Transcripts For BLOOMBERG Bloomberg Daybreak Europe 20171220

Hard place. Theresa mays brexit transition plan is threatened by centuriesold dispute with spain over gibraltar. Good morning, this is bloomberg daybreak europe. Matt miller is here in london. We need to talk about the asian equity session and what weve seen and what weve seen happening in washington even though most people on the east coast in United States should probably be asleep. Theres been plenty of activity in your. A little bit of an industry here feeling about the asian equity session this morning, so no great big movements coming through, but weve seen some substantial movements in the u. S. Treasury market. 2. 45 is where we are at the moment. Sum consists describing this as eyepopping. Something substantial, what is happening . A lot of people trying to work out what it is. Perhaps a realization that with the tax legislation getting closer, maybe that means more borrowing into 2018. As we said in the headlines, the u. S. Senate has voted has passed their version of the bill and closing in on the deal but the house does still need to vote on this once again because of a small procedural technical matter, we are told to s p futures reflecting optimism and were expected to go up by another. 25 . The dollar pretty much on hold. Nonetheless, the tax reform possibility has calls caused some euphoria in stocks. On the one hand, s p 500 is the most overstretched ever. If you look at the s p compared to its 200 Day Moving Average, it is further away than it has ever been right now. That is just because maybe the number is so big, in absolute point terms you expect growth in that figure. If you look at the ratio of the s p to its who 200 Day Moving Average, is actually a are nowhere near as high up as we were in 2009 after the recovery of the financial crisis or in 1933 after the recovery of the Great Depression in stocks. In that sense, it looks fairly normal. Its higher compared to its 200 Day Moving Average that it has ever been. Lets get to first word news with Juliette Saly. The u. K. Prime ministers plans to help businesses navigate leaving the European Union may be derailed at 300 euro argument over gibraltar. British officials fear spain will threaten to veto a brexit transition a if theresa may refuses to negotiate a separate government separate deal with the government in madrid. Spain maintains a claim over the 2. 6 square miles of the land. The u. S. Ambassador to the u. S. As a warning for her counterpart, donald trump is watching. To for diplomats, nikki haley is pressing other countries not to support a the larger General Assembly critical of President Trumps decision to recognize jerusalem as the capital of israel. One diplomat said his countrys mission is told that is stored on the resolution would be taken personally by haley. European union is set to slap unprecedented sanctions on failing to uphold democratic lost during overhauls of the countrys legal system. The e. U. Executive arm is likely to recommend activating a european treaty article that would bring a step closer to losing its Voting Rights. The countrys prime ministers has said poland has a right to rebound courts without interference from brussels. Saudi arabia is rolling out a huge expansionary budget to boost spending on was 300 billion in a bid to revive an economy that has languished in the wake of low oil prices. In 2018ts to expand after shrinking by. 5 this year while inflation will accelerate more than 5 from its current negative territory. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Indexseeing the regional higher, japan closing just a touch higher, a little bit of weakness coming through in chinese weakness in chinese stocks today. Light,ly volume is very is you would expect for this time of year. Looking at some of the stocks we are watching in detail, subaru shares in tokyo tumbling the most in more than a year on a report of fake fuel efficiency data, just adding to the Corporate Governance scandal in japan. This is a Cosmetics Firm in seoul. Its mainly due to report that china has once again blocked tourism packages to south korea so year are seeing a lot of tourism related stocks coming under pressure. And a deal with fifa for the world cup, spending 300 million in marketing. Refusing to disclose details of the Sponsorship Agreement at this stage. You very much, Juliette Saly in singapore with the latest on the market there. Senate republicans have just ,assed in the last 45 minutes the most extensive rewrite of the u. S. Tax code in more than 30 years. The partyline vote brought President Donald Trump to the brink of his first major legislative victory. Sign theore he can bill into law, it must return to the house of representatives for another vote instead morning after Senate Democrats invoked a technical budget rule to remove some minor provisions. This create any major hurdles, or is it just a quick procedural issue that needs to be taken care of . It looks like a procedural issue. They sent the bill to the senate and it did not comply with certain rules, so they made three changes, including the name of the act, which at touted the benefits of tax cuts. That has been dropped and a few other minor provisions, then he will be voted on again and it is likely to pass. Anna so for individuals, the bill maintains seven tax brackets. We understand from various polls that the tax cuts seem to be unpopular for some reason with people. How committed are they to getting this done in washington before the holidays . Pass it,like they will but the question is, what is the political all out . The polls have been very clear in showing that the majority people think this bill will benefit the rich, benefit Companies Rather than the working class and poor. Basically acting as the champion of the poor in some sense, the bottom line is, how will this affect the midterms and President Trumps own reelection . Republicans are confident that once the economy booms, it will benefit everybody, but right now it is extremely unpopular, even compared to the 1980 tax cuts at the time they were passed. Matt one of the things you can compare it to is obamacare was very unpopular with the republicans when it came through. This is very unpopular with the democrats, with the left, and there are some implications for obamacare as part of this bill. Explain that. Thehis bill gets rid of , whichual mandate basically penalizes people who do not buy insurance. It forces everybody into the exchanges so you take and get young, Healthy People into the market. Without that, you could not see premiums rise. This, said it rips the heart out of obamacare. Republicans believe it will forced immigrants to come to the table and try to figure out a solution to obamacare. Where it goes Going Forward is unclear. Susan collins that the bill partly on condition that mcconnell would come up with some way to stabilize the health ,are market, Insurance Market but that is unclear how that will move forward at this stage. Anna daniel, thank you very much. Getting comments from President Trump right this moment flashing across the bloomberg. Up press conference , saying that in a twitter post. Lets broaden the conversation. A very good morning to you, bob. When you look at whats happening in the United States and a lot of the expectation builds up, aside from the polls and whether its popular or unpopular as a piece of policy, terms of market expectations, how much is the upside from this already priced in, and do you think there is more to go . The Immediate Impact in the bond markets, as you mentioned, weve already seen a move in the 10 year treasury, trading around 2. 45 . What to watch in the coming change inhe expectations on what the fed will do next year. And when they had their fed meeting recently, they signal nearly that there would be three rate increases in 2018. I think somewhat surprisingly, the market is discounting quite a low probability that the fed will do that. If we get clear evidence that the momentum in the economy, plus the tax bill, will lead to growth in a range of 2. 5 3 next year, with a probable increase in inflation to 2. 5 year on year by meijer, the key factor will be a change in expectation from what the fed will do from a low probability of three rate increases to a high probability. We are in the process of that adjustment. Anna so some have low and some have high probability. I pulled up the chart to talk further about this. Matt, you have been looking at this as well. Is this people saying move higher in yields because the markets are saying it will be more debt in the United States . If you go back over the last 3040 years, there has been a high correlation between nominal gdp and the fed funds rate. The situation in 2018 where the outlook for the economy is reasonably positive, gdpation edging of, nominal north of 5 . If you get three rate increases, you end up with a rate of 2. 25 at the end of next year. That is still a super easy monetary policy. We are not saying the fed will be hiking rates aggressively. I think the market will have to adjust its expectations to those three rate increases and probably further rate increases in 2019. It is easy to see a 10 year u. S. Treasury yield lets say in the Third Quarter of next year in terms of 3 . Matt what do you think this means for stocks . The passage of the tax reform, if it does boost the economy to a 3 growth rate. Does that mean we should see further room to run for stocks, or has it already been priced in . That is the key question. 3 growth is positive for the market. If we get corporate growth of 12 , next year north of 10 , i think that is highly likely. We will not see a major contraction in corporate earnings growth. All that news flow is positive. The next question is, is the Market Pricing in back in . I central case is with a pricetoearnings ratio north of 18 in certain sectors like i. T. , north of 20, i think there is a high probability that the market is over discounting all that good news, and after the significant rally weve had in the s p, not just in the last 20 last 12 months, but since 2009 when the rally started, we are not going to see a major reversal but one has to recognize that the upside is probably much more limited. We will not get the gains we saw in 2017. Matt the ratio of small caps to large caps, you see the russell 2000 to the s p in light. The yellow is just President Trumps Approval Rating. Its interesting that the ratio tracks his Approval Rating so closely. If you have Infrastructure Spending as well. Where do you want to invest . Where is there still some sweet spot . Bob a number of sectoral themes. Number one, obviously the Financial Sector benefit from higher bond yields. Insurancethe companies are a cheap relative to the market. Sector number two is consumer discretionary. Although it is been said, that sector will be a major component in the near 3 growth in 2018. Because people with money will be able to spend more of their on money . Bob exactly. If we get inflation close to 2. 5 , that actually is a near perfect environment for Global Equity markets. Year, valued stocks have underperformed very badly. There will be a switch to a focus on high dividend paying ,tocks and zero graph points mid and small cap have underperformed largecap. Again will be the sectoral shift there. Matt a great look at equity markets and the bob market bond market. Coming up, a centuriesold argument between britain and spain over gibraltar is threatening to derail the Brexit Process. One more thing threatening to derail the Brexit Process. What does this mean for British Business . Could be facing unprecedented sanctions from the e. U. We will bring you that story next. This is bloomberg. Anna its 6 19 here in london. Commentary coming through late in the night, Early Morning if youre in washington from President Trump on the passing of the tax will buy the senate. They just pass the biggest in history tax cut and reform bill, according to President Trump. He will give a News Conference if it passes in the house. He will give a press conference at 1 00 p. M. His time. We will look for that. Lets get the Bloomberg Business flash from Juliette Saly. Juliette toys r us has reported disappointing results for the three months to the into october. Samestore sales declined 7 compared with the year earlier. 2 sales fell to about billion. The retailer was forced to file bankruptcy after vendors cut shipments. German Renewable Energy Company Energy is at the ceo has resigned with immediate effect. The Management Board member will assume the role on a temporary basis. Shares plunged last week after it said shares will drop because of stiffer competition in the u. K. Power market and how are costs on new technologies. Musk has given his twitter followers what he meant send to this chief Technology Officer of Virtual Reality company oculus, his phone number. It invited speculation that it may have been trying to recruit him or was seeking a way for oculus to hoopty with any of the businesses he runs. That includes tesla, spacex, and the neuronal in, boring company. That is your Bloomberg Business flash. Anna thank you very much, Juliette Saly. Centuriesold arguments over gibraltar is threatening to do well theresa mays plan to help is this is navigate brexit. Bob parker from quilvest is still here with us on bloomberg daybreak europe. I wasgovernment interested to read that the u. K. Cabinet, the first time theyve actually sat down as a full cabinet to decide what they want. What they want from a trade deal with the European Union. To be an ambitious deal that is much more than what canada has. What do you think of its chances for success . Bob i think you are right to be surprised that they are having this discussion as of now. Theyould have thought would of had the conversation months or years ago. That is the first observation. What is the endgame going to be for brexit . The answer is that businesses do not know. We may end up with a canada type deal or a norway type deal. I think where we are moving is inevitably we are going to move towards, and i have always thought this, towards a deal very similar to what norway has. So it will be a trade deal, but there will because to the trade gilt. If you look over the last three or four years, the per capita payment by norway into the e. U. Budget has been greater than the per capita payment of the u. K. Which the e. U. Has made. It does not come cost free. Regulatory convergence is one of those issues that will be grappled with over the course of the conversation. To enable the tray to take place. At the same time, the hardline brexiteers say a trade deal should be easy, but then they insist we want to take control of that regulation and then diverge in the future, which confuses me slightly. Bob the answer is, if you want to trade with the Worlds Largest trading block, the European Union, youve got to abide by european rules. The answer to that is very clear. E. U. Rules on trade will apply and there is no reason why the u. K. Should not be uncomfortable with that. What is of more concern is that if the u. K. Does leave with a hard brexit, to what extent can the u. K. Then negotiate trade deals with asian countries, with north american countries . Whether it be the u. S. And canada. And that will take a lot of time. The impression one gets is that there is very little preparation going on there. You can talk about the trade deal and how that will affect business and growth here in the u. K. , but for investors, what are the most important asset prices to watch . Hit, its been coming steadily that the as it becomes more clear whats going to happen. What are you watching as a result of this . Thee pressure valves Immediate Impact was his farce devaluation in starting harsh devaluation. Im assuming that most of the volatility in sterling is now behind us. If we look at the outlook for the u. S. Dollar against all , going back to our earlier discussion on the fed, i would challenge the consensus that we are going to have a week dollar. It could strengthen over the next six months. I would say at the moment we have a ceiling of probably 135. Second quarter we may be looking at 125127. Flow probably for most of the next six months is not does not going to be that favorable towards sterling on brexit. I think we will have six months of moving to the next stage of trading gauche asians. Thats not going to be easily not going to be easy. Matt a weaker pound should be easier for exporters. Bob i think you will see the exporters outperform, whether u. K. Equity market has a problem is domestically focused companies, especially the consumer sector. Consumer spending i think will remain weak. Anna bob parker stays with us here on bloomberg daybreak europe. Will discuss the latest twist for cooper. For uber this is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Anna this is bloomberg daybreak europe. A live shot of tokyo for you. 6 30 in london, we are live in tokyo. Lets bring things a little closer to home. The European Union is likely to slap unprecedented and sanctions on later today they could see the country stripped of its Voting Rights in brussels. This comes after the e. U. Member failed to maintain democratic reforms during an overhaul of its system. Good to have you on the program. Point got to this how has poland gotten to this point . Remind us of the background. Its been two years since elections in october 25 teen. The ruling majority started system, andthe subsequent processes which have now been completed, it for some 40 of judges to retire early, along with the counselor judiciary which decides on judiciary appointments. Were actually facing a complete overhaul of the judiciary that will be complete once the president signs the last batch of legislation. Experts anded by companies. S matt how is this going to change the relationship . What we are going to get is what you started at the beginning with, meaning the likely start the procedure under the article seven of the e. U. Treaty. It is a long process, which requires several steps ahead, but today looks like it will be a starting point, which in the end, ultimately they lead to such as strengthening its Voting Rights and the u. K. Council. Process andlicated it will not be quick, definitely. The biggest hurdle from brussels is that slapping sanctions on a member country requires unanimity, which means it is very unlikely to happen, because memberhas for sure one on its side. Is not certain if there will be one more countries, especially from eastern europe, that would support this process. Matt kind of an interesting issue there. Thanks so much free time this morning, joining us from poland. Bob parker from quilvest management is still with us. This creates in some sense, two sides to the European Union. What do you think about it as an investor . It is not just a problem with . Lets not forget the ce for may become the ce five in the teacher. Now that we have the right government in austria. You can see that government start to align more with poland and hungary and therefore i think this tension between i think the key point is, what does this mean for Economic Growth . Done growthe numbers that are very good. Next year growth will be well in excess of 3 . We are not seeing any currency rusher after very good performance in the polish equity market. Taking,seen some profit so as an investor, i think investors are going to ignore this because they will say this is a longterm process. It does not drive the real economics which is the polish economy is growing strongly and is continued is expected to continue to grow strongly. Poland is one of the beneficiaries of brexit. Anna one of our colleagues wrote a piece around this. Maybe that is a bigger issue for countries in eastern europe. But this is the only area where east and west are hauling out. I was in brussels last week and there are talks of her report around migration. That topic, very heated language and opposing views on what the European Union stands for and what holds it together. On the migration issue, this is incredibly difficult. Flowsally, the migration actually into central and eastern europe. Iniously there is a conflict migration policy between the rather open policy of germany and the policies that the ce for formed, which is much more liberal. There is no easy answer for this. Matt bottom line, you have a kind of counterweight to the exercise. Cron what you end up getting in europe is gridlock, is that not a horrible thing for investors . Is the plansenario that macron has put forward so that will have a European Finance minister, and more of a fiscal integration in europe. We will a european monetary fund. Ofmust have completion thanking you did. Everyone weather in brussels are frankfurt, everybody agrees the banking unit needs to be completed sooner rather than later. Theres a lot of work in progress on Capital Markets union. I would be somewhat optimistic that the plans macron have put forward, some Good Progress will be made in 2018. That one of the systemic problems with the euros lack of physical cooperation. We will see if they come in line with the macro policy. Just showing the low evaluation is european financial versus around the world. Tying into your point about where the financials, you are quite optimistic about where we go in europe . Think european financials will outperform american initials and european financials will output warm the euro stocks. You have to have a long position in european financials. Matt you mentioned the central the centerright in australia. They are concerned, the germans are really concerned about paying the bills for maybe what they see is irresponsible peripheral states. Is that one of the risks to your thesis . That has been the risk for the last 20 years. One of the problems we have on structural issues is that germany accounts for close to 9 of gdp. Germany has access savings associated with the current account. Countries such as spain and the eeeuro to work, you have to have a fluid capital position, and it is regulation that goes around that between the creditor nations and the distant nations. And the United States europe, slow to speak. Much, bobk you very parker stays with us on daybreak europe. Can follow along with all the charts and functions we are using and join the conversation by clicking on the button at the bottom of the screen. Super is set to reach the end of the road in a legal battle, is the worlds most viable start of a taxi company, or is it just an app . Rejoined joined by tony aarons to discuss this. Especially in london, there has been a big issue here. Angst for joining us this morning. What is the likelihood that uber gets to this is just an act, rather than being regulated as a taxi company . The judge gave an advisory opinion that it was more than just an app, it was a taxi company. I dont think anybody will be surprised if the Court Follows that along today. Anna what does that mean in real terms for uber . World jumps the courts very far. Uber has had a very big change in the last several months. Their main product now is uber x , where drivers have licenses. Effect fore a huge the economy in general. Do they have some are harmons to local regulators, to their employees or contractors . Matt that is one of the key to strength that the key distinctions. In london, we have several ber and otherther u services are provided. Its all going to tumble quickly in the next few months. In other parts of the world, i guess. The next case up is probably in london where uber drivers are suing for more benefits. Do they get health care, over time . Anna thanks for joining us this morning, tony. Coming up, saudi arabia has ruled rolled out an expansionary budget for 2018. It has been nice not to discuss infrastructure in places in the middle east. Matt President Trump stance on the verge of his first major legislative win in the white house. This is bloomberg. Aren this boat, the ayes 51, the nays are 48. With further amendment, the tax cuts and jobs act is passed. Matt there you have Vice President pence presiding over the senate in his role as Vice President , passing the u. S. Tax will there. It now goes to a procedural vote in the house later on today. Rolling out an expansionary budget for 2018. The kingdom is set to boost spending to around 290 billion in avenger of five an economy that has languished in the wake of low oil prices. Keep itsry targets to deficit below 8 and expects growth to rebound to 2. 7 next year and reach fiscal balance by 2023. Finance to the saudi minister and got his elbow. We expect the gdp to grow north of 3 . Grow north ofto 3 . So you are not going to give me an oil price for 2018. Lets break down your programs for debt sales because that has been important. How much of that is going to be international and how much domestic . In the past, you like to mix it up a little bit. The strategy is very important. We are quite good steps in the last two years and particularly the last year to establish proper strategy. Coming up with the right , we dont want to cause any more issues in the market. We are also looking at the and lookingl market at various opportunities around the world. I would say about 6040 is the number, or vice versa. Do you have an update if it is the second order, Third Quarter . Thee need to ensure that debt curve is contained. , we will look at the. Arket it depends a lot on how the markets are doing at the time. You recently announced the stimulus package and it is our understanding that there is scope for more in 2018. How are you going to distribute and allocate that in terms of sectors, perhaps . Now think we are [indiscernible] we were looking a few months back to the housing sector. The government announced last week the second wave of the , 22 of which is for 2018. We are working now with the , to work on the fed way, focusing on [indiscernible] anna a fascinating conversation there. Sorry for the quality of the sound, im not sure if thats a private jet or a vacuum cleaner in the background. Do you see the 2018 budget as more supportive for growth that in previous years . Is that what people are saying there on the ground . That is the feedback we have been getting from investors so are. Byiscal balance the longer 2020. Instead it will be by 2023. Then some additional spending as well. You had quite a stimulus package. We understand this is a budget likely to be based around 63 a barrel. The saudi aramco ive yellen is his assessment, and number two, the money they will recover from the corruption probe on some of the wealthy people that have been detained are going to be put back in the treasury. Our reporting suggests that is what the number could amount to. Key takeaways the for investors in middle eastern markets from this latest announcement . The important thing to remember is that we didnt get a reaction yet from the market. How investors respond after theyve had some time to digest all the details of this announcement. The expectation is that the market will open higher. The guys point out that they , therelot of liquidity could be some upside there. Bear in mind that sentiment might be a little bit constrained because we didnt , so wellistic missile might get an additional reaction from the saudi government including anger toward the iranian side of the conversation. Matt thanks very much for that exclusive interview. Sonja joins us now to discuss 2018, the outlook for middle east infrastructure. Wealthker from quilvest management is still with us as well. Let me ask for stalled why this infrastructure announcement in the middle east is tracting so much attention . Good morning. If you look at all the regions for the next year in terms of the it stands out. We just plan the vision 2013. It is attracting a lot of attention. Not only that, the second reason ,s that there is more intention a lot is going on in terms of organization of transports and pdps, and theore package is enormous. They have so many things to do. The past two years have not been quite good for the industry. With his commitment about bringing more projects, it is calling the attention. Gethey are trying to International Money involved, as you say. This chart is around saudi arabias cement demand. If is such a big construction story, why do we have this listed as household products . The last two years have been quite slow for cement. But we are seeing some turnaround in the last month. I would say that this is a turning point for the industry theuse its not only construction of the housing, this is the turning point. We might see more demand coming, so next year how likely are investors to take the bait here . I dont want to phrase it like that, but to invest in nonoil investments in the middle east . Bob i think there is a high probability that you will see investment flows by Foreign Investors and in addition, by local middle eastern investors who have money outside the region. Dont forget historically the capital flow has been middle eastern investors investing outside the region rather than in the region. That has been the case with saudi arabia. Foreign decay is now specifically on saudi arabia. I think the budget was very necessary. If you look at saudi Economic Indicators for the last two years, they have been weak, and the budget deficit has been very problematic. This budget does address with some urgency the problems saudi arabia has had for the last couple of years. Agree that one looks at the infrastructure sector, the last two years have been planning and discussion, but not much action. Anna and not everything that is planned gets dealt. Transport,therby industry, hospitals, etc. There is an urgency to do this and i think the next two years will see the change from planning to action. Matt thanks so much for joining on saudinnouncement arabia. Bob parker, thanks so much for joining us. Its been a real pleasure having you here and getting some insight from you today. More on the historic tax vote in the u. S. As President Trump stands on the verge of his first major legislative win. This is bloomberg. Matt good morning from our new European Headquarters in the city of london. Program. Come to the these are todays top stories. Matt clearing the senate. The u. S. Upper chamber passes the tax bill. The house votes to address a procedural snag. Anna saudi arabia reveals a spending plan to revive its lagging economy. Finance minister said he sees the economy rebounding. The next year is looking positive. He economy to grow north of 3 . The rock and hard place. Theresa mays brexit transition plan is threatened by a centuriesold dispute with spain over gibraltar. Matt lets take a look at how futures are shaping up. One hour to go until the cash trade starts. Ftse futures down but little changed. On the continent we have the percent mispriced pointing to a positive open, a quarter of a percent on the dax and 1 10 on the cac. Not much direction here in london. Anna no much direction coming in in the early futures in the european markets. Taking up from where the asian equity section session has left off. The big focus for markets for investors as we head toward the end of the year is on what is going on in washington. We had a debate with bob parker about what his pricing and what tech not pricing on the story for equity investors. That is something that is still a bit still attracting investor attention. U. S. 10 year yields at 2. 46 and we saw a surge in the last two days, their something fairly substantial happening and bond markets. Is it to do with an expectation of issuance coming, is it to do with the underlying assessment of how the tax man might boost the economy and push up inflation and the fed into a slightly firmer hiking cycle . That seems to be the view of parker. What does that mean for equities . S p futures could be up by another. 2 of 1 at the start of the trading day. Matt lets take a look at futures. The cast trade gets us started. You can see bund futures down, that could mean that the bund yields rises, we have seen them up by seven basis points. O. A. T. s down and u. S. Bond futures are rising after what some have called an eyepopping jump in yields. Overnt from 240 up to 245 the last couple of trading sessions. In the last three months from even to 245. A big jump in bond yields and we will talk about what that means for investors. I want to get the bloomberg first word news in singapore. We go to Juliette Saly. Juliette the u. K. Prime ministers plan to help businesses leave the eu may be derailed by the 300yearold argument over gibraltar. Threatening to [indiscernible] covers the disputed territory. While the pencil has been in british hands 101713, spain maintains a claim over the 2. 6 where miles of land. The u. S. Ambassador to the yuan has a warning for her counterpart on jerusalem. Donald trump is watching. According to diplomats nikki haley is pressing other countries not to support a resolution critical of the decision to recognize jerusalem is the capital of israel. Countryl and said his one diplomat said a vote would be taken personally by nikki haley. The European Union is set to slap unprecedented sanctions on poland for failing to uphold democratic norms in the overhaul of the judicial system. It would bring poland a step closer to losing its Voting Rights. Holland has aaid right to revamp course without guidance from brussels. Saudi arabia is rolling out a huge expansionary budget boosting spending in a bid to that revive a economy has languished in the wake of low oil prices. It shrank by half a percent this year while inflation will accelerate to more than 5 from its current negative territory. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find most stories out top. More trading volume, not much action here. We saw the nikkei close higher by. 1 of 1 . The only market where volumes were higher. Chinese markets are under pressure. You have seen the large cap stocks close down by. 1 of 1 . The week is coming through in and australias market closed flat but still at the 2008 highs. In terms of stocks we have been watching in the region, it is on the back of this corporate government scandal story in japan that subaru has picked its fuel efficiency data. A Hotel Company and so, we are seeing these travel related companies under pressure under reports that china has banned package tours to south korea. For they up with visa world cup. We do not know the details area and china menu dairy sewing to a record high spending 300 million in marketing during the world cup. Thank you. Juliette saly in singapore. Senate republicans have just past the most extensive rewrite of the u. S. Tax code in more than 30 years. Ayes are 51ote, the and the nazar 48. The Senate Receives from its hr onent and concurs in with further amendment. The tax cuts and jobs act is passed. Vice president pence performing his only constitutional duty as long as President Trump remains healthy and is not impeached. The party line brought President Trump to the brink of his first legislative victory in the white. Ouse before he can sign the bill into law has to return to the house of representatives for another vote today after Senate Democrats invoked a technical budget rule to remove some minor provisions. For more we are joined by our bloomberg managing editor jim sperling. Does thisdemocrats invoked a tel budget rule to remove some house hurdles . Jim it is purely procedural. The taxwriting Committee Chairman said the only thing better than voting for a tax cut once is voting for it twice so no problem at all. Anna we do not anticipate that changes the story. Pulling around this tax measure is interesting. We were discussing this in the last hour area do not all that popular in the polls. Committed are the republicans to doing this, they must be very committed given they stayed up all night to get this done before the holidays. Jim those of us as a of a certain age recognize the end state of the reagan revolution. It was all about shrinking government revenues so that could not provide services. It was at the heart of this ideology that has reached its fruition now and you will note that the next stage of their legislative agenda could not pre services. It was at the heart of this ideology that has is scaling back the most popular social insurance programs, medicare and social security. Are very committed. They are committed in an almost religious sense regardless of the outcome. Say the seems you could theyof the democrats when passed obamacare. It was incredibly unpopular with the American People especially obviously the republicans and the right but the democrats were committed from the clinton era to get Something Like that through and they were willing to pull out the stops. Jim not from the clinton era but the truman era actually. Democratsence is the addressed it in a nonideological way. They went with the most republican. Remember the heart of the republican obamacare legislation was romneycare which was born in the Heritage Foundation which was all about individual responsibility. Individuals had to get Health Insurance so there could not be free rides so i would not pay for Emergency Care because you were irresponsible enough not to have Health Insurance. Matt this new legislation could affect the individual, indeed does strip the individual mandate. Critics were why at Susan Collins and lisa murkowski, the republican senators who floated for obamacare it voted for obamacare and voted against killing at Susan Collins and lisa murkowski, the republican it when republicans controlled the senate a few months ago. They voted without raising objections or substantial objections. Matt why is it you think, this is the incredible incredibly left wing of the Republican Party especially collins. Always in that is position. Why do you think, what drove her . Jim this is whatever you say, whatever you have. ,his kind of legislation taxcutting is why people are republicans. How significant is this for the Trump Administration . I have read a few Opinion Pieces about how little had been done in terms of material legislation being passed and they had to get this done. And trumphe headlines was all about i need a win, i need a legislative when my we need a win going to the elections and it remains to be seen, the democrats in the past few years have shown themselves to be incredibly incompetent politically. Remains to be seen whether they can turn this legislations unpopularity to their advantage. Matt the way they would do that is by giving a bulk of the voters truly a tax cut. Jim that is what is wrong with this. Matt are americans going to see a tax cut beyond the top 1 or the top quintile, will they see a reduction in the tax bill . Jim if you rick live in a red state the chances are greater. The blue state is one that is democratic and urban. And has high state taxes which provide the services that most people demand. And if you live in a red state which typically you have worse schools and worse Public Services and lower taxes, take louisiana or tennessee or alabama, they have low taxes but they have the worst educational outcomes and the worst Health Outcomes in the country. Anna thank you for joining us. Latest on what has been a historic evening and it has gone through the night in washington. Lets check out the latest market action. Futures suggesting a lack of direction in terms of european stocks. Lets look at what is going in on in saudi. The saudi budget being passed boosting018 budget material stocks according to riyadh capital. This is the impact we are seeing on saudi arabia. Saudi arabia passes the budget. The kingdom is spending 290 billion in a bid to revive the economy that has languished in the wake of low oil prices. Its deficito keep below 8 and expect growth to rebound and reach fiscal balance by 2023. We spoke to the saudi finance minister and got his outlook. We expect the minimum to grow north of 3 . The gdp to grow north of 2 . [inaudible] sentiment that is taking place. You will not give me an oil price. For 2018. Lets break down your programs for debt sales because that has been important. How much of that is going to be international and how much of that will be domestic . You like to mix them up a bit. I think the debt strategy is important. We are thinking in the last two to establish a strategy of how we will go about [inaudible] coming up with the right strategy, coming up with the right mix [inaudible] we are also looking at International Markets and the value of opportunities around the world. That is coming at various times in various places. 6040. Say or vice versa. Set, second,date Third Quarter, Fourth Quarter . We need to ensure that the curve is maintained. We will continue our strategy [inaudible] and look at the markets. [inaudible] how the markets are doing at the time. You announced a stimulus package and it is our understanding that there is scope for more in 2018. How are you going to distribute that and allocate that in terms of sectors . Ini think we are now [inaudible] are looking at Industrial Mining and the housing sector. [inaudible] we have announced 72 billion [inaudible] and we are working now with the private sector [inaudible] about 30 billion. [indiscernible] anna that was the saudi finance minister speaking to us. A centuries old argument between britain and spain over gibraltar is threatening to derail the Brexit Process but what does it mean for British Businesses question we will get an analysis. Matt David Miliband joins us at 1 30 p. M. U. K. Time. This is bloomberg. Matt it is a 20 a. M. In berlin. Youre looking at a shot of the Brandenburg Gate with a menorah in front of it. 720 in the city of london. Let me give you a check of the markets. We will have a different trade on the continent than we do here in london. British futures are slightly down. Continental futures are gaining. Your stoxx 50 futures up but by and one of 1 . The 10 year yield at 245 up five basis points in the last couple of sessions. Up 45 in the last three months so watch that 10 year yield create a lot of people talking about the reasons behind the rise in yields. Je the yields are coming down. This wrapped up in the tax conversation. Lets get a Bloomberg Business flash. Juliette toys r us has reported disappointing results for the three months through the end of october saying and samestore sales declined 7 compared with one year earlier. Net sales fell to about 2 billion in the operating loss at 208 million. File bankruptcy after vendors cut shipments. Inergy has said the ceo has resigned with immediate effect. Weekhares plunged last after it said earnings will drop because of competition in the ua power market and higher costs of new technology. That is your Bloomberg Business flash. Derailing plans to navigate brexit. This is the latest twist and turn in the brexit saga. Great to see you today. Thought of the Brexit Process you look at those twists and turns in the politics daily. Where do you stand positioned on u. K. Assets . Is what we have seen in the u. K. As well as europe is any rise of political volatility gets expressed straight away through the currency versus the underlying asset classes. That from a domestic investors perspective can be worrying and we have some seen some impact. It does play certain assets is more attractive. I talk to investors all of the world and they look with fascination at u. K. Asset values but the value of the currency as well. As we see these twists and turns and impact in terms of the currency valuations it has evocations for which types of u. K. Stocks you buy. Is that the story . Wayne from an external atestors perspective looking u. K. Assets were looking for more protection from a risk perspective entry weiser currency. You wait for currency weakness in the pound and move into u. K. Assets. Matt the pound has been trending up for the last year 134. 120 to do you see that trend continuing . Wayne we do not. There is a difference where it was a few years ago. A very goode seen appreciation of the pound in the last few months based on the progress that the negotiations made. In terms of upside potential we have we will say it is toward the top end of the range. Matt the ftse has not gained as much. As the pound rises the exporters on the ftse have more trouble selling their goods area do you see the pound coming down and the ftse as a buy . Potential fors a that to occur. What happens if they look at europe which includes the u. K. They are trying to reduce any exposure from the u. K. For the benefit of europe. That is a safer trade to play in terms of increasing european exposure at the expense of the u. K. Acid values need to be attractive either through underlying valuation or currency impact. Anna we have been talking about what is driving the bond markets in the u. S. , everyone is trying to get the deal done before the holidays. What is moving the bond yields higher . People say is this about more debt issuance or reassessment of inflation expectations, stronger. Could get what are your thoughts . Wayne we are comfortable with our stockflation view. With the benign inflation environment. The devil is in the details. Maybe some of the supply story could be driving that increasing yield. It is a modest move we have seen. We have some seen some flattening. There is a little bit of a correction going on from the yield curve slope perspective. Anna where are you putting your money to work globally . Who wayne in terms of that we have been saying and doing primarily through the last few months we have been globalizing the portfolio. We have overweight in the u. S. Market and large cap equity and highyield, that has been decreasing through 2017, taking advantage of the valved market valuations and emerging markets as well. Anna thanks for joining us, we hours wayne bowers. Matt bloomberg markets, the european open is next. We will bring you the verrilli uber fromhe ruling on the European Court of justice. Matt welcome to bloomberg markets, the european open. In our new European Headquarters. Cash trade less than 30 minutes away. Matt senate success. Tax reform passes the u. S. Upper house putting republicans on the brink of delivering the biggest tax rewrite in 30 years. Not ever. As long as we can remember. Long dated treasuries selloff. We will watch the yields. A bumper budget