Transcripts For BLOOMBERG Bloomberg Surveillance 20171214 :

>> welcome to bloomberg: surveillance -- "bloomberg: surveillance." i'm mark barton in london. festival of central banks, we have the ecb to come, the bank of england, the fed here. down 1/5 of 1%. .uro, little change unchanged since the last ecb season, october 26. hasn't -- fallen to one dollar 1587 on november -- november 7. sterling up by 1/10 of 1% today. today, but it's politics that's affecting sterling today, having risen since fps last night. they're changing their government's planned legislation, so they guarantee they will get a meaningful vote on the final deal to leave the eu in negotiations for 2019. coming up today on "bloomberg surveillance," we will discuss markets with paul donovan, hear from the s&p governor thomas jordan. but get to bloomberg first word news with sebastian salek sebastian: the fed has raised rates by 25 basis points as widely expected. we also have a growth forecast next year, but maintaining projection of hikes -- 3 hikes in 2018. saiding chair janet yellen this underlines that the labor market will remain strong and eventually trigger higher wages. she also discussed the tax cut. these will pry -- likely provide a lift to economic activity in coming years. the magnitude and timing of the macroeconomic effects for any tax package remain uncertain. sebastian: the pboc has raised foreign costs hours after that fed hike. channel central-bank increased rinks -- ranks. the retail sales and factory output came below last month. there is continued momentum indicated, even as a nationwide anort -- even during nationwide effort to tackle pollution. donald trump has promised everyday americans "a giant tax cut for christmas." he said a typical family of four earning $75,000 would receive a tax cut of more than $2000 under the legislation. president trump: we want to give people, american giant tax cut for christmas. when i say giant, i mean giant. [applause] president trump: as we speak, congress has reached an agreement on tax legislation that will deliver more jobs, higher wages, and massive tax relief for american families and for american companies. sebastian: global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. salek, this is bloomberg --mark? -- great, lotsg of data. happy 2018, success and clearing global oil holdout -- according to the international energy agency. opec and russia have managed to reduce oil inventories to the lowest in two years. a new supply from their competitors led by u.s. shale drabek growth faster than fuel demands next year. opec's efforts to drain this surplus.p a global crude is up 1/10 of one per -- nine tencent 1%. here's the first piece of breaking data. this is crossing the eurozone, economic omentum in the euro area. the fastest pace in almost seven years. a factory posting record growth. the composite pmi rising to 58 in december. economists surveyed drop this to 57.2. this economy has further to go, after -- outputs were boosted the most in a decade. it should encourage the ecb to publish updated projections for growth and inflation today, to push ahead with the removing stimulus, despite signs of an inflation pick up. as a day for data, busy day for central bank. theresa may heading to this number -- heading to this in brussels after blows of her brexit plans. the prime minister's government did this in parliament after lawmakers backed amendment, giving them a meaningful vote on the deal when britain leaves the eu. in staley, fixed income portfolio manager at jpmorgan, joins us now. ian, thank you for joining us. given that defeat of theresa may last night, does that mean the probability about -- of a cliff edge, hard brexit has reduced? ian: that seems to be the case, it? when you look at the currency markets, strength from sterling, we have been down this path -- haven't we -- over the past he weeks, where it looked like it would be more of a soft and hard brexit. there is so much to be discussed. mark: still, the first hurdle was overcome on friday. that should be rubberstamped in the next 24 hours. hopes to have -- what else do you have about the negotiations, the trade of negotiations, which should kickoff sometime in the beginning of next year? iain: that's the key for the u.k.. the eurozone is our biggest trading partner. we need to have some formal agreement. but will be interesting is if we can get this transition deal, i.e. can we get to march 19, may be further than a couple of .ears and work our way through, ultimately, trade is on the minds of everyone in the u.k.. mark: do you worry about the domestic political backdrop, we know theresa may cope with negotiating with the eu? she also has a divided conservative party. last night shows not only she has to keep the brexiteers in check, she has to keep the others in check. can may last? in your scenario, we could see an election again in 2018. what impact would that have a markets? a unique is in predicament, with that small minority, including the irish contingents. it's going to be challenging for her. we saw that last night. mark: we are not going to talk about this until a bit later. u.k. bonds: what is your outlook right now? iain: fairly benign at the moment. you have the inflation data, as we saw earlier this week, slightly stronger than expected, the we expect that to be rolling over. then, you've got all this uncertainty over brexit. me, it means this was propped -- this will trade at a narrow rate. as you say, inflation may be a key. what about these other pieces? it's been a busy day. we have retail sales, jobs data, wages data this week. >> the wages data is better. there may -- may be the trend in data has deteriorated over the last few weeks, but brexit has been the real focus, what we will get out of discussions over the coming months. mark: are you looking for some type of trade deal in a year or so? --norway,at canada and -- though that's not an option -- what are you looking at? this will come to a head in march 2019. iain: i like canada. [laughter] mark: realistic? iain: maybe not so much. like a trade deal with us, so it would work both ways. we would need some kind of agreement. stealey, from j.p. morgan asset management. president putin is speaking in his annual press conference, notable, because these are long. they can last hours and hours. he is just arriving. we will dip in and out of it as we can come and will -- and putin will run in the next election. probably his final term. russians are watching for what happens after putin. atay, it's all about putin, a press conference that can last 2-4 hours. still to come, brexit, the outlook for the u.k.. the former u.k. minister of trade will be on. this is bloomberg. ♪ mark: you are watching "bloomberg: surveillance." while disney will acquire several stocks today. the entertainment giant will pay between 28-20 nine dollars per share. -- $28-29 per share. this is the biggest deal ever for disney, and a significant milestone in a long career of media mogul rupert murdoch. there has been a rejection for an unsolicited bid tobuy the software make -- to buy the software maker for billions of euros, saying it undermines the business. there is uncertainty about integration for gemalto and atos. gemalto is significantly undervalued. more important, we need to take into account the -- our employees and our customers. we need to understand better what this means, in terms of integration and how we would pursue our strategy. $1.3tian: ahead of ubs's trillion was management unit, there leader is stepping -- their leader is stepping down. zeltner is leaving. a south african retail giant is rocked by an accounting scandal, reassessing the 2017 results in an investigation. the company, which owns a mattress strain, has reviewed statements from 2017. shares have plunged by around 80%. an airbus will hold a board meeting today that could prove pivotal in determining the future direction of a european play maker as it determines every fines, stemming from bribery allegations. the ceo warns pleased to expect serious consequences "including significant penalties in relation to a probe involving corruption, where he used middlemen." swire group and air china are speaking exclusively to bloomberg about a new business saudiand will discuss how arabia is impacting his business. >> our bottom line will be affected, and we are still giving a profit warning. predict-- our estimates we will have a negative year. for passenger numbers are concerned, we are hoping we will be close to the number of passengers be carried pre-blockade. sebastian: that's the bloomberg business flash. mark: donald has promised everyday americans a giant tax cut for christmas. he said a typical family of four earning $75,000 would see a tax cut of more than $2000 under the legislation. the white house did not provide analysis to support his claims. president trump: we want to give you, the american people, a giant tax cut for christmas. giants, i mean giant. [applause] -- giant, i mean giant. [applause] speak,nt trump: as we congress has reached an agreement on tax legislation that will deliver more jobs, higher wages, and massive tax relief for american families and for american companies. meanwhile, a policy decision that last, a news conference from outgoing fed chair janet yellen. >> will changes in tax policy, they will likely provide a lift to economic activity in coming years. years.nitude and timing -- of the macroeconomic effects for any tax package remain uncertain. mark: there forecast in 2018, has not changed, even with a projection of prerace hikes. iain stealey -- was here, our other guest joins us now. some said this was a dovish hike this year. how would you categorize yesterday's meeting? >> it was dovish, in the sense that they lowered unemployment, .isted growth slightly the supply side of the economy is slightly better. in that sense, he might say it had a slight dovish tinge to it. this has to be on the word -- the emphasis has to be on the word, slight. mark: what was interesting, ian in, was the growth projection for next year. we don't know if that is linked tax cuts or business projections, but the long-term rate of growth is unchanged. isn'thows us donald trump matched by janet yellen, when it comes to the impact of tax cuts on the u.k. economy. are you more the trump or yellen side, when it comes to the impact of these tax cuts?i like to see the details -- in: i like to see the details before making your forecast. i think that's the fed wants; they want to know what's happening before they say this will be a big boost to growth. i probably agree, small uptick over the next couple of years. we are not tensing anything -- penciling in anything dramatic. mark: do you see tax cuts -- we do see the tax cuts, we heard trump talk about wages. are you as bullish as the president? simon: in the near term, it looks like some tax cuts will have a good effect, maybe 2019. , as well, on the long-term. i saw on your show earlier this week that tax cuts -- or with increased revenue. the text zero, you get your revenue. if you tax 100%, zero revenue. there's a curve, we don't really know. cuts meanwhile, the tax measures, as we don't know the details, it's difficult to assess the impact on monetary policy. talk me through the scenarios, iain. if it is bigger, grander, if it has more of an impact on the this have just cause in 2018? yes. that's something janet yellen has discussed multiple times. to be more aggressive. if they do another three hikes over the next year, you're getting the fed fund rate to a cash rate of zero. in my mind, they compose, take a breather, see what's going on. if you see inflation push-up, it's all about the tax, that might embolden them to do another one. mark: his inflation going to pick up in the u.s., simon? a big question. trump talking about yellen, and other things, but it's a conundrum, isn't it? there's inflation, rising unemployment. the cpi data wasn't encouraging out of the united states. the pathway of inflation in 2018: discuss. simon: i think it will continue to disappoint. you've got a lot of structural factors, in terms of technology and automation, a gig economy -- collie -- call it what you want. the curve is still fletcher. ratehink we will get two rises this year. by the back end of the year, we might see the balance sheet to work against the backdrop of disappointment. mark: how does the bond market react to shrinkage?we know what happened said qe, when you are for -- when you reverse it. willoughby swimmingly -- will it be swimmingly? simon: for the market, it has taken it in stride. the ecb is coming back purchases in january. towards q1, q2, the market will focus. -- focus on it. somewhere within the third quarter, we see this flick. central banks -- flip. central banks have been dumping money, but by the second quarter, they will be removing it. there will be a change of frederick. the market might have -- a change of rhetoric. the market might have a negative impact. mark: there's the last seven recessions. if it does convert, will predict the eighth recession? iain: i'm not necessarily sure it does predict a recession. in 2005, it wasn't until december when we hit zero, but didn't go into recession until the end of 2007. we've got a few years to run, even if it goes there. mark: what is your feeling about the curve and what a projects, asimon? simon: when it was 3% -- think about 1%. we need to get used to more yield curve inflation going forward. -- in version going forward. nversion going forward. it is exciting investors, understandably. mark: let's talk about the boe. it will be in a holding pattern. is that a nice way of describing it today? simon: we have seen a dovish hike. we removed the language about tightening the market. the curve steepen, then flattened again. we didn't want to sound hawkish again. since september -- sorry, the curve has steepened again. is unemployment below the international rate? yes. is inflation above target? yes, but there is no trade-off. mark: does that mean in the next three years, it will last, or does carney need to shift the say the market is underpricing it today. what's in the market has taken their word for it. -- iain: i think you would be happy if he came out of today with not much going on. as you mentioned earlier, it's all about brexit as well. i think -- we know inflation is a little bit higher than expected yesterday. it's likely to be the peak. mark: is at the peak, simon? -- it's the peak, simon -- is it the peak, simon? depreciation of sterling, you will see this rate pushing up on inflation a little of, even in the back end 2019. it could well be. who knows. we are going to be at or around 2.93 for some time to come. a lot will depend on sterling. mark: when is the next hike? some say it won't happen until 2019, maybe after brexit negotiations in march 2019. when's the next rate hike, what's your view? simon: we could see 2019 if we see global banks moving rates. you see the balance sheet purchases. they will go in line with what the market has. -- >> maybe 2018. [laughter] sebastian: we are bit earlier. sebastian: -- simon: we are a bit earlier. you might see the market get to slack, even with suppliers looking to tighten. i think there will be another one in the first half of next year. mark: good chat, gentlemen. ian steely, simon, thank you. up next, the policy pullback: will mario draghi offer clues of how the ecb exit?will discuss that. it are, speaking to the former u.k. minister of trade, francis maude, all about the debate last night. this is bloomberg. ♪ ♪ mark: you're watching "bloomberg: surveillance." i'm mark barton in london. let's get the bloomberg first word news. here is sebastian salek. sebastian: the fed has raised rates since -- by 25 basis points as widely expected. we also have a growth forecast next year, but maintaining projection of hikes -- 3 hikes in 2018. outgoing chair janet yellen said this underlines that the labor market will remain strong and eventually trigger higher wages. she also discussed the tax cut. janet yellen: these will likely provide a lift to economic activity in coming years. the magnitude and timing of the macroeconomic effects for any tax package remain uncertain. sebastian: the pboc has raised foreign costs hours after that fed hike. china's central-bank increased rinks -- ranks. the retail sales and factory output came below last month. there is continued momentum indicated, even as a nationwide effort -- even during an nationwide effort to tackle pollution. donald trump has promised everyday americans "a giant tax cut for christmas." he said a typical family of four earning $75,000 would receive a tax cut of more than $2000 under the legislation. president trump: we want to give you, the american people, a giant tax cut for christmas. when i say giant, i mean giant. [applause] president trump: as we speak, congress has reached an agreement on tax legislation that will deliver more jobs, higher wages, and massive tax relief for american families and for american companies. sebastian: global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm sebastian salek, this is bloomberg --mark? thank you. getting retail sales data across the bloomberg terminal data. discounts, a sale of elections, and other household products. the volume of goods sold in stores and online jobs. when .1% by october. sales excluding auto fuel 1.2%. increases are exceedingly medium forecasted. this a clothing sale of 1.4%. there's 2.6% increase. these are kept by mon day survey. . day after black friday friday. sales will rise in the fourth quarter, must december sees a drop of more than 3%. the other one was in january 2010. retail sales rose 1.6% from a year earlier. jobs.ontinues, inflation, the central bank president mario has economic projections, including the first estimate for 2020. bloomberg economic expects underlying inflation to remain weak enough next year to have another extension to a program beyond september. there is steely from j.p. morgan asset management. then, we are staying on bloomberg. it's all about the forecast for 2020. he said today is -- inflation is near 2%. this sets everything up. his 2020 the key when it comes to today? simon: i think so. it will be the main forecast. that's the main area of focus. 19, anything like that will reassure that the ecb is on track to remove the qe eventually. if you saw on a minute, the divisions of the governing council are starting to open. they should be patting themselves on the back. it's going to get harder next year. we know it. they're not all getting increasingly itchy. on the other hand, draghi is clear: there will be no sudden end to qe. suggests, it's not crew. site -- ino end in september. what is the compromise going to be?you taper for three months ? >> think that's the market perception. the economic data today is fantastic. the eurozone is on fire. this continues through the third quarter of the summer. i it will be hard for them to justify. september, we've gone from 60 down to 30. why not 30-0? mark: the u.k. rates, you said a rate hike, simon in the first half of next year. there were various outliers, banks who are suggesting the ecb could hike rates next year because of accelerating inflation, financial stability. or you at all near that camp not? simon: i'm not in the rate hike camp. i think it's a low probability risk. the only way you could get it -- if you passeds their forward guidance in september, and suddenly hike in december. -- this isegain this just because the banking system was being impaired due to negative rates. they wanted to reassess this from here on in. change, because forward guidance next year will be so important. >> that's what you get canceled on a lot, which is what does it mean for a long period of time? is it 6, 3 months? you can reach this in early 19 -- '19, when they start raising rates up. weple will focus on that; can get nine months more purchases, and it will be sequencing after that. that will be the focus on everyone's attention. mark: his draghi going to be the first ecb president not to raise rates, simon? his tenure comes to an end in october 2019. our service -- as surveys suggest, we could see a hike around that time. he would achieve that aim. simon: i think he doesn't want to leave that for the first time, for his successor to do. if he could sneak one rate rise , there would be that as a backdrop. growth will slow, but i suspect it will have enough momentum. collects the ford market ramifications, as we discussed -- in? iain: if the eurozone continues to grow at this pace, 30 eurozone's look slow. i don't think it yields are going to move meaningfully higher, given the demographics, the fixed income. mark: the italian 10 year yield rose yesterday, some sort of election yield. we have that date, what does it mean? uncertainty. how big a political risk is italy in 2018? iain: we may be saw this earlier this year, given legislation. also, we have seen movements higher. this has been on a great run. i think this was great, people had the peripheral carriage rate. i think to me, this is buying opportunity. what what junction -- at junction do we start to debate who is going to succeed draghi -- sisi draghi -- succeed draghi?who will be his successor, and what does that mean? >> the middle of the next year, when they have to announce their next move. it will then follow, who is going to be taking over here? they didn't have a clue. mark: what if we continue to have the status strong, when moving?n is in it stuck around the current 1.5 levels, and core inflation is not moving towards 2%. what do you do? >> the ecb is a central bank, focused on inflation. there's problems with the periphery. there's just policy. we have policy listeners. mark: final, broad question, as your global bondman: outlook for 2018, which areas do we invest in? >> tough one. definitely, this year has been a surprise, about investors, how well they have done. >> there are thousands of markets, where we are seeing growth stories as well. there are some shockers out there. i still feel a backdrop of economic growth, lending to the corporate, emerging markets. thank you for joining us. iain steeley.nd thank you for joining us. coming up, we will stay to the u.k. foreign minister of trade, francis month. brexit and theresa may -- francis maude.this is bloomberg. ♪ mark: you're watching "bloomberg: surveillance." i'm mark barton in london. just getting some headlines from brexit's secretary, david davis. he said, he seeks to sign a trade deals during the presentation. we will keep an eye on what the brexit secretary says. for aa may is in brussels summit she hoped lead to brexit talks come a moving on to trade. the prime minister suffering a blow last night. . the government has argued this would hurt their negotiating position with the eu. he's worn -- a political career standing the most 40 years, including the prime minister of trade. currently an, advisor. blow was it for prime minister may after last night's defeat? it was not helpful. i don't think it makes a significant difference. has been inconceivable that the house of commons would not have had about on the final agreement -- a vote on the final agreement. i think, in terms of the distant -- francis: i think, in terms of the disadvantage to theresa may, of has no majority incumbents in the house for her own party. she's always going to be vulnerable to minor rebellions of this kind. mark: does that have heard 30 for the diminished? especially from last night? francis: it's certainly not strengthened, that's not helpful, but it's not catastrophic. mark: what is a meaningful -- what does a meaningful vote mean? francis: i suspect amid the house of commons has the ability -- i suspect it means the house of commons has the ability to prevent the deal breaking -- mark: if you voted, a tie to negotiate another deal before -- francis: that's not clear. insistedhat they have is that no negotiations, discussions on the premarket market, the future trade .greement could start until now you can't have a withdrawal agreement without there being an agreed framework for the future, trader in mint, future relationship on security and including trade. article 50 is clear about that. there's little time for that. this will be time-pressured. the effect is not clear, whether 50 can withdraw from article notification. the indications are that you are probably confident, best uncertain. rules?ld you have wto the risk is that the house of commons votes down an agreed arrangement between the two parties. they are shot will be that we leave with no deal at all, which has a serious effect on both sides, including leaving $10 billion a year. mark: there seems to be market wise, sterling rising trade last night, this lessened the chances of a cliff edge hard brexit.is that how you would read it ? at of the gimmicks all that much difference --francis: francis: i don't think it makes that much difference -- mark: -- no. francis: -- to be honest. i think the house of lords felt like they would do the deal, being executed, then that would halt chances actually of us leaving out a deal. i think what it does is -- i think what we saw last week was that it's really clear both sides want there to be a deal. in terms of any agreement reached -- there's people on both sides who say you've dividend, capitulated. the truth is, there were negotiations with opening positions, neither with going to be met. they met somewhere in the middle. mark: let's talk about the next stage, given that we are expecting the european council to rubberstamp in tomorrow. it's the hard part of the negotiations. you don't trade well in your previous guide. tell us how it goes; how do you negotiate a trade deal in a short amount of time if it starts in march? how do you negotiate a trade deal in that short amount of time? francis: you don't negotiate every last. and,, because what by -- brexit is a framework. that has to be something more than a few sets of agreements. the british side will absolutely need to see the outline of what it's going to be. standard model stash that's nonsense. every model of areas is the spoke. this.s no textbook for we are not starting with a blank sheet of paper. all these other ones -- are starting point is that there are no regulatory areas. the negotiation is not about removing barriers, which must trade agreements are about; it's about what you want to arrest. quickly,be done because, because the eu doesn't do things that way. the eu likes to play it tough, and sometimes overplays its hand . their first phase negotiations. this can sometimes go badly wrong and in no damaging one. it certainly won't be done quickly. mark: what is your best guess? francis: it will be somewhere between canada and norway. don't think anyone seriously believes we will end up with tariffs on goods between the u.k. and the eu 27. that would be praising. it's a question of how far it goes. this is just about trade; there are issues about security and intelligence corp. -- corporations, and there's a complete agreement on both sides trade we want to maximize that. mark: wouldmark: they be able to seek trade deals with other years?es, over a two francis: but city the u.k. leaves the customs union, which inwill be on brexit day march 2019. it is legally possible to sign trade agreements with other countries. agreementslso trade -- with a lot of other countries. some of those have made it clear that they would be effectively making the arrangement open to done,k., but how that's among other things. that would be simple. mark: quick final question: does theresa may laugh through march 2019, or not?i don't see any reason why that francis: won't happen. mark: good answer. thank you for joining us, francis maude. up next, a look at an important vote on the roles of net neutrality, what they could mean for online companies and consumers. this is bloomberg. ♪ ♪ mark: you're watching "bloomberg: surveillance." i'm mark barton in london. the u.s. regulated the federal communications commission is expected to vote later to repeal the obama era internet protections notice of net neutrality, designed to make the internet it will for all. what happens if the vote goes through? bloomberg's editor at large cory johnson explains. ♪ --ey: just as intimate government rules crater the interim step -- internet highway, the creative superhighways, what a useful metaphor. what a better metaphor, is when the controversy down the of net neutrality has a drive on the internet superhighway. on the ride?gas guzzling beasts , this mustang gt. ,hink of this car as a metaphor hulu. interstate is the backbone of the internet. owned by some big companies like at&t. travelers haveow this piece, until we reach the exit. have its own by small group of internet service providers like comcast, verizon. without net neutrality, the last mile will have different rules of the road. now, we are hitting traffic. without net neutrality, an 18 wheeler monster truck could have a task for everyone else. they could buy their own fast lane, leaving competitors in the dust. neutrality requires everyone to be equal, and the obama era fcc --to to codify those in 2000 2015. now, they want to unwind those rules, abolishing the neutrality, potentially leading people decide the winners of the world. mark: that's -- bloomberg surveillance continues in the next hour. nejra cehic will be here in london. they will be talking to goldman sachs as makela dela. --s -- makela delavan yet excuse me. this is bloomberg. ♪ tom: this morning, prime minister may escapes to brussels --er the rebels to be her defeat her and parliament. the force is with parliament. no word on whether ms. may will have a private screening of "the last jedi." chair yellen and president trump flat-out disagree on the audacity of 4% gdp. tax-cut legislation is not a done deal. collins, rubio, corker are more than uncertain. the center from arizona is grievously ill -- senator from arizona is grievously ill. , luke skywalker in london, what an extraordinary headline yesterday, this defeat for the prime minister. it is not "star wars." this is real. nejra: it is real. you may have thought she would be going back to brussels on a victory march, but she suffered this defeat at home. parliament will get to vote on the final deal -- they will get a meaningful vote. perhaps, we will get a bit of a softer brexit. even though the electorate voted to leave the eu, lawmakers actually didn't. in order for the vote to not block the final deal that she iss, what we could see finally the deal looking a little bit softer to basically placate lawmakers in parliament. here is taylor riggs with our first word news. taylor: a surprise move from central bank. unexpectedly raising borrowing costs following the fed's announcement that it was raising rates. president trump is promising average americans the giant tax-cut for christmas. he made his closing argument yesterday. he said a family of four earning $75,000 would get a tax cut of more than $2000. in saudi arabia, the government is unveiling in $19 billion stimulus program to boost private-sector growth. the saudi commerce and investment minister tells bloomberg the government hopes the stimulus will create jobs. inbal news 24 hours per day more than 120 countries, this is bloomberg. tom: thanks so much. data check right now with real movement during the press conference yesterday of chair yellen. futures up 4. euro stronger. oil is oil. we are going to do a good section on oil in this hour. on the vix, those great equity markets still under 10 with the dow at an exceptional level, as well. but of the two sterling pairs to dazzle nejra cehic. nejra: you have dazzled me, tom. we kind of swapped roles there. a little bit of softness coming through in european equities. the bloomberg dollar index, we like showing that. holding the losses yesterday. you can't keep the dollar down against the yen. also, that 10-year yield coming back up after dropped six basis points yesterday. tom: here is the chart that chair yellen knows and mr. trump does not know. this is real gdp. 0% down here. faintly, you can see some of the recessions. i've hidden that. here is the four-year moving average. up here is 4% gdp. you can see how rare eight 4% sustained gdp has been over 40 years. the president's call is a difficult one. here is chair yellen. chair yellen: changes in tax policy will likely provide lift to economic activity in recent years, but the magnitude in timing of the macroeconomic effects of any tax package remain uncertain. tom: very good, chair yellen. chair yellen speaking at the same time as the president of the united states yesterday. these headlines literally came out nine minutes between each other. the president predicts economic growth of more than 4%. later on, michael mckee asked chair yellen, what do you think? ,he says, with grace challenging to achieve gdp growth of 4%. that leads us to two most interesting guests. steven kean is with us, economics professor. and paul donovan with us, always controversial, as well. paul donovan, let me begin with you. gdp, we have 4% not seen that recently, have we? paul: no, and with the demographics of the united states, i would say that challenging is a polite understatement. trend growth is not difficult to calculate. how many workers do you have, how hard do they work? unless the united states is going to have an aggressive immigration program encouraging people to come into the country, which i think we can say is relatively unlikely, it is very difficult to see the united states achieving the sort of productivity growth which would generate 4% gdp. steve, is thehis, idea that creative destruction -- how is the president doing with the hopes of 4% gdp and with a tax cut for legislation in distracting and what exactly is he distracting in the united states? >> i don't know if he is destroying anything except the wall, which he is not building. [laughter] >> i think he is to the confidence of the republican party. he is talking about a stimulus package cutting taxes. congress nature of the , i think he will achieve the stimulus courtesy of a large boost to the economy. whether that leads to industrial development i think is highly unlikely. a lot of this money is going to go offshore. nejra: one of the things that struck me as well is that janet yellen did have to address the matter of the yield curve and that does link to growth. it shows the relentless flattening we have seen. janet yellen telling the markets not to worry too much about this and to make the distinction between cause and correlation call. absolutely. i love the fact that her final fact was correlation is not causation. that is how any economist should go out. steve: she is not taking on the impact of that increasing rate she is trying to push through. this is where i think mainstream economics is incredibly flawed. they don't think there is a relationship between level of private debt and credit demand that you can get. the level of private debt of 1.5 times gdp, twice what it was 30 years ago. as you put those rates up, that will cause people start deleveraging again and that will take the stimulus out of the economy. paul: i'm not sure how much aggressive deleverage we get. steve: it does not hit the corporate sector much more in the household sector in america. point paul, given steve's and the fact that we have seen in 2018,lot unchanged should the fed be doing something differently? paul: i think the fed is on the right course. i think the quantitative policy stance is good. the fed should not be printing money, it should be reversing that. what they have done pretty preibly is they have -committed. normally, i don't like pre -committing to policy in the long terms. steve: i'm going to disagree with you. they are putting up rights, they are going to make it more likely for the private sector to deleverage. that is what caused the crash in 2008. if they are putting rates up, that is a pressure to make the private sector start reducing and taking demand out of the economy. qe has driven the stock market up. nejra: this is just normalization we are talking. paul: they are putting rates up in the fed funds rate, that is not the economy. steve: it does pass through to what the banks charge. paul: not really. steve: their target, there are three numbers that dominate the fed. 2% rate of inflation, 3% rate of economic growth, 4% rate of interest. this is a spirited discussion we would like to have with mr. donovan and mr. keen. what would suggest is that we can all agree on the vector of potential gdp. let me start with you, paul donovan, grinding it out every day at ubs. where is potential gdp for western society? where is potential gdp for the united states of america? the answer is low, isn't it? paul: real potential gdp for the states, 2.25%, 2.5%. steve: i would agree with that. nejra: you agree on something! [laughter] , jpmorgan is sub -2%. this is critical. that is politically an acceptable to politicians in a democracy. in a democracy, politicians cannot go out and sell hopes and dreams on a numeral 2% potential gdp, can they? steve: they can to some extent if you have a low level of population growth. it is not how workers work, it is how good the machines are they are working with. that is still in 2% real level of increase in income. they will change their narrative to make it justifiable. i don't think we will reach 2%. tom: go ahead, paul. paul: the other issue is that there is enormous amount of imprecision with gdp. tom: agreed. paul: if you look at the revisions, they are massive, they come two or three years later. with the technological changes we have seen, the blurring of private and public an investment and consumer spending, i'm not sure we're looking at the right indicator at all anymore. standard of living is not gdp. tom: some of the spirited discussion we will have with professor keen and professor donovan from ubs, as well. lots to talk about. coming up, and important recent essay on the u.s. dollar also, on brexit and sterling. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." it will be the biggest deal ever for the world's largest entertainment company. disney is expected to announce it is buying a chunk of rupert murdoch's empire. disney will acquire the 21st century fox film and tv studio, cable channel, and international assets. the deal is valued at about $60 billion, including debt. a security software maker has rejected a takeover bid. the city offers significantly undervalues the amsterdam-based company. they cited doubts about the deal's strategic rush. atos says it is pressing forward with the offer. nejra: thanks so much, taylor. theresa may escaped to brussels after an embarrassing defeat by her own party. the ukip prime minister's -- the u.k.ost prime minister's government lost voteo giving parliament a on the brexit deal. , kingstonh steve keen university economics professor, and paul donovan, global chief economist at ubs wealth management. are we going to get a softer brexit? the hard brexit was never going to get through. theresa may's capacity to make political blunders is simply breathtaking. python think monty conscript a better prime minister. nejra: paul, what implications are there now? paul: i think there are very little implications in the near term. this does not change a great deal. i think that the bank and the financial markets and the wider economy was expecting progress. we've got progress and we are going to spend the next year with boris johnson giving us a running commentary every week and we are going to get the volatility that will generate and the bank will keep plowing through. it is noise. the amount of the session about brexit is a similar obsession about austerity measures. brexit i think is indifferent when you look at the change in the exchange rate and the change in government spending in the country and credit policy. nejra: the bank of england has tied and said it will tie forward guidance to help brexit evolves. we are expecting a smooth brexit. steve: that was not what they were saying three years ago. they were saying there would be a 6% fall in gdp, ok? extent to which economists over exaggerated the damage of brexit and under exaggerated austerity impact -- paul: governor carney -- tom: governor carney is going to write a love note to somebody -- can the be good or bad inflation? what kind of inflation does the united kingdom have right now? inflation atot 3.1%, perhaps. it was reported at 3.1%, but the number is revised so often, it does not mean it is 3.1%. we will see base effects drop out. we sometimes hear this is negative real wages. that is absolute nonsense. is takinge are doing an individual average hourly earnings and they are subtracting household cti from it. i don't think the real consumer spending power has been too badly damaged. i think it has been eroded a bit , but nothing like some of the more sensational elements of the media have tended to put out. steve: only about 1/5 of the 50% value of the fall in the pound -- 15% of the value of the fallen the pound has been accounted for. stay withve and paul us. stay with us for all the latest from the ecb. presser,mario draghi's as well. this is bloomberg. ♪ tom: good morning, everyone. "bloomberg surveillance." nejra cehic in for francine. we need to touch upon the value of bitcoin. we have many different discussions. the winkle lost -- winklevosses provided interesting perspective. just just of stiglitz would say, are you ,idding me -- joseph stiglitz are you kidding me, he would say. paul donovan and steven kean join us. i've been dying to talk to about this, steve. the supporters of bitcoin wander back to marxian theory to create a value for bitcoin. i've even seen analysis talking of thehe thermodynamics economic system, which create a value. where is the value in bitcoin, if you were in classic kingston right now, how would you draw out the economic realities of bitcoin? steve: i would talk about two functions that bitcoin and money have in general. one is a store of value. the store of value does not change too much. bitcoin is going atmospheric as we know. the other is the use in transactions. you can't call something money if you can't use it in transactions. that corn is going to double on a monthly basis. you would be an idiot to buy anything else with it except more bitcoin or more machines to create more bitcoin. it is self-referential in that sense. many transactions can it handle? i'm not an expert in bitcoin myself, but i know a bit about money. experts claim that it can support only 14 transactions per second. there are a few more transactions than that on an economy of any scale. tom: that speaks to the littleness of it. here is the futures arbitrage narrowing. the white is the cash market, the red is the futures market. we have arbitraged into a nice gap. does the futures markets legitimize bitcoin? paul: no, i don't think they do. the analogy i always go back to is in 1636, the city of amsterdam introduced cash-based value on to look bold --tulip bulbs. this gives you a way to get exposure to it, but it is a bubble. a bubble is a bubble, no matter how long you look at it. nejra: steve, you bring up bitcoin in your book, "can we avoid another financial crisis?" in terms of how it fits into the system, is bitcoin destabilizing? steve: i think it is destabilizing. the interesting thing about the coin is they are trying to get rid of a trusted third party, which has been the essence of commerce for centuries. they say tois -- trust the algorithm instead. that is an interesting debate. that is a combination of the block chain, plus the centralized backing, but i don't think the decentralized can work. there is so much network traffic necessary to validate it and computing, so i think the priced must plunge on that basis. tom: we are going to have to leave it there. paul donovan will come back. steve keen, thank you so much for being with us. this is bloomberg. ♪ nejra: i'm in a rich a etch in london -- nejra cehic in london. tom keene is in new york. francine lacqua has the morning off. paul donovan says economists should not make forecasts. models give a range of possibilities. let's get back to paul donovan and steve keen. brought that to light with the right intonation. interesting comment. how can investors know the world is doing ok? i think they can know that by the fact that the triggers for a recession are not immediately before us. i think they can know that by the fact that we are continuing to see relatively good strength in labor markets, which is providing a degree of household income, a degree of support to the economy overall. so, for the next 12 months, which is all investors tend to focus on, think we are doing ok. i'm not cheering wildly, but it's fine. nejra: steve, do investors or economists to get too drunk on the decimal points? steve: absolutely. they make absurd assumptions. know the bliss point. it is nonsense for most people. these sort of things are getting completely in the way. i would say the world, half of it is doing ok because it had a crisis in 2008, but there are plenty of countries i call the zombies to be in my new book and that includes china, canada, australia, south korea, belgium, norway, sweden, singapore. slice of their global gdp if you put those together. nejra: these zombies to be in your book that you .2, the big issue is debt. steve: i think the -- paul: i think the issue around debt is how big a problem does it create? the question i was asked is who do you all the money to? do you all the money to yourself? bank. i don't own a this is a difference. i owe it to you. if you owe it to a bank, that is very different. if i pay it to the bank, the money disappears. when you repay a bank, the money falls. paul: but the policymakers can still intervene. iowe money to a bank because have a mortgage the size of the national debt of bolivia, but the central bank is lowered rate. nejra: let's let tom get a word in. tom: professor keen, what is the outcome for the united kingdom if labor takes over and mr. corbin's prime minister? steve: i think there will be fairly substantial government stimulus which they can afford because they are their own central bank. nobody objects to a pound note turning up in the bank account courtesy of the bank of england or a government deficit. it is economists fantasizing about money that they frankly don't understand. tom: that will be something to speak about in your next visit. mr. keen, always stimulating. thanks to mr. donovan and mr. keen for spirited conversation. we have much more coming up, including further discussions on bloomberg radio this morning. right now, first word news with taylor riggs. taylor: outgoing federal reserve chair janet yellen is not buying the idea that the republican tax cut will lead to a significantly stronger expansion. she suggests that policymakers will have a modest to short-term effect. house republicans are daring senate democrats to shut down the government next week. they have added a military spending bill to a resolution needed to keep the rest of the government open after december 22. senate democrats have warned they won't go for more military spending without a similar increase for nondefense programs. the international energy agency says it will not be a happy new year for opec and its allies. the cartel has been trying to dry up the oil glut and shore up prices, but new supplies from u.s. shale drillers and other competitors may grow faster than demand next year. global news powered by more than 2700 journalists and analysts, i'm taylor riggs, this is bloomberg. nejra: thanks so much, taylor. let's turn to oil. according to our next guest, consolidation is the name of the game for the next stage of the oil world. delighted to have you with us. walk us through your thesis for this stage of consolidation. >> thank you. i think it is a very exciting time for the oil sector. the way we see the cycle involving is we have been through 10-15 years of the investment cycle where we get of the oils come price is higher, we get easy funding for all projects. that looked like a great time for the oil sector, but it was a horrendous time. everybody ate their lunch. we know where the new oil resources are going to come from. the shale has sorted out the problem of shortage resources. the industry can focus on developing them efficiently through a good layout of infrastructure. nejra: what does this consolidation look like with the big oils? are they gobbling up smaller players? or did they become more concentrated in what they are doing? michele: the interesting thing is that the consolidation is happening even without an monday -- m&a. a lot of the competitors came in and are finding it so difficult to fund themselves, particularly through the reserve-based bank lending. suddenly, they go back dominating the market for big new development. in the last 10 years, when we look at mega-projects, we had 50 companies sanctioning them. in the last three years, the seven sisters dominated this development, they took 90%. we are back to a concentrated market, like we had in the 1990's. tom: congratulations on a really thought-provoking report. the romance of this is daniel juergen's surprise. , somethingen sisters as the standard oil company of new jersey, which became exxon and exxon mobil, there is a new seven sisters, but they've got to deal with the same headache, which is dealing with governments. what is going to be the dynamic of the new seven sisters in dealing with governments that do not want to give them profits? michele: so, what i find very exciting here is the fact that the governments of the oil-producing companies want investment, they needed to keep employment, they need it for economic growth. when you only have seven big oil's with the financial ability and the ability to manage technical and political risk to actually invest in major new development in these countries, the balance of power in negotiating regulation, tax rates is going back to big oil. they go oil is able to negotiate improving tax terms in all of these countries. i just wanted to ask what this would mean for dividends. this is one of the most important things for investors when they look at oil majors. michele: dividends have been challenge for the last 10 years. we have deteriorating free cash flow from these companies. with this new capital efficiency , with this ability to generate structural deflation through the system, dividends are becoming not only sustainable again, from the fourth quarter of this year, we fully fund dividends and through organic cash generation. we think there will be surplus free cash flow. first, they removed the script that has diluted shareholders by up to 15% in the last few years, then they do incremental buybacks. tom: i love the theory, the seven sisters or the four ex-wives, i will leave it up to you, but the idea that they have to run up against a shale industry and the financial and technical elasticities of shale. how do they deal with shale? i think the way they deal with shale is that in this two keyd order we have sources of production and we need both of them. long cycle production will be dominated by the seven sisters. short cycle production, which would be shale, which we think will consolidate overtime, but because financing is so much easier there because it a short cycle, because the technical and political risk is low, we are seeing a lot of fragmentation. we did a quick study looking at the economics of all of the global oil and gas fields and the big change is that although shale keeps getting marginally better come the deposit developments are getting so much better that the now fit lower than shale on the cost curve. that is what big oil can come back with higher returns. tom: this is fabulous. michele della vigna with us from goldman sachs. and paul donovan. don't call us at "bloomberg surveillance" for these research reports. we protect the copyright of all of our guests. we always protect the copyright of jon ferro. a remarkable team. ferro, fox together. this is bloomberg. ♪ putin russian president holding his annual news conference in moscow, effectively kicking off his election campaign for a fourth term, assuring russians that the economy is rebounding. that is what you are seeing there. president putin of russia holding his annual press conference. saying, i hope the russia and u.s. will eventually normalize their ties. got a few headlines from president putin saying u.s. voters should evaluate trump's work, not russia. as i say, there we go, holding his news conference. we are turning to oil. the international energy agency has predicted opec and its allies may be denied a happy new year by cutting production. inventories have been reduced to the lowest in two years. supplies outside opec, led by u.s. shale drillers, may grow faster than demand in 2018. still with us to discuss is paul donovan and michele della vigna. great to have you both still with us. paul, we were talking about michele's report to do with the oil industry and the oil majors. if we look at the market, are we getting to rebalancing at any point? paul: there has been an element of rebalancing. the price has drifted up to either side of $60 depending on the price you are looking at. we have achieved a degree of stability. this is not what some of the gulf states want. is perhaps a more normal level, given the supply we've got with shale, given the levels of demand, we've still got very energy intensive consumers like china and the states growing. i think there is a degree more balance that has come in. nejra: what is your view, michele, in terms of u.s. supply soaring? michele: without doubt, u.s. supply is going to grow in 2018 and is going to accelerate. the fictive tremendously through the summer. what that means is u.s. supply will accelerate. we think demand will be so strong in 2018 at about 1.7 million barrels per day that there will be space for all of the u.s. growth, for the rest of non-opec growth, and still for opec to selectively grow in some of the countries, particularly those that are returning to iran,, such as iraq, libya, nigeria. overall, we see a balanced market for 2018 was a successful opec strategy to effectively digest inventories until the end of the year and then keep it balanced market through 2018. market is a testimony that this process is working. tom: let me bring up a long-term chart, and approximation taking oil back 50-60 years. if you adjust for inflation and adjust for rising incomes across the western world, you get a chart like this were oil is dirt cheap and migrates back to where it was in the 1970's and 1960's. that is all great, but oil is linked to the u.s. dollar. what are the ramifications if we get a stronger dollar next year? the money flows into a prosperous america, what does it do to the price of oil? michele: i think the relationship of the u.s. dollar with the oil price was incredibly strong in the past. to be fair, the oil imports were the key driver of the balance of payment. i think that relationship becomes weaker as the u.s. is on its way to become an oil exporter. i would not necessarily relate those two has strongly as they have been related historically. i think the key driver of the oil price is going to be global gdp and global demand growth, which we expect to be strong in 2018. tom: go ahead, paul. paul: i was going to say that i would argue that it is the wrong way around. i don't think the dollar is going to be stronger next year. one of the contributing factors is that opec is still pulling money out. , theoil where it is physical positions remained relatively weak. saudi is throwing more money at the economy. where is that money coming from. they liquidated their assets to pull the money back. i think the lower oil prices we are seeing is a net negative in terms of shifting money away. to you at ubs have a best price for oil, saudi arabia, and the royal family? no, we don't. we don't get quite that granular. things have changed in saudi arabia to the extent that the government has recently acquired some new assets from the private sector, though those assets potentially could be used to plug the deficit over the next few years and allow saudi to cope with the oil price well maintaining an aggressive infrastructure program. nejra: michele della vigna, thank you so much for joining us on "surveillance." wealthl donovan from ubs management stays with us. take a look at tv . you can watch the program lies, you can also look through all the charts we have put up through the show. click into them and save them to your own bloomberg. you can see all of the headlines, as well. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." airbus directors are meeting today for a pivotal review that could determine the future direction. there is a report that the ceo plans to tell the board he does not plan to stand for a third term in 2019. airbus is bracing for big fines in a bribery investigation. the saudi-led blockade of qatar is showing up in the airline. >> our bottom line will be affected and we are still giving a profit warning. we will have a very negative line.is-à-vis our bottom as far as passengers are concerned, we are hoping that we will be very close to the number of passengers we carried pre -blockade. taylor: the saudi's, the uae, qatar backsclaims extremist groups. qatar denies it. tom: there is quite a press conference yesterday with chair yellen. this morning, it will be all business for mario draghi. 7:45.b will meet at we will have coverage. paul donovan with us of ubs. what will you listen for from mario draghi? paul: i think it is the extent to which the underlying dovishness of mario draghi is again. to peek through we know what happens the next few months, they have pre-committed. the question is how quickly do they stop buying bonds. the need to stop buying bonds. this is not a necessary policy anymore. to the get through the nine-month scheduled bond buying program and go to zero in october or are they going to taper after that? and the tone and the language of mario draghi. the extent to which the german faction bullied him into agreeing to a longer-term scaling back, that is what we are going to be looking for. nejra: also, we get the 2020 forecast for the first time. how important will those be for you? paul: not something i'm going to be anxiously waiting for to be honest. it gives you a very vague idea about where the economists of the ecb are thinking the economy might be going and allowing all the imposition of forecasts. what they don't really tell you is where the policymakers themselves are necessarily expecting growth to go. there is a disjoint between these groups. tom: one final question, if we could. as we look to europe and the run rate of the gdp, the president has confused us with 4% gdp in america, what is the appropriate run rate for european gdp? i've lost that number. paul: that number is probably roundabout 1%, give or take, for the eurozone, excluding some of eastern europe and the u.k. , that doesnce here not mean that european standard of living are falling relative to standards of living in the u.s. the european population is very different, we have an aging population, some countries have a declining population -- you don't have that in the states. it is the demographic story, the population growth. tom: paul donovan, thank you so much for being with us. after the janet yellen yellen press conference, the markets move. maybe the fed will move to an interesting 2018. coming up, julia coronado. we will do that next on "bloomberg surveillance." , thelondon, from new york day of the ecb, the bank of england. this is bloomberg. ♪ tom: this morning in london, prime minister may escapes to brussels after the rebels defeat her in parliament. with parliament, only they have the power to veto brexit. no word on whether miss may will have a private screening of "the last jedi" this weekend. she will not disclose which dot is her dot. michael mckee, how rude! the odessa the of 4% gdp. -- audacity of 4% gdp. the tax-cut legislation is not a done deal. are moreollins, rubio than uncertain. the senator from arizona is grievously ill and resting in the hospital. nejra cehic in for francine lacqua, the prime minister is escaping to brussels. how will should be greeted in brussels? nejra: we have always got the sense that the eu does want to move this forward. ironically, where she seems to be up against the most pushback is in the u.k. we have heard that tory lawmakers and lawmakers in general are going to be able to have a veto on this final deal. do we end up with a softer brexit? of parliament gets a veto on the final deal to avoid that, what we might end up with is a softer brexit so we don't get no deal and basically revert to wto rules. tom: extraordinary headlines yesterday afternoon in the middle of our fed show, here is this vote out of parliament crushing prime minister may. right now, she crushes first word news, here is taylor riggs. taylor: president trump is promising the average american a giant tax cut for christmas. he made his closing argument for a tax deal that republican lawmakers signed off on yesterday. he said a family of four earning $75,000 would get a tax cut of more than $2000. british prime minister theresa may heads back to brussels after serious defeat on brexit the hands of her own party. theakers vote it to change planned legislation, parliament will get a vote on the final deal to leave the eu. a surprise move from the bank of china raising borrowing costs. the pboc boosted rates it charges in open market negotiations by five basis points. in saudi arabia, the government is unveiling a $19 billion stimulus package to boost private growth. the saudi commerce and investment minister told bloomberg government hopes the stimulus will create jobs. global news powered by more than 2700 journalists and analysts, i'm taylor riggs. tom: taylor, thanks. breaking news and using the bloomberg to give you the snapshot of what it means. turkey out with 8% level on their benchmark rate. they say they are going to whip inflation now. here is dollar-turkey, not euro-turkey. we have a stronger turkish lira in recent days across the month of december. we give a good part of it up here. that is pretty cool that we can do that so quickly. let's go to the data check right now. i want to do this quickly. we have a lot to talk about with julia coronado, another esteemed guest. futures turning. there is the sterling pear -- pair. nejra: i have quite a few u.s. assets here. the bloomberg dollar index fairly steady after losses yesterday following the fed decision and janet yellen's press conference. the 10-yearid, yield recovering a little bit. tom: very good. lots to talk about. right now, let's set the scene. i'm working with a chart we will get up in a minute. let's set the scene to read, extraordinary to see a chair of the fed and the president talking at the same time. let's begin with president trump. president trump: our economy has already surged to 3% growth far ahead of schedule in each of the last two quarters and if we did not have the hurricanes, we could have hit 4% last quarter, a number that was unthinkable two years ago when i started the campaign, and even my first month in office. number. an unthinkable i will to you what, it is going to go higher than that. chair yellen: changes in tax policy will likely provide some left to economic activity in coming years. the magnitude and timing of the macro economic effects of any tax package remain uncertain. let's go to the bloomberg headlines yesterday. i told scarlet fu i had never seen this. within eight minutes of each other. the president predicts economic growth of more than 4%. right behind it off a question by michael mckee, yellen graciously challenging to achieve gdp growth of 4%. he was gracious to attend the backvities, he resides comfortable and toasty warm in our washington studios, kevin cirilli. i see confusion in the media over whether the tax deal is done. is it really done or can senators block it? kevin: it is not done right now, tom, but it is going to get done by early next week. have spoken with several sources, including lawmakers who asked not to be name in the republican party, and they told me there is really no way that this does not get done. leader mcconnell says it is going to be done by the first half of next week. there are a couple of holdouts, but the holdouts and their languages what they are -- is very different than during the health care debate. tom: what is the impact of sender -- senator mccain being so ill in walter reed hospital? kevin: you know, it is a very sad situation and everyone is hoping for the best for him on both sides of the aisle. he has such a strong reputation nationally, as well as in the senate. from a political standpoint, if he would not be able to vote, then the republicans would need to pick up someone else as a result because that would mean a no. what are some of the outstanding issues? i understand there are two senators slamming the tax cuts for the rich. what was focused on mainly by janet yellen was the corporate tax cut. kevin: yes, you are absolutely right. this is an unpopular tax plan right now. if you look at polls, the majority of americans think that it would only benefit the rich, so i think that is what you have people like senator ron johnson arguing for a lowering of the rate. there is some concern about the state tax deduction illumination. should they eliminate that or how they do that? again, the bottom line is that folks are still moving to a yes and the momentum is still on their side, according to the sources i've spoken with. tom: kevin cirilli, thank you so much, good to have you back in washington. i want to show you a chart of the drama yesterday on 4% gdp. julia coronado knows this. here is gdp back 30 years. i blocked out the noise. there is the presidential for your moving average. -year moving average. all you need to know down here is a 0% and up here is 4%. i love this, julia. the unthinkable 4%. the president is right. it is rare, it is unthinkable. chair yellen pushed back. how does the president migrate from here to here with the demographics, the population growth, and the productivity structure of your america? julia: i think that the president is not actually issuing a forecast per se. [laughter] i don't think he is in the forecasting business. he's in the marketing business. i would not put too much emphasis. chair yellen was extremely and howic and gracious she cast some doubt on that number. it is true that the economy is humming along quite nicely. we don't need 4%. 4% would probably be too hot for us given her demographics. tom: the only single point estimate the president has is to cheeseburgers and a malted. good morning, mr. president. i hope you're watching. if you are not watching "fox and friends." [laughter] it is not bad for you. it has to come through the channel of productivity, however. as thenot growing population growth is very low. true that is growth has become more balanced, productivity has improved. that is pretty decent. it is not going to get to 4%. it has gotten us to 3%. that is very good. is through nonproductive labor market utilization when we are at full employment -- if that is the case, that can read this lead to resource misallocation and inflation and overheating. interrupt, i'm glad you brought a productivity. we talk a lot about this being a problem. duta has argued that productivity is improving if we know what to look. are we being too pessimistic? julia: the fed forecast is always presumed that we would see a rebound eventually. they were criticized for years for being too optimistic because the rebounds did not materialize. i think with the synchronized global upturn we are seeing better investment, better trade numbers, these are the kinds of things that duly to better productivity. before, we were relying on u.s. consumer spending, a lot of service spending. we have seen a better balance of late with this global upturn. that is good news. coronado -- julia coronado with us. a measured view of the u.s. economy. stay with us. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." there will be a change at the top of ubs's wealth management group. the current chief is stepping down from the job. martin blessing will succeed him. ubs is not saying why the current chief is leaving. security software maker gimalto has rejected a takeover bid by atos. they cited doubts about the deal's strategic rationale. atos says it is pressing forward with the offer. it will be the biggest deal ever for the world's largest entertainment company. disney is expected to announce it is buying a chunk of rupert murdoch's empire. disney will acquire the 21st century fox film and tv studio, cable channels such as fx, and international assets. the deal is valued at about $60 billion including debt. tom: taylor, thanks so much. i want to bring up this chart right now. this chart is a little hard to see, but it is so important. i think we've got to bring it up. here's what mr. murdock wants to keep. these are in billions of dollars. this is sean hannity, fox, all of that, fox business. this is the fox sports assets. down here are the stations, as well. here are the parts of fox they want to unload. that is a good precursor. exactly what is fox giving up? >> they are giving up entertainment assets. the strategic thrust of the transaction seems to be for disney to feed their content machine for a direct to consumer product. tom: i go with that 100%. is it critical that a strategic success for mr. iger that he take over all of international sky? some investors are scratching their head as to the necessity of doing that, but sky has a very prominent place in the u.k. and germany and italy. they have a great platform. disney is not there in the same way that they are in the united states. nejra: and what does this mean for disney's film strategy? >> obviously, it unifies two of the original big six studios. it unites the marvel universe, which some fan boys will be happy about. they get some input into "avatar ." they get control of the original "star wars," which fox still owns the rights for. they get control of a large television studio. nejra: according to people familiar, 21st century fox will maintain its real estate portfolio, including the movie lot in los angeles. what do you make of that? >> i don't know whether that will mean they will be moving the means of production from that lot -- probably not. all of the hollywood lots sit on very valuable real estate in california that can be redeveloped for a higher and better use. tom: chris, you are grizzled, cynical, what the hell is the backstory here? what is going on with all of these egos? twoiger, mr. murdock, the young murdocks. what is the real story in this mating? >> the family dynamic is interesting. it has been an awkward triumvirate. there is some thought that that awkwardness is perhaps driven this transaction. i don't know how much truth there is to that. i think one of the questions from the transaction will be is does james murdoch have a place in disney? some have speculated about that. tom: how do you respond to those who don't have a raving buy on the future of disney? some are pretty negative. how do you respond to the doubters on mr. iger's business? >> one of the questions raised is if the murdochs feel like fox is not big enough, who is big enough? disney has made the decision to go all in on direct to consumer. they are still only half the size of some of the big companies they are competing with. tom: i think the scope and scale, the size, is critical. i think there -- that we are watching of this merger can happen today, tomorrow, or before the tax cut legislation goes through. we are going to continue with a spirited discussion. i think michael mckee has taken the "surveillance" gulfstream back and we will see him within the hour. stephen hoffman, you know him as reddit, the chief executive officer, he darkens the door in london, 5:00 p.m. today. this is bloomberg. ♪ surveillance." major shout out to scarlet fu who does not have the flu. francine has the flu. had terrific fed coverage yesterday. ecb later in this hour. right now, we need a clinic on global central banks. ilya coronado is perfect on this. -- julia coronado is perfect for this. john hicks, 1939, invented the architecture, the so-called iflm model. we do euclidean geometry on tuesdays. we are not doing it now. [laughter] going to talk about the structures. does the model still matter? julia: yes. the basic frameworks are still in play. they have had to recalibrate the normal neutral fed funds rate. central banks still work through the same stimulating demand channel. attenuatedl has been and inflation has yet to show up in the way that they have been expecting. that is why the message yesterday was perhaps a little bit to the dovish side relative to what the market was expecting. nejra: which of the global central banks is getting it right in this new paradigm? julia: i think right now the banks with the easiest job is the ecb. they still have plenty of scope to let the economy run. their policy has really gotten traction. they are seeing this lovely upturned. they are kind of mid. they can let it run. inflation is not a problem. wage growth is not a problem. mario draghi can sit back today and look happy and satisfied with where they are. i think where the fed and the bank of england are, that is a little bit of a tougher , especially the bank of england. they are looking at lower potential growth. that is not a pleasant situation to manage. nejra: has janet yellen made the job easy for jerome powell? julia: absolutely. she has managed to the committee extremely well. she has put in the framework for managing the committee, a strategy they have all agreed upon. and keepke the reins that strategy rolling. that gradual, patient, data-dependent strategy. nejra: julia coronado stays with us. for more bloomberg stories, check out the latest issue of "bloomberg businessweek." out on newsstands friday. this is bloomberg. ♪ cannot live without it. so if you can't live without it... why aren't you using this guy? it makes your wifi awesomely fast. no... still nope. now we're talking! it gets you wifi here, here, and here. it even lets you take a time out. no! no! yes! yes, indeed. amazing speed, coverage and control. all with an xfi gateway. find your awesome, and change the way you wifi. >> everybody on wall street has wanted to ask for four years since this is your last press conference can you tell us which dot isyours -- which yours? coming up on i've never been >> -- i've never been willing to reveal which is mine and i'm not going to now. tom: the chair from brooklyn and hair final moment at the press --ference of 15 cost chair with the honor of final question to chair yellin, michael mckee. what was it like to go last? , whatit coin questions was it like to go last? mike: i was glad to get called on. it was an honor to ask the chair her final question as the news conference. a very interesting performance by janet yellen because she explained in depth what the fed is thinking and what they don't know at this point. tom: it's a joke and she laughed but unfortunately it is not a joke to serious economist. your are the dots. -- here are the dots. we don't know who's this one or this one. you've got to presume the chair is the center. -- hethe bottom. is refuses to put in dots. probably somewhere in the middle is janet yellen. the people -- the reason people want to know is because the committee generally follows the chair. the chair follows the committee. she talks to everybody in between meaning she knows where they are. she can position herself so that the majority kind of comes together. tom: we were all scrambling on the president cost 4% comment. ut that up dutifully. what was the common knowledge in the room about getting to 4% real gdp? mike: janet yellen made the point well that nobody knows because we don't know the final details of the bill exactly what will happen. the research done by independent analysts suggest you will get much more than 1/10 or 2/10. that is the kind of information -- nobody expects a whole lot. tom: congratulations to you and craig torres. incredibly smart moments within the press conference yesterday. michael mckee, head of our international economics here. let us get to the news read here is taylor riggs. taylor: house republicans are bearing senate democrats to shut down the government next week. a militaryed spending bill to a resolution needed to keep the rest of the government open after december 22. it's in a democrats have warned they will not go for more military spending without a similar increase for nondefense programs. three women have accused russell simmons of rape. according to the new york times, some of the alleged incidents occurred as far back as 1988. simmons denies the allegations and says his all -- and says all of his relationships have been consensual. the international energy agency says it will not be a happy new year for opec and allies. the cartel has been trying to dry up the worldwide oil glut and shore up prices. no supplies from u.s. shale drillers and other competitors may grow faster than demand next year. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. raikes.or this is blue -- i'm taylor riggs . this is bloomberg. nejra: the swiss national bank raised its inflation outlook, -- theythe swiss lower will intervene in currency markets if needed. bloomberg spoke with s&p president thomas jordan. >> not at this point. you have to see what the inflation pressure and risk is very low at this moment. a little bit high in elation because the exchange rate depreciated. medium to long-term pressure is on change very low. corralledforecast, so conditional forecast unchanged inflation forecast. nejra: joining me now is deutsche bank's global desk and julia coronado, president and founder still with us as well. george, at what point does the frank become a problem for the s thesnb? george: we think the euro can appreciate more against it. nejra: we were talking to julia earlier and she says mario the easiestlly has job of all the european central bankers. george: he has been very successful so far. all the difficult decisions were taken last month. .his meeting will be easy but going into next year is going to have to manage that exit again and so far he's done that successfully. i think it will be a challenge to keep the euro down and the risks are that the euro depreciates as they managed the exit. nejra: when you look at the meeting today, what will you be listening out for? george: one is what did they do with these inflation forecasts further out. if they are high they believe inflation will normalize and give them more confidence in terms of policy normalization next year. the other thing is am i think it's likely that you get asked .bout his opinion one of the ecb board members, he mentioned a few weeks ago that potentially qe could end all the -- and all of a sudden in september. the market will want to see if he's endorsing that hawkish view. nejra: what could the euro do today in reaction? george: i would expect because this is not a meeting where we expect a lot of new news, i would not expect a large reaction or it might bias on the euro is constructive. i think the fed yesterday was dovish. on balance, i think the risk is skewed higher to the end of this year and next. tom: you and robin winkler have a spectacular report on trade flows. boring stuff that may come out of the changes in tax policy in washington. you have a chart that shows decisively that other nations have lower tax rates, even the 21% presumed at this time in the united states. will the money really come home? george: the interesting conclusion from this piece is the money is already home. most of these companies hold the money and dollars. the impact on the dollar for tax reform should be small. what is a lot more interesting is if you look at the accounting impact of tax reform and what that could mean for politics, what we found is the u.s. trade deficit is artificially too high. reporting --s under reporting to avoid taxation. they would not need to do that anymore so all of a sudden the trade deficit could .e half it would not have impact on the dollar but in terms of the way the u.s. presidency could present the impact, it would be as if the u.s. was all of a sudden more competitive. tom: this is an under discussed topic here. statement, that we would see a trade deficit ha lved. julia: i would be interested in seeing that report. i'm not familiar. i think he's talking about transfer pricing. if that prediction were to come to pass, he would play that up as much as possible, even if it is just an accounting issue as you say. of course he's going to take advantage of everything he can to celebrate. tom: are you predicting this or not george? i have to make some news. george: we are not predicting the timing. i'm not saying it will happen next year. these things take a bit of time. in terms of direction of travel it is likely that we see the trade deficit fall in coming years. if you look at what happened to the u.k., we saw sharp changes to the way the u.k. trade deficit was reported. companies will no longer report these things as offshore profits . they will report them as a service export. nejra: what i picked out is fascinating, how you then connect the dots and say that in the long term this brings a tradeprobability of protectionism. i could benefit the global economy more than short-term spillovers. that thisinking is has a bigger impact on the global economy. george: one of the biggest threats is protectionism and that is what we were worried about. if the visuals can look much better, politically it allows the administration to avoid going down a more protectionist direction. the key point is i think there's an overstatement as to how negative the u.s. trade deficit is and how much the u.s. has suffered. that is not the case. all that is been happening is all of these profits have been offshore and, reported as offshore profits but in reality they are made in the u.s. the u.s. is more competitive than most people realize. tom: are you going to agree with martin feldstein that we see a flow of funds into a dominant u.s. economy? , theis bloomberg dx why chart of dollar weakness through the summer. we get into this ambiguity. what is your call on that? do you see a stronger dollar as professor feldstein sees? george: we have a different view. think the dollar will weaken and the rationale is these flows we are describing have happened. they had been hidden in the accounting of it but most of the funds you would've expected to come back into the u.s. already sitting in dollars. the next big story for next year is going to be the european reflation story, ecb exit. that is what is going to dominate over the dollar. nejra: fascinating stuff. tom: we are going to come back. a rising inflation in europe. the ramifications of that. .e continue don't forget on bloomberg radio your briefing for the morning, what better way than to enjoy the commute? bloomberg daybreak. this is bloomberg. ♪ taylor: this is bloomberg surveillance. what's get the bloombergs business flash. in three weeks, stephen: can once again start managing other people's money. his hedge fund plans are making investors wary. :'s new fund would lock up capital for one to three years. client be able to withdraw money only by paying an extra fee. airbus directors are meeting for a pivotal review that could determine the plane maker's future direction. there was a report the ceo plans to tell the board he does not plan to stand for a third term in 2019. airbus is bracing for fines. of theancial results countries flagship airline. bloomberg spoke to the ceo of qatar airlines. >> we are still giving profit earnings. as matter of fact, very negative year. numbers arengers concerned, we are hoping we will be very close to the number of passengers we carried pre-blockade. taylor: the saudi's, bahrain and egypt cut links with qatar in june. they claim qatar backs extremist groups. qatar denies it. so much, taylor. prime minister theresa may escapes the brussels after an embarrassing defeat by her own party. the u.k. premised as governor -- government lost the battle in --liament after lawmakers meanwhile, it is decision day at the bank of england. economists don't expect a policy move. and george sara vedos. george, are you still fairly negative on sterling? george: we are. for us, the question is not really the direction of travel. we are heading to traditional deal, maybe membership of the single market. the critical question is the speed of travel. how quickly do we get clarity on .hese issues because the prime minister is fairly weak, decisions take time. the more it takes time, the economy will stay quite weak. we got a weak economy on one hand. on the other hand, what will be interesting is high inflation next year because of what's going on in terms of the labor market dynamics. a huge drop-off in immigration in this country. i inflation week growth is not a good recipe for currency. nejra: markets are pricing in two great heights in three years. hikes in the next three years. george: whether bank of england goes once or twice what will matter a lot more is the broad and macro backdrop. the u.s. is doing well in the u.k. will be lagging. it's not clear who is going to finance -- tom: that sets up this chart we've shown many times. this is maybe the most stunning chart that i use across all of the given year. coronadon major, julia , the boom in sterling. the lehman low and we are right there. is there a true wealth destruction across all of the united kingdom? i know london is booming, but for the entire nation, does this trade weight in weakness and sterling mean wealth to structure? george: i think you're absolutely right to use the trade weighted chart. people look at sterling against the dollar and they use that as a metric of how brexit is going. the problem with looking at sterling against the dollar, the dollar is weak him a sterling will be going up against the dollar. what you need to be looking at is this trade weighted chart. it shows there were negative we reallyrade -- struggled to see how that will reverse. tom: within the idea of trade , howt and blended indexes cohesive do you see the dollar system in the globe right now? julia: the trade weighted dollar is the right way to look at it. i think the dollar is the dominant courtesy. that always gives us offsetting forces on the dollar, not just the traditional open economy forces the u.k. faces. the path through into inflation that causes these purchasing power shots to the consumer, we don't see that in the u.s. we don't have very much pass through and our consumer is benefiting from that kind of reserve currency status there gives a stability. nejra: we heard from george that he is expecting more dollar weakness. it's not been a great year for the dollar in 2017. will we get further weakness in 2017? julia: that depends on whether the eurozone strength continues to run hot relative to the u.s. economy, which is fine. not accelerating as quickly. that has produced dollar weakness. do we get a lot of stimulus from the tax cut? that will help determine the answer to that. i think what the fed signaled yesterday is they are not in a hurry to be preemptive ahead of that stimulus. that they are going to let that go and see how that plays out in the data and maybe accommodate that. certainly not a dollar strengthening story. tom: we will continue. let me show you tv go quickly. even get briefed with our product. you come over here, click on the block, you can steal our trade weighted sterling chart for your 10:00 a.m. meeting. tom: we have shown it many times before, the two year yield and much of it within the yellen two-year. slope matters. look at this moonshot. i exaggerate. julia: we do have some expectations. we built in additional hike nextn of a rate year. a market is still behind what the fed is projecting. probably a reasonable base case or the fed looks like it can two.te another hike, maybe but the 10 year yield is the thing that is not moving. so the yield curve keeps flattening. tom: why do we have two dissenters yesterday. ? julia: the first time since 2011. tom: that pushes against this chart. julia: charlie evans has serious concerns about the fed credibility of achieving its inflation target. the fed can't have it both ways. if they want to avoid using balanced sheet policy they need to get rates higher. the way to get rates higher is to slow down and let the economy run and build up more inflationary pressures. they need to get inflation to 2% . it does matter unless they are happy with using balance sheet expansion as their primary tool and they are not. for charlie evans to dissent, that's a big deal. he gave a very powerful speech a the feds ago about inflation fighting credibility. i think this is a serious discussion that i don't think the markets always are as attuned to. traders want to see higher rates and more action and what charlie is saying is slow it down. nejra: i want to bring in the yield curve and georgesaravelko s as well. -- and george saravelos as well. where we are on the 210, 530, does it remind you in th -- does it remind you of a time in the past? george: one of the big themes we have been pushing is if you look at the current period, is similar to the 2004, 2006. period. .he dollar was weakening the market did not care that the fed was hiking rates. global growth was synchronized. also concerned about what was going to take toys with the other central banks in the rest of the world. to me, that hotel is informative. the fed has hiked more than the market expected area but no one really cares. the dollar has been weak. that theme continues next year. thank you so much. joining us on the show. very good. let us continue on bloomberg radio. we will do that on bloomberg surveillance. look for that here. a lot of chat about media this .orning stay with us. alix: fed and china hike rates, ecb on deck and the bank of england is holding pattern as mark carney tackles inflation. mario draghi is set to unveil the ecb's 2020 outlook. investors, hungry for clues on how the central bank mobilizes policy. to announce at buying a $60 billion -- the $60 million -- is bob geiger clever like a fox? they will buy 21st century fox. .he whole deal fox will spin off some of its asset but disney will buy a good chunk of that. iger will -- bob remain ceo until 2021. he will -- we want to see that transition and that merger through. lisa: we will get more details coming up. we will look at who potentially from the fox organization might move over to

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