Stoxx 600 as Morgan Stanley cuts the chipmaker to underweight. Good morning. Lets kick you off with some Eurozone Services pmi numbers. The final december composite pmi was 54. 4. Pmi pointing to Fourth Quarter gdp growth of 0. 4 and prices charged rose at the fastest rate since july 2011. Finally inflationary pressures coming through. Lets look at some of the services pmi. Eurozone december pmi at 53. 7. The forecast was for a print of 53. 1. Easily beating expectations. To tell you across the regions we saw in germany a services pmi at a fivemonth high. Italian services pmi was below expectations and showing slowing in december. We did see an uptick in spain and in france an 18month high. Mixed picture here. This following a Strong Manufacturing pmi earlier in the week. Prices ticking up. Thats something we have been seeing in the uk. Lets give you a view of the european bourses an hour into the session. Mixed trade with softness on the ftse 100. Basically the uk main market is flat on this second day out of the holiday weekend. Weakness in retailers, particularly in next. A closer look at that in a minute. Xetra dax lower by 0. 1 , despite strength in the banks. French cac 40 flat. The ftse mib higher by 0. 2 . This following some decent gains on wall street overnight a closer look at the sectors one by one. Banks moving higher. Inflation data in germany stronger than expected. Thats been good news for banks. Overall the index higher by 0. 5 . Retail, the big mover to the down side. Off some 1 for the sector as a whole. When you look at the likes of next falling 10 , thats causing concern for other uk retailers. Autos, utilities, Household Goods on the back foot. Lets give you more details on next. Shares have plummeted to the bottom of the stoxx 600 after the british clothing retailer cut its Profit Guidance for 2017 and cautioned on next years outlook. This after warning of exceptional levels of uncertainty in the sector. Next added that it was braced for highe erer costs thanks to brexit. Tony shiret joins us right now. Exceptional uncertainty was the word from next. Shares down as much as 10 this morning. Do you think investors are right to be spooked by this report . I think theres been a bit of an overreaction. Which is understandable to some extent. The forecast Consensus Forecast for the year to january 18 has actually come down by 7 . And so, you know, on a given the level of uncertainty you can understand why people would mark shares down. That said, theres a commitment to special dividends about 180 p per share which gives 4 yield on top of the ordinary dividend. Given the valuation on the new forecast, which is sort of about ten times to january 18 and quite a bit yield, im surprised its gone down quite so much. I think across the day it will probably recover some. Tony, no surprise a bit of the brexit blame factor mentioned here. Some seasonal sales around christmas disappointing. Another thing that struck out to me was the mention of people not spending as much on clothes. In fact, were talking about a change in habit of those willing to spend more on eating out, on travel. Is this a trend that shakes the whole industry . I dont think thats necessarily right. You know, weve tracked trends in clothing spend and ledger spend over the last seven years on a monthly basis. We dont actually see that that has happened. Its been a good year for leisure this year, but leisure is growing more slowly than the middle of the year. I dont think thats the reason. I think the issue for most investors, i guess, is first of all, the lack of december peak in the high street, and following on from that with the switch from high street to online has been more aggressive than people thought. Whether that requires some capacity adjustment in the high street more than people are thinking, even a couple days ago. Tony, do you think there could be a Silver Lining for not just next but other retailers considering brexit . Were seeing inflation coming through finally after years of disinflation in the uk. That means that the likes of next could potentially raise prices. They are planning to raise prices by about 4 on like garments, but thats, you know, from year to year, only a small proportion of next garments the same year on year, less than 10 . So sh so, there is the cost of the products, thats the key issue. So, i mean, i dont disagree with your basic notion that having a bit of inflation is not such a bad thing. But, you know, youre having to deal with very, very big inflation. You currently have a buy rating on the stock. This stock over the last year is down 40 . Were seeing some very heavy selling pressure today. What do you tell investors to do on the back of todays trade . Thanks for reminding me about that. I actually was a seller for a decent part of the year. I just like to defend myself. Im not really able to make recommendations over the phone to investors, im afraid. Theyll just have to wait until we publish. They have to dial into the analysts call or read your number. Thank you so much, tony shiret. Bucking the retail slump is bnm stores. Shares in the retailer have hit a sixmonth high to scale the top of the stoxx 600. This after record Christmas Trading boosted its Third Quarter earnings helping the Discount Store eradicate all post brexit losses. Currently up by 7. 3 . Will 2017 be the bulls big finale as u. S. Stocks enter the new year on a strong uptrend . How much will investor and Consumer Confidence help businesses . Stocks are showing new life as 2017 gets underway. The major u. S. Indexes hit record highs starting in july. And confidence surged among investors and consumers after the election of a president Promising Business friendly policies. While these trends seem to have momentum, investors should probably view further gains of stocks as a latter phase of a bull market not the start of a multiyear boom. Some are comparing this moment to the dawn of the reagan era, the Trump Administration will begin against a far different back drop. The s p 500 is up 230 since march 2009. The index had a positive return in each of the past calendar years. One shy of the record nineyear streaks in the 90s. Unemployment is near record lows. While growth expectations are perking up, stocks appear fully valued compared to corporate profits. All this suggests to some market observers that any significant upside may have to come from a classic euphoria phase of this bull market when the public embraces stocks with enthusiasm and drives indexes up towards an extreme. The upturn in confidence surveys and a rush of cash to bonds from stocks are hints that such a trend might be underway. Of course theres no science to pinpointing where we are in the markets life cycle. The economy might continue grinding slowly ahead and carry stock prices. Or perhaps inflation fears, strong u. S. Dollar and possible trade tensions could unnerve World Markets and derail that confidence trade. However things turn out its probably best not to expect several more years of smooth gains for stocks which after all have been doing quite well even as the public debate has focused on the economys weak spots. How much longer can this bull market continue . Lets get another view from tim edwards from S P Dow Jones indices. I read a note this morning from Morgan Stanley say buy the election, sell the inauguration. Do you agree with that view . I think theres a lot of optimism baked into u. S. Equity prices. A lot does relate to the incoming administration. In particular theres some sort of hope there of something that isnt possible. So you cannot invest in stimulus, make huge tax cuts and balance the budget in the way that the Republican Senate and congress probably want. So where does the rubber hit the road . Of course it hits it at the inauguration. I think selling on that day is im not sure i would necessarily agree. Theres lots of other things that come into play. Your reporter mentioned earnings. We did have a good earnings season at the last one. If earnings continue to grow, that will support the high valuations we see. But uncertainty and a lot related to politics is definitely something i would agree with. What about the u. S. Dollar . You didnt mention that factor. That could have a really bad impact on u. S. Stocks. It had that time and time again in the past. Yesterday once again we saw it rising to 14year highs. Yes. It is not good for u. S. Companies if who have International Earnings if their earnings are worthless. However, weve seen several years in which the u. S. Dollar increased and stocks have done okay. Its more of a headwind they need to overcome. It does look like well see rising rates in the u. S. , so that the dollar will become even more attractive it could go up some more. But i dont think its the dollar will go up therefore i need to sell u. S. Equities. I dont think that stacks up. The dollar trade has been closely following the moves in treasury yields. We have seen the tenyear a bit pare back some of the highs, but still an incredible rotation from the half year. Do you think theres further room to go . Certainly there is more room to go. Theres a much bigger story in the background which is Central Banks, Central Banks activities. They change like super tankers, very slowly. Not just the u. S. It seems as if we are at the end of that 35year bull run in bond yields. I think the real question is what are the consequences around the rest of the markets. And how big is the inflation component going to be. We are awaiting fed minutes due later today. Investors are wondering if well get more insight into a more hawkish tone we heard in december when it comes to the dot plot, the expectations of fed hikes. Where are you on that. I think its difficult to predict the fed, as we all know. We do see good data in terms of the signs of economic growth. We are also very much across the world seeing signs of inflation. Which is the primary function of the fed, to make sure inflation doesnt get too high. It is reasonable to expect them to raise rates and do so in a manner you cant catch up with inflation. Once it goes ahead of you, you cant catch up. You make a case for active investment versus passive investment. Why is that . We had a guest on earlier this week who made the same case, but we always argue weve seen underperformance when it comes to active management versus passive strategies. 2016 was a bad year for active management. Whats your case . It was. For years what you had was this sort of situation that its not a stock pickers market. Correlations are too high. You need to pick the fed. Last year we started to see correlations coming down, real winners and losers coming out from political events, active managers were like, fine, you cant predict politics. If we roll into a year where we keep the low correlations and keep a situation of winners and losers, i would say theres no more excuses for active managers and stock pickers, whether or not theyll take advantage is yet to see it raises the stakes in a way that makes this year an interesting year for debate. Investors have been hoping this would be the breakout year for european earnings. Some are hoping that. Europe, we still have support from the ecb, the doomsday machi machine, also a big, big political component to europe. Of course, probably everyone who comes in, a lot of uncertainty around the politics of europe. But the broader trends of we see u. S. Growth, the data weve seen so far does seem positive to what we know already about the current earnings season. Tim, thank you very much for joining us. Tim edwards, senior director of index Investment Strategy over at S P Dow Jones indices. We want to hear from you. Get in touch. What you are looking out for in the fed minutes . What are your expectations for the earnings season . The email address is streetsignseurope cnbc. Com. You can always get in truouch wh us on twitter, carolincnbc and me at nancycnbc. Still coming up on the show, here, there, everywhere. Intel looks to steer towards driverless mapping technology. Will there be bumps in the road . Find out next. Welcome back to the show. Youre still watching street signs. Japans december manufacturing pmi reached 52. 4 . Lets go to pauline in singap e singapore. Also new orders for pmi numbers hit a oneyear here. This adds to the optimism of the manufacturing nuns coming out of the u. S. And china, the global optimism. That was reflected here in the asian markets today. The nikkei 225 up 2. 5 . It was a different story when you talk about the china markets. Shanghai composite rallies 0. 75 . As liquidity concerns eased up there. Banks are starting off the new year with new lending quotas. That gives breathing rooms to Chinese Companies looking to borrow money. The hang seng was telling a different story. Down further, but it was able to claw back some lost ground. But ended just below the flat line as investors will continue to worry about the strong u. S. Dollar sitting at 14year highs and the impact of that on capital outflows from the region. Lets go back to the nikkei 225. It wasnt just a good day because of pmi numbers, but also specific Japanese Companies reported some good news. Renisis electronics up 13 on reports that it is going to unveil a selfdriving car at ces on thursday at the Consumer Electronics show using its own semiconductor technology. Toshiba corporation was volatile. Ended down 2 as local media reported that a japanese securities Watchdog Agency believes that toshiba padded profits for three years earlier in the decade to the tune of 40 billion yen, 340 million. Sharp corporation up 8. 5 , in the hoping that a joint venture with foxconn will build new lcd panels. And ta takata up 17. 5 on hopes they will reach a deal with the doj soon. Shares up 66 in the last three sessions. Thank you very much for that. Samsung is expected to forecast the best quarterly profit in three years on friday. Fourth quarter operating profit is projected to come in at 7 billion, a 37 jump year on year and the best quarter since the start of 2014. Analysts expect sales of memory chips and l. E. D. Screens to stop the fallout from the galaxy 7 problems. Strikes planned for christmas on British Airlines were suspended after revised offer, but Union Members have rejected the deal. About 2,500 members will take part in the strike resulting in flight cancellations. Again . Just when you thought you avoided them over the christmas rush. Lets talk about banks. Barkleys raised its price target on Deutsche Bank along with ubs and Credit Suisse. They lifted the outlook on Credit Suisse to overweight, and maintaining overweight and equal weight ratings on ubs and Deutsche Bank. We saw that rally in european banks. The European Union regulator delayed a decision on a merger between chemchina and syngenta by ten days to the 12th of april on request of the two companies. Syngenta said the extension will give them enough time to discuss remedy proposals. In october the eu launched an investigation into the 43 billion chinese bid for the swiss seeds group citing concerns over the tieup. Both parties are confident on the deals closure. Intel acquired a 15 stake in digital mapping firm here for an undisclosed amount. Intel and here said the partnership would allow for r d collaboration as the u. S. Technology Company Looks to get into autonomous driving technology. Here was bought from nokia in 2015 for 2. 8 billion euros. And intesa saw paul low will fund a joint stake purchase of glencore. Italys biggest retail bank sidd this will strengthen it with two big compliers. They are paying 10. 2 billion you euros. Lets give you a check on tesla motor shares moving in afterhours, lower by 2 , this after the company missed its 2016 sales target of between 80,000 and 90,000 deliveries. Fourth quarter deliveries dropped. The carmaker said the challenges meant it ran out of time before it could deliver all customer cars by year end. Call com contributed to softbanks Technology Fund which is set to launch in the coming weeks. Thats according to a report in the wall street journal which says the chipmaker will join the likes of apple and government of saudi arabia as investors. Softbanks ceo promised president elect trump that half the fund will be committed to investing in the u. S. Shares of stmicro are under pressure after Morgan Stanley cut its recommendation on the apple supplier from equal weight to underweight. Shares lower by 2 . Reading 25 books, learning mandarin and running 365 miles are just some of facebook founders Mark Zuckerbergs famous new years resolutions for 2017. He is promising to have visited every state in the u. S. By the end of the year. By his own calculations, that would mean traveling to 30 states that he hasnt been to before. Does he have any political ambitions, thats the question. People were quick to say this signals he has political ambitions. Im not so sure. Maybe he wants to take the pulse of the average facebook user. Too early to tell . True. But i think he reached the top of facebook. Well go for a quick break. Check out our blog, which runs throughout the european trading day. Welcome back to street signs. Im carolin roth. Im nancy hungerford. These are your headlines. Next plunges to the bottom of the stoxx 600 as the british retailer cuts its fullProfit Guidance, warning of a cyclical slowdown and tougher times ahead. European equities shrug off a strong start of the year in u. S. Trade edging lower for the day. Banks show renewed strength in the new year after barclays raises its price target on ubs, Credit Suisse and Deutsche Bank. And donald trump gets into the driving see the. The president elect threatens to punish americas big automakers for manufacturing outside of the u. S. Prompting ford to cancel a mexican plant. Ford is a global ate tomaker, but our home and our home is right here in the united states. Good morning. Welcome back to street signs. Breaking data on the uk construction numbers. The construction figure rises to 52. 2, the highest since march 2016. That also compares to a reuters forecast for slightly lower than that. We were looking at Consensus Forecasts in the neighborhood of 53. The november figure was 52. 8. Sterling about 0. 3 stronger against the greenback. When you look at the input prices, december construction pmi input price index rising to the highest since april 2011. That is at 72. 2. Overall youre looking at the construction pmi figure beating expectations. The highest since march of 2016. For some reaction lets bring in peter dixon, senior economist from commerzbank. Good morning. Pleasure to have you with us. You were looking for a number closer to 52. 5 to 53. Are you surprised by the strength of that data . In a way i am. Bear in mind that construction is a volatile number. We see more volatility in the construction pmi than other sectors. So i tend to look at the trend. The trend is upwards. If you look at the ons data on construction output its rather weaker than other sectors of the economy. When we look at input price component rising to the highest since april of 2011, this is similar to what we saw in the manufacturing data with price pressures rising. Is this starting to be an area of concern . Its a canary in the coal mine which suggests the collapse in sterling following the brexit referendum is going to have an impact upon inflation in the uk over the course of the next 18 months. We have not really seen it heading to the cpi figures yet. But coupled with the recent rise in the oil price we will look at much higher inflation throughout the year. Its strange to talk about an area of concern where for so long people were looking for that area of inflation. Just in connection with that, news that uk shop prices falling by the smallest amount since mid 2015. You say inflation will rise this year. 2. 5 , 2. 4 s that a level you expect . Yeah, above 2. 5 by the end of this year. I wouldnt be surprised if we hit a spike of 3 maybe sometime the middle of next year. Thats okay in a sense. The bank of englands target range is 1 to 3 . Real wages will be crimped. That will impact upon consumption. Thats bad news for the consumer once again. So much of the data points rest on the brexit uncertainty that people are trying to work through and some developments surrounding negotiations on article 50. The outgoing ambassador to the eu offered thinly va lly veiled criticism of the uk government in his resignation letter. He challenged the government to not shy away from speaking truth to those in power. Peter what do you make of this report . Weve heard some criticism that the government doesnt yet have a plan, others say wait a minute, theyre holding their cards closely to their chest. What do you think and what are the implications for the economy . I think ivan rogers departure suggests that were more in the camp of no real plan. Lets face it. This is a complex set of negotiations were heading into. And i think it would be incumbent upon the government to give us some details of what they plan to do. If they get their way, they want to trigger article 50 negotiations by the end of march, thats less than three months away. As this uncertainty rises, businesses will be starting to think much more carefully about investment projects. Thats one of the factors why most economists think that growth in 2017 will slow. There are some reports saying that rogers said a trade deal between the eu and uk would take ten years. Others say it will take ten months. The real answer is somewhere in between . Yeah. But im more towards the tenyear end than the tenmonth end. It will take significantly longer than the twoyear period allowed by article 50. It will take many years. We saw from the canadian trade deal how difficult that was to get through. So, i think the negotiation phase will be long. We need an interim transition agreement once the article 50 expires in order to protect uk exporters. Is there a chance there wont be free trade between the eu and uk and then tariffs are higher but not necessarily punitively high . I think youre right. There is a chance that will happen, of course. I think the tariffs will not be the end of the word. If you think about every time a good crosses borders, it imposes it will have tariffs imposed upon it, these could accumulate quickly. It could mean we see a significant increase in import prices over and above what the wti tariffs might try to imply. The key elections taking place in the eurozone and the key players on the other side of the table may or may not be there when it comes to negotiating this. What are your views about the political risks in. The political risks are huge. Thats one reason why i would advocate starting the brexit negotiations after the german elections have taken place rather than a long time before. In terms of whats happening in europe at the moment, this trend towards nationalism. Its not hugely overt, but its there nonetheless. Over the course of the next few months well see the French Election campaign unfold. And i think what we see is a decent showing by the national front. I dont think Marine Le Pen will be president but it will be a clear signal that the eu has to rethink where it wants to go. Peter, thank you very much for that. Lets turn our attention to markets. U. S. Futures, expecting to see tepid buying at the start of the trading session. The s p 500 seen up by roughly two points. The dow jones could add 5. 5 . And the nasdaq also up. European markets look like this. A bit more mixed. A bit of selling on the ftse, which saw a record high in yesterdays trading session. The xetra dax up by 0. 2 . Only the ftse mib is hanging on to positive territory up by 0. 1 . Once again, the retailers are really making headlines today given profit warning coming from next. Quick look at the currency markets as well. We are still seeing Dollar Strength particularly on the back of the very Strong Manufacturing number in the u. S. Yesterday. The strongest to year. We are back to close to 14year highs for the u. S. Dollar. Euro dollar getting a boost after the pmi numbers early this morning. 104. 41. Similar story for pound sterling, 122. 76. President elect donald trump has taken to twitter once again to criticize this time intelligence agencies over their reviews into russias cyberattacks during the u. S. Election. He tweeted the intelligence briefing on socalled russian hacking was delayed until friday. Perhaps more time needed to build a case. Separately he also announced he would hold a News Conference on january 11th in new york city. The president elect is also nearing a decision on key picks for his administration. According to multiple reports, wall street lawyer jay clayton is a leading candidate for the securities and exchange commission. He is partner at sullivan and cromwell, specializing in corporate finance. John allison could be named for fed governor vacancy. That would make him vice chairman and head of banking regulation. This role has effectively been untilled since it was created with the doddfrank act of 2010. Lets talk about trump and cars. Ford canceled plans to build a 1. 6 billion small car factory in mexico. The economy attributed the shift for the slumping demand for compact cars and renewed optimism over the president elects strategies for domestic growth. Ford among other American Automakers was a target of trump during his Election Campaign for their manufacturing abroad and payment of low tariffs. Kristen welker has the latest on that story. Reporter president elect donald trump taking on the car industry today on twitter. This morning singling out gm for manufacturing some cars in mexico and importing them to the u. S. Taxfree. Make in usa or pay big border tax, trump warns. The tweet sent gm stocks plummeting temporarily and the Company Fired back noting their sedans are made in ohio with only a small number made in mexico for the global market. That tweet offensive came shortly before ford announced its now scrapping plans to move a plant to mexico creating 700 new jobs in the u. S. As a candidate trump railed against the company. Ford announced theyre moving all of its small car production to mexico also. Not good. Not good. Reporter today ford ceo insisting he didnt cut a deal with the president elect but acknowledges the policies president elect trump has been talking about and says he will pursue did play a factor. Reporter trump tried to take credit by retweeting headlines about the news, all underscoring that hes showing no sign of letting up on social media even as his inauguration approaches. It wont happen he tweeted about north koreas ability to create a Nuclear Weapon while slamming china for failing to work with the u. S. On the matter. The other issue looming large, trumps promise to release new information about russian hacking soon. Over the course of the coming days, the president elect will be receiving more information about that and other topics on the world stage. Carolyn, this story with trump tweeting about ford came as a surprise to me. They said, wait a minute, in the early days after the election, ford said were not changing our plans. This represents a shift of sorts. Keep in mind the closing of this 1. 6 billion factory in mexico is not a direct transfer to the u. S. They are investing 700 million there an existing plant for electric vehicle production, but still shifting some small car focus production to another plant in mexico and fords ceo mark fields telling phil lebeau yesterday this move was more driven by the market than had anything to do with talks with donald trump. That, i dont believe. I dont believe that. There are a couple things that worry me. First, the fact that ford expects incentives from the state of michigan for its plant there. So, basically every company that keeps jobs in the u. S. And any federal state will expect incentives from that state so it goes from the federal level to the state level. What sort of Business Environment does this create for u. S. Corporates who are trying to maximize shareholder and stakeholder value and through that, of course, theyll have to relocate some jobs. Also trying to stay competitive against the likes of the japanese automakers who face lower costs at home. Gm was quick to come out and say if youre going to intimidate us on twitter, get the facts straight. Most of these cars are produced in the u. S. Just 4,000 hatchback models come from mexico. In the scheme of things, not a big bulk. You used the right term, intimidation. It is a sentiment of intimidation and fear of retaliation. Do you really want to make Business Decisions based on that . The ceos dont. No, they dont. House republicans reversed plans to weaken the independent office of congressional ethics following a backlash from constituents, and trump questioned whether undercutting the watchdog should be congresss number one priority, saying focus on tax reform, healthcare and so many other things a far greater importance. President obama will hold a strategy session with democratic leadership as the u. S. Senate begins debate on the Affordable Care act. The president is fighting to save as much of his Signature Healthcare law as possible. Lets get out to tracie potts who joins us from washington. Is he fighting a losing battle here . Reporter not entirely. There are parts of the Affordable Care act that trump said he wants to hold on to, covering preexisting conditions, making sure young adults can stay on their parents insurance. This whole system was predicated on getting more people on to the system that mandate and also the insurance subsidies that the government is providing to low income americans. That republicans want to get rid of. The concern is without the subsidies, without the extra people in the system, Insurance Companies may throw their hands up and say we cant afford to cover everyone else and pull out altogether. And we have seen rising premium prices. Republicans in charge here on capitol hill dont agree on what to replace it with. The mantra about repealing obamacare is now possibly repeal and delay, which democrats say theyll push back hard on, and some constituents already have. Thank you very much for that. Coming up on street signs, turkish authorities identify the gunman behind the attack on an istanbul nightclub. Well get the latest after this. Good morning. Welcome back to street signs. Turkeys foreign minister says authorities have established the identity of the gunman responsible for the new years eve nightclub attack, which claimed the lives of 39 people. He did not reveal the assailants identity. Some 20 people have been detained since the attack according to local media. Richard engel has the latest. Reporter its just before midnight new years eve. Turkish media say this is the gunman on his way by taxi to the nightclub with a backpack full of guns and ammo. Just over an hour later he runs through the club killing 39 people. Minutes after that, police say he shows up again being thrown out of a cab, reportedly because he didnt have any money. He goes on to hail another and disappears. Tonight were getting our first look at what he left behind. A party that turned into a massacre frozen in time. People have been coming to pay their respects outside the club all day. Theres grief here but no longer any shock. Theres been nearly 30 terrorist attacks in turkey in the past year. The mood is more one of anger and fear of what could come next. Turkish police have cast a nationwide dragnet. State run media are blanketing the airwaves with the alleged gunman selfie video. Two suspects were detained at istanbuls airport. Tight security there at the airport would make it difficult for him to escape by air. But turkey has a long border with syria and analysts think he might try to cross it for sanctuary in isis territory. Thats exactly what the wife and suspected accomplice of the isis terrorist who killed four people at a Kosher Grocery store did in paris two years ago. She was never caught. Turkish officials have said the gunman likely spent time in syria fighting with isis. As the manhunt is still under way, they are releasing few details about the investigation. Richal engal. The chinese pobc has stepped in for the second day to prop up the falters yuan. The move comes amid increased investor wariness over the renminbi following Donald Trumps threat to impose high import tariffs on chinese goods. Emerging market debt will be in a strong position in 2017, thats according to blackrock which says the impending transition from Monetary Policy to fiscal stimulus and development markets could benefit Commodity Prices and producers in emerging markets. We are joined by the head of emerging deck at blackrock. Good morning to you. You have a lot of convincing to do. When you look at portfolio flows, youre still seeing massive outflows out of emerging market debt. Why do you think it will be a strong year for that asset class . Last year was a strong year. We had a 10 return in fixed income in emerging markets despite what happened right after the elections. So it wasnt about the year, though flows are moving out of fixed income to equities. So you have to place it in context what is the context there . You have what we call a great transition in front of us. Monetary, were going from qe to qe unwind, untapering. So this is good for high yielders. Emerging markets are high yielders, so by definition, now that most of the Asset Classes are below investment grade, then you get on the fundamental side fiscal austerity to fiscal stimulus. Very good for commodity exporters. If you want to upgrade infrastructure you need to buy commodities. You cannot have them on your soil. This is good. Were going from traditional politics to populism. This means you need to do some selections. You have some countries that will be in grace, such as russia, and this grace eventually may be mexico or china. On the flow side were going from protectionism which is bad for manufacturers. Finally on the Risk Appetite were going from volatility that has been subsidized by Central Banks to a normalized volatility. What does it mean . It means that under these twoyear plan from trump, you could have a 2 00 a. M. Tweet that could ruin everything, all your positioning. So now that you take the context, you have positive for high yield, good for commodity exporters, bad for manufacturers, you need to make sure your selection is good, but in fixed income its going to be a very rough ride. So youre looking 4 to 6 per year in fixed income, tell me what class could deliver that. I dont know one off the top of my head. I also like the 2 00 a. M. Tweet by trump that could change everything. Russia, turkey has been a big battlefield also china is still an unsecure place to invest, wouldnt you think . Yeah. Very good place for value, beta for return wont be with you as it was last year. So you need to make sure that you are positioned with the guys in grace or the good guys. Latin exporters, brazil, argentina or africa commodity exporters, south africa, are paying around 6 , 8 . Manufacturers are paying you 4 . You can neutralize your duration and have a nice carry. You dont need to be ambitious. You need to be selective. This is the name of the game. This is the way were positioned. You say you like latin within the high yield smpace. Can you tell us your views on mexico, in light of the havent tweets from donald trump. Its one thing talking about ford or General Motors in mexico, but the Auto Component suppliers who have huge businesses down there. Do you start worrying about the ramifications for mexico . You have to look at mexico before trump. Mexico before trump was in a rough situation. Monetary policy inflation was reaching higher. So they need to hike, this means it will hurt fundamentals. Fundamental side you have pollity poll i policy uncertainty, but in mexico, there is policy uncertainty, and the fiscal situations is looking more and more like brazil this means more fiscal adjustments and less growth. Idiosyncratic risk, we have populism as well with labrador, and on the flow side we were thinking trump would not stick to his promises, yet here we go. So the entire situation for mexico is not good. All right. Sergio, thank you very much for being with us. Lets give you a view of the markets before we go to break. Looking a little more mixed today than we did in the last three trading sessions when we were higher. The ftse 100 is off by a couple points. U. S. Markets out of the gate yesterday with strong starts for the new year. Were looking at green arrows but ever so modest at this hour. Investors want to get closer to the 20,000 mark on the dow. Thats it for todays show. Worldwide exchange is up next. Well see you tomorrow. Tyte owht good morning. Markets now rally to start the year and the dow is once again within striking distance of 20,000. Analysis from jim cramer coming up. The trump transition. The president elect announcing plans for a News Conference and gets set to announce more appointments. And hitting the brakes. Tesla shares trading lower after the automaker misses its vehicle delivery target. Its wednesday, january 4, 20107. Worldwide exchange begins right now