My chart of the morning has to be with carper copper. ,ou are looking at nineday run the longest winning streak since 2004. What it means for inflation, we will dissect that. David lets find out what is going on outside the business world. Emma some new Jersey Transit riders are facing decades of tax hikes to subsidize a new 12 billion into manhattan. Outgoing new Jersey Governor Chris Christie proposed a surcharge in his state until at least 2038. He canceled the hudson river rail tunnel in 2010, saying he did not want to burden taxpayers. The great lakes is dealing with recordbreaking snowfall. Yuri, pennsylvania was hit particularly hard with 63 inches of snow since christmas day. At least another five to 10 inches are expected. Chinas leading policymakers plan to discuss amending the National Constitution for the third time since 2004. The decision was made today at the meeting headed by the president. The party will convene in january. There are no details where possible changes could be provided. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am emma chandra. This is bloomberg. Alix time now for daybreaks first take, where we dissect the top three stories of the morning. Commodities charge, copper rallying to a threeyear high. Then you have retail rebounding, tech stutters. Apple nosedive and jcpenneys come back. New year, new fed, the white house is said to consider rich new position. E i have a chart for you, because we are talking about commodities, global synchronized new position. Growth, but this is the question mark i have. Copper. Versus what does this chart tell you in the context of a global synchronized recovery versus we are dealing with some shut in for supplies. Peggy i think copper has had a rally, in part to china shutting down due to pollution concerns. It is a reminder that with china as it is growing into the global economy, there are things where it is still a risk. The government just comes in and shut something down. It is not only copper but aluminum that analysts are seeing head into the new year on one of the strongest bounces. Alix when i think of a commodity rally i think expect Inflation Expectations will rise. Matt these individual idiosyncratic movements in various Commodity Prices may not be all that important for the u. S. Inflation outlook or policy outlook, but the effect they are having on break even inflation rates, it is up to 1. 5 this morning. It is a must back up to the fed is so concerned about. That is the highest in eight months, so the extent that some of these movements take that Downside Risk to inflation off the table for the fed, that is what the have been focused on. That argues well for additional rate increases. David you think copper is indicating a broader resurgence in Commodity Prices. How much does that affect the u. S. Economy versus emerging markets . Peggy it effects emergency markets more emerging markets more. Follow that trend in terms of outlook, and oil in some ways is another big factor and has taken a slump in the recent days. Alix the china survey it overnight and an interesting , inventories accumulating, manufacturing orders stopped accelerating, hiring stopped accelerating, wage gains stopped accelerating. That is a different story than copper at 7000. Matt another thing i think is on a lot of peoples radar in china is the Property Price cycle that has started to turn down. That has been a reliable leading indicator over the last several years of broader swings in the Global Economic cycle. When we are coming off several months where we have seen a real upswing and upside surprises to growth around the world, if we are settling back into a more thatl trend, then perhaps kind of removes some of that impetus. That is something i will be watching. Preliminary Sales Numbers indicate a strong Holiday Shopping season. Aresee the big retailers up, but the chart also shows that apple is not sharing in the holiday cheer, at least yet. Disappointing sales of the iphone x. What do we read into the retail sales . Peggy it is in courage in, because people seem to have more disposable income encouraging, because people seem to have more disposable income. They did some sales ahead of the online Holiday Season and are trying to deal with online. I was in macys a few days before christmas and they was teeming with people. They had a lot of things to attract people like the opportunity to buy something online and pick it up in store. Alix where are the sales . I was expecting to get everything 80 off and i was really shocked. It was not a freeforall like in the past. Matt we saw a big gains in electronics and household furnishings. It has been a very strong retail sorry season, the best in many years, but coming back to and tooktion outlook, a lot of discounting to bring people into the doors. It is not really clear. A strong consumer is good news for the fed and the economy, but does not necessarily translate to hire inflation. Alix the saving rate is lower . A bit of ais concern. We are seeing an uptick in Income Growth so maybe we will see a floor under that. Lingeringstill questions about not only the health of the consumer but the price outlook. Id you wonder well this whether this will read into the Fourth Quarter gdp numbers. We have seen some pretty robust growth. Important toalso remember with retail numbers, they often shift in the First Quarter because a lot of us by things and return them. A lot of the companies did up the sales ahead of time but offered free shipping. We will have to see how it levels out. Apple did not have as strong sales as people expected with the iphone x. We will have to see how that plays out. Alix did you get the tend . I bit theave a x. Bullet. There were such promises about huge iphone x sales. Alix and Virtual Reality stuff. David it is face recognition. The third story as we head into the new year, we will find out home President Trump will nominate for vice chair, replacing Stanley Fischer. A former economic adviser to lindsey isush, larry under consideration and rich clarida is also in contention. We do have some openings on the fed, and this is an important position. How could this influence affect how the fed addresses the economy . Matt we are going back to conservative fed tykes. Types. Larry lindsey and rich clarida both served in previous republican administrations, that Richard Clarida is wellknown for his pioneering in the new macro framework that is kind of the benchmark and baseline for fed policy in Central Banks around the world. Larry lindsey has been talking about, we need to worry about asset price inflation. It is interesting that we are in this time of a lot of uncertainty about how the economy works and how it has changed since the crisis. You see the white house going back to these names that pioneered the framework prior to the crisis. All of that taken together, probably augers for highly or higher interest rates. David it would be interesting if the white house planned keynesian economics. Peggy that is one of the things that Richard Clarida has said as recently as december, it does look like we are going into 2018 this goldilocks environment continuing, but we may be at peak in terms of the economy, and there are not as many levers for the government to pull once the tax cuts are out of the picture. Interesting that he has recently said on Bloomberg News that he sees four rate hikes next year because of the tax cut and the current economy, if inflation picks up. Alix clarida probably will not come onto television for the for seeable future. Coming up, we dive deeper into the commodities rally. The outlook for Energy Stocks in the new year. Alix the commodities story of the day is copper, supply cuts giving it a boost with prices hitting a threeyear high, china ordering its top producer to stop production. And fun to getsy hyped up when it comes to a higher commodity price, but is it sustainable . There is some feeling that we have something of a supplied french coming crunch coming. The market probably got ahead pricing in shortages that were not necessarily justified, but we are starting to see a turn. There is not that much tonnage out there that will come across and give relief. What we are seeing in terms of the etf flows is a play on global growth. We were making references to the goldilocks economy. That certainly seems to be what we are seeing in energy and base metals. Alix what do you make of the gonethat iron ore has not with copper . Stuart it is a little bit of a bellwether a little bit like copper, but do not pay too much attention if you want to bet on gdp. Iron ore is a different story to the rest of the complex, and it has been incredibly volatile this year. What it comes down to is how much more attuned is this to what is going on in the chinese economy . Trying to get the balancing act the between pivoting to a economy, away from the manufacturing base, but making tweaks along so you do not have a huge dropoff in growth. That is exactly what we have been seeing. David talk about the demand side and how it relates to china, whether it is copper or iron ore. How important is that to the construction level . Stuart very important unit there is also some geeky stuff you can look at in terms of the purity of the oil they are buying. That tells you something about trade patterns between australia and chinese Domestic Production where you get the lower grade oil. The higher the steel prices move, the higher the oil grade from australia and south america. Sector, construction there have been attempts to prop up that sector and that plays into the base metal demand. In 2018, i do not think there is a great sense that that will change. They will have to make adjustments to keep growth rates rather stable before falling off a cliff. Alix Stuart Wallace of Bloomberg News, good to see you. It is not just copper rallying, but oil as well. Yesterday you saw wti over 60 a 70. L, brent also at lets bring in walter todd who joins us from columbia, south carolina. I have a my Terminal Energy withs have not kept pace oil stocks. Theblue line is wti and white line is Energy Stocks versus the s p. Does that gap close next year . Walter we think it could, and it is started to close in the last few weeks. The white lineEnergy Stocks in genee under owned by investors because it has been the worst performing sector, or one of the worst this year. As we move into 2018 and see this reflation trade starting to take shape in the market, we think Energy Stocks are poised to do well in the new year. Alix how would you be playing that . Walter there is a variety of ways. Explorationon companies, domestic and global. You could look at bp on the integrated oil side, Conoco Phillips on the e p side, and also the Service Names have been extremely hard this year and we think are due for a rebound in 2018. A global operator would do well. David follow that segmentation. Where do you see the biggest opportunity . The Service Companies as opposed to the e p, where are the biggest opportunities . To go if you expect oil higher, the lower down on the lity side the more integrated is probably a more stable move down to e ps like, go, and farther. The Service Names, schlumberger above whereot much it was when oil was trading at 26, so i think there is some significant catch up to be had. Alix lets burn it out to commodities in general, Commodity Prices versus stock prices. The ratio between Commodity Prices and stock prices are at a record low, surpassing the low we saw in the late 1990s. Do you want to be playing the energy theme throughout the commodity sector . Walter i think you can play that for the extreme, as you said, valuation disparity you are seeing in commodities versus paper assets or stocks. At levels of the internet bubble, you cannot see that in materials, in energy, through the industrial sector. There are ways to play it in multiple different sectors for this reflation trade that we think we will see in 2018, because the Economic Growth is extremely hot. Packageprior to the tax hitting the Economic Growth numbers in 2018, so we think the economy may be at risk of overheating and 2018. , i hope it istodd a live shot behind you because it looks a lot warmer and sunnier than in new york. Walter not quite warm. David next, we will be talking another sector seeing a rally, retail. Live from new york, this is bloomberg. David consumers gave retailers a Christmas Present this year, the best sales in years. Could this be the start of a longer rebound for Retail Stocks . Still with us is walter todd joining us from columbia, south carolina. Lets start with retail, Consumer Discretionary. Where are you on that . ,alter Consumer Discretionary broadly speaking, has been under pressure. Looking at the retailers for a lot of the year, but the past few months you have seen a rebound starting with black friday, and we have seen reports that sales have continued to be good as we moved through the Holiday Season. I still think there is opportunity in retail, although we have seen some pretty big moves in the last few months. A have benefited from the tax reform, which a lot of these Country Companies are domestically oriented and will benefit. David give us some names. What do you like in the retail space . Walter one is to stick with the winners that are somewhat protected from the behemoth of amazon, like home depot or or cost go, but also the Branded Companies like ralph columbia. Ford, and through multiple channels and do not have big retail store exposure. Alix what do you make of the rally that we saw in names like jcpenney and kohls yesterday . It oversold because their sales were not terrible . Walter the expectation level on a lot of the Department Stores got very bad earlier this Holiday Season, so i think you are seeing a bounce. I think those are still challenged is this models when you look at the Department Stores going forward, but you could see some m a in 2018 and the space. There is talk about amazon looking at other retailers like coals. Kohls. David you are fairly confident into the first half of next year but have questions in the second. Why . That thehe fact economy could potentially overheat, and this could cause the fed to get more aggressive in the back half of 2018. Comparisons from an Economic Growth and earnings standpoint get tougher as we move into the midpoint, and a Midterm Election. In Midterm Election years, the market tends to be more volatile. The average drawdown is about 18 . David how much will the tax overhaul carry us through that . Walter i think the tax overhaul is really starting to be priced in and i think will provide a lift in the first half of the year, but i think the overaggressive fed is, Midterm Elections, more difficult comparisons on the back half make that more challenging. I do not think the tax deal will be able to necessarily overcome those factors. David thank you so much for joining us, walter todd of greenwood capital. Alix did you do your part for the Retail Industry . David i did my full share. Alix i really want a baking. Tores storage unit i was scouring stores yesterday and they are expensive. David use the jars with the screw tops. Alix it is too much. David i have these oldfashioned glass things. I am an oldfashioned guy. The oscarwinning producer who financed movies like bird man, once cryptocurrency to finance future films wants cryptocurrency to finance future films. Alix this is bloomberg daybreak, i am alix steel. Happy wednesday of the shortened holiday trading week. Dow jones features up about eight. Closed lower yesterday. European stocks relatively flat, that the metal and mining index copper, inoil and particular, seeing a nice rally. Broadly, a weaker dollar story, the dollar index down 3 10 of 1 . The euro gaining 11 against the dollar this year, and strategists do not feel good about the dollar. I put the three year in here except for the 10th test instead of the 10 year because it is at the highest level since 2007. The front end of the curve could be under pressure, so interested in watching that. Oil softer, copper slipping into negative territory that it has had a nine day winning streak, the longest since 2004. David it is your kind of day, a commodities day. A good day for alix steel. Lets get an update on what is making headlines outside the business world. The latest United Nations sanctions in north korea are likely to deter their nuclear ambitions. The Un Security Council unanimously approved new sanctions, to cut the trillium products almost 90 .