask him if donald trump will extend that deadline that timeline. That and so much more, coming up. Tom there were two people i would say maybe great Market Economics a generation. Hyman and thes other is Gary Shilling. Bring up the chart, and here is the schilling deflation. Every step of the way, gary, you are wrong, and here is the new reflation, barely back to trend. Is that all this is . Gary the route the deflation is never a smooth path. Every step of the way, it is a surplus world. House and agreeing with Gary Shilling. Higher yield, 2. 5 . And says down we go again in yield. Do you assume that for next year . Gary we will get to 2 on the long bond and 1 on the 10 year. Dollar is a safe haven. We are more likely to have deflation than inflation. Spreads,ok at yield the u. S. Treasuries are richer, to almost every other developed country. If you have a strong dollar on top, it is a double whammy. Tom we have run out of time. Chris whalen, thank you so much. Dr. Schilling will wander over to bloomberg radio. Stay with us, this is bloomberg. Jonathan good morning and welcome to bloomberg daybreak. Week with equities in the u. S. At an alltime high and the dow staring down 20 cap. 20k. Crude getting a big pop. Alix Donald Trumps probable peg, exxon ceo is said to be the favorite for secretary of state. Trump calling him a worldclass player while some senators warn of his close ties to Vladimir Putin. 10 year treasury yield above firstdriven by opecs production agreement with nonopec members in 15 years. Italys future, expected to report to the italian president. Monte dei paschis board is speaking with its year end recapitalization plan after a delay was rejected by the ecb. David