London, this is daybreak europe. Animal spirits seems to be present. That seems to be the story of 2018 so far. Asity markets are doing well we said in our headlines, the dow hitting a new record, many indices hitting a new record. Msci asia picking up where they left off. Data fromd robust various locations, whether its the u. S. , china, or europe. All of that underpinning the strength we are seeing in these risk assets at the moment. We have the Dow Jones Futures in their. In there. Despite the snow perhaps. The jobs data it will be crucial, the two numbers we are watching, not a great start for the year for the dollar. Prices put in the nymex to show they were pretty stable after what we have seen via record run of gains in commodity markets. Around that 62 a barrel. Animal spirit in these markets, certainly a theme. Manus a couple of big things. Rises. Asking for 3 wage , the relationship is broken. Well talk more about that between inflation and the job market, but the animal spirits you refer to is the dow market. The pace, the velocity of the market. This is the global risk on, risk off. It is the risk sentiment rising to the highest level since 2015 and the quid pro quo is that you have the dow above 25,000. Its the pace of those moves. It has 18 components, six of them are equity, two of them are currency, two of them are commodity. The question is this, are you in a melt up situation . What possibly could go wrong . Becausee phrase melt up the cofounder says there is inevitably a crash. You cant anna lets see if we can get animal spirits. Jim akaka and come up printable Global Investors ceo, note dancing required, he will be asked about where we are in the cycle. Well get into those conversations and get his thoughts on the job market. Lets get bloomberg first word news with Juliette Saly. Juliette in the u. S. , dysfunction, backstabbing, and chaos in Donald Trumps administration is to be published ahead of schedule. Triggered aion rupture between the president and his former chief strategist, steve and. The white house steve bannon. The white house contest issues raised in the book. Its disgraceful and a laughable. If he was unfit, he probably wouldnt be sitting there and unseated the most qualified group of republicans the party has a scene. The strong and good party has ever seen. He is a strong and good leader. Holding north korea is talks ahead of reducing tension. South korea says the agenda will include north koreas offer to send a delegation to the game. The breakthrough came after south korea and the u. S. Agreed to suspend plans to joint military drills during the games next month. Argentina has sold 9 million of debt and tapping the International Debt market ahead of developing economies. Of 5, 10, and 30 years. 6. 95 respectively. It was led by citigroup, Deutsche Bank, and hsbc. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find it more stories on the bloomberg at top. Checking in on asian markets, on the final trading day of the shortened week in the first week of 2018, we are asking the interdict it the index for the best weekend. Hong kong has been fluctuating, so it may not make it nine wins in the row. In terms of stocks we have been watching in the region, the be rising sharply in hong kong. There are reports they could be increasing some of the prices of its products by as much as 5 very 5 . This is a blockchain in china that has been doing quite well. This is a Cellular Company in india doing very well on the fact that sale is a has raised the stock to above to a 10 month high and the expectations that a merger could happen earlier than expected. Anna . Anna thank you very much. Juliette saly for us in singapore. Later, we look at the jobs report for december. According to a median report, the economy probably added 190 thousand workers last month. A separate survey showed the on employment rate likely state at 4. 1 . Lets get the thoughts on the subject with the ceo of pretzel Global Investors. Principal Global Investors. Great to have you with us. Guest great to be here. Anna lets start on the subject of jobs. I want to ask you about the jobs injured in the United States and where we are in the story. I have a chart here. Discretions whether we are midcycle or light cycle in the jobs story. Putting aside markets, where do you see the economy in the u. S. . Guest we are fairly late cycle. I dont think we are facing up to the extra session and the downturn in the market, however. I would take some comfort in the fact that individual investors are not fully in. They have not filled in their boots in yet, but the rating of equities in the u. S. Remains in the range, maybe high in the range, but in the range, or tee times earnings or so, a little bit higher perhaps or so. To me, with a basically healthy outlook for the next year or two, the equities remain setbacks. Buying setbacks continues to be where i would anna we will pick up on that later. Manus in terms of great debate, we get wages data as well. We are looking at plus. 3 30 this is the debate we have had. Whether it it is on snooze. Bullard said that relationship is quite is questionable. Do think phillips curve is on snooze what you think Wage Inflation will come through in 2018 . Guest the thing that has delayed Wage Inflation and disoriented the phillips curve is the pace of technology and innovation in the economy. There is a lot of deflation around and not all of it is captured by Inflation Numbers. You have massive outlet substitution from the move from Department Stores to ecommerce. Stuff is cheaper that way. But the Inflation Numbers dont record it. Thats an example of very widespread phenomenon, that we have deflation in the economy. I would argue that wages will go up, unemployment is low, that it wont go up enough to put pressure on Consumer Prices. You could be in a benign environment until the work gets to 2. 5 percent wage increases and maybe there is almost nothing in terms of Consumer Price inflation. Anna where does that leave the fed your assessment . If we got low rage environments, how many hikes daisy next year . Do ucf gear this year how many hikes do you see next year . Guest i think opinion is divided between three and four increases this year of it i think it will probably this year. I think it will only be to. Be two. I think the deflationary impact of technology will continue to surprise people on the downside as regards to Consumer Price inflation, as regards to the demand for funds and Interest Rates. Technology makes capital utilization more efficient. That means you have a structural excess of the savings over Capital Investment in the world. That is important and that means its hard to find higher return opportunities with money. That means wage and money will keep rates down. Those things will continue to surprise people who are plainly applying the phillips curve. Manus if you take what you have just said, we have had every church under the sun anna some people say who cares . Manus have a look at this. I have taken the dollar position , we are talking about risks for 2018. I find this article quite interesting. Dollar is on a roll. Here we are, the market is so short the dollar, but it could be the upset. If the dollar were to rally, given you only think the fed will do to hikes, this could be a market upset. Guest it would. Manus you think this position is a bit too small . Guest i think it probably is. The commentary around tax reform was this was not necessarily good for china, southeast asia, because dollar funding would tend to go to the United States for a higher return area higher return. Even tax reform will tend to , or an a demand of funds inclination of funds to go back puts pressurehich on American Markets. I have misjudged commodities of it in the last few months. They have been stronger than i expected, but the fundamental supply it remains strong. It is technology driven. Anna it will be interesting the United States versus the rest of the world and indy the fed policy. We will talk about that more and indeed, the fed policy. We will talk about that more in a moment. We have seen President Trump very active on twitter this year on the subject of iran, pakistan, defending his own reputation. In terms of geopolitical risk, other areas you think market is underpricing risk . Guest i think it is definitely heightened. I dont think the equity market is underpricing it because i do think the market is not as high as it might be if it was purely looking at the fun of the background. I think the heightened jew political risk, obviously geopolitical risk, obviously the korean peninsula, runs the risk of destabilizing important parts of the world. You have european politics. The french collection make everyone think european politics are quite benign, but they might not be. The opposition parties are quite antieu in italy. This could come out in different ways. There are negative risks that could unhinge parts of the world market. None of the ones i said are merely u. S. Based, but there are things that could slow down this benign outlook. Manus a lot of the risk we identify as being heightened risk did not come to fruition. Fulld not pull out of the trade agreement. I want to get your closing view in terms of market. We were so bullish on the dollar. Have a look at this. This is from gml. He says, the market is going up faster and faster and there is no way commercially that i can play against it, so i have to keep dancing. He says, at least i dont dance off the cliff. Hes channeling the 1990s. What could unseat the u. S. Equity run . Guest the things that could unseat it are negative tell risks. Even a policy mistake by the u. S. Government. Manus what would be a policy mistake . On a having a cold confrontation internationally. So far, President Trump and his administration has talked tough and acted very thoughtfully, but that isnt a given. You can see that military hostilities, trade hostilities, you mentioned the nafta situation, those could cause a lot of trouble in the world markets. The thing that i think all editions underestimate politicians underestimate is how linked these economies are. That stuffhis thing gets made and it is shipped somewhere else. Its not like that anymore. There is a Global Supply chain. Whether car industry or appliances or anything else. If that supply chain gets disrupted by a bad brexit or bad nafta exit, that would be bad news for the rope economy. I think the interconnectedness is something to look out for and is something that is underestimated by politicians. Anna that is fascinating. Thank you very much. The ceo of principle Global Investors stays with us. This person who joins us for an exclusive interview. He has been setting tax reform signed into law by trump is one of the good things and risk of earning that yield curve. Anna we will also be speaking to kerry cohen at 2 30 p. M. U. K. Time. Up, asia stocks are on the brink of their best week in six months. We discuss this next. Manus and the German Grand Coalition loses support. The public becomes increasingly weary of Angela Merkels plans to extend their alliance with the democrats. This is bloomberg. On 6 19 a. M. ,st still in the midst of winter. Days. For two it seems to be slightly more en vogue trading. Ing yesterday putting out one of the more bullish calls i have seen. The bank of england perhaps is being underpriced that is one of the outliers. Maybe not. We will see how the day goes. Theres a business flash to be had. Lets get to Juliette Saly. Ceoette over performing plans to sell his stake in the right having right hailing company. Kallick. Bank and he has never sold any shares in the company he cofounded. Apple said all Mac Computers and i was devices like iphones and ipads are affected by chip security flaws. Recent Software Updates mitigate one of the vulnerabilities known as meltdown. The apple watch, which is a derivative, is not affected. Hna groups walked away from negotiations to buy a stake in valley partners. To funded out of talks it from its founders. The move is said to come after a final agreement was expected to be signed. That is your Bloomberg Business flash. Anna thank you very much. Cusp ofcks are on the their best week in six months. Investors have been piling into equities and made robust Economic Data from europe to china. Manus jim is with us. Lets talk about japan. Ts been a great run abenomics has been vindicated, this fungus growth since 2001, but the starting line you say is that japan is a balance. You have quantitative easing, but you would advocate that we need a fiscal arrow going into this year. Make itf we were to more sustainable, they need to ease fiscal policy. Rise in of the whole japan and recovery in japan has been the boj. Theyre quantitative easing has been the best in the world and all the issuance, even buying equities, this has been extreme quantitative easing and its had to be because it is tight fiscal policy. There is a big overhang of government debt, which is why there is political reluctance to fiscal easing. The imbalance will make the recovery in japan a little more shortlived than it needs to be. Anna you talk about the equity markets done well after the qe. I have this chart. This is the upbeat start we have seen from the japanese equity markets. You said something interesting. They need fiscal stimulus if monetary stimulus is going to be dialed back. Do think thats happening . Do think japanese is going to follow out of quantitative easing . Guest one of the reasons they like to do quantitative easing is that they need the yen to be fairly weak. They dont want a strong yen because japan, although its less sensitive, its still an export oriented economy. They have many fine companies. But if they get into a year of overvaluation, businesses will have problems. That will keep them on the qe track for a while. Fiscal expansion would do the same thing and could be a Sustainable Way to run the economy. Are a sales tax hikes very negative impact. We are talking about policy. This is the money supply in japan. 0 on the bond market. Money supply has fallen in real terms versus a year ago. Dont fight the bank of japan. They are able to keep 0 target in check. Where are you on the debate in terms of all ships rise in ecbs in a new era . The fed is in a new era and the boe is in a new era and quid pro quo, the bank of japan will have no choice but to move to keep pace. Guest that depends on how quickly the ecb moves. Europe is looking quite good. We have seen all the numbers in the last six months or so. It has been surprising many people on the upside. Confidence is good. How sustainable is that with the continued issues of politics and of the Financial Sector in europe . My guess is that taking all that into account, you are actually in a more for carious estate in japan and europe than in the u. S. Because of policy unbalance unbalance, and i felt for a little while we are getting into cell and strength territory in european and japanese industries. Maybe not in an aggressive sense, but dont push it too far. Anna some people say thats because investors are enticed by Global Growth opportunities, risk appetites. Other parts of the world pick up returns. You are telling something different, that you are saying it doesnt it in the rest of the world. Guest thats right. The policy mix after the Global Financial crisis, which is all must 10 years ago, the policy mix works very well. You have fiscal and monetary expansion at the same time, you had some quite aggressive moves on the regulatory in government front to recapitalize the banking system. Policy mix has led to more sustainability in u. S. Recovery than was the case in less balanced polisario territories, policy territories, most notably japan. Anna he stays with us. Have next, mifid ii has landed the biggest regulation change in decades. Any teasing problems, what could like ahead for regulators . What we are learning in the first week of implantation. We will talk about method and general politics. This is bloomberg. Heres a shot of the Emperors Palace in tokyo, 3 30 in the afternoon. The nikkei is charging ahead. Jim has said this is one of those rallies. You dont want to push too hard on it. You might want to consider pushing against this slender rally in japan, relative to the nuts states of america. 23,714. Ei trades markets are moving, records are being made. Guy johnson has the latest. Jones,000 on the dow matt miller is back at work today. I assume hes brought 25,000 jackets to work today. We will wait and see, looking forward to that. Its interesting to see whats going on in these markets. The question is, you look at the almanac. Its a question a lot of people are going to be looking at. The numbers are compelling. Micex is trading up as oil to use to rise 2 . The oil market continuing to rise. Yesterday, the dax had a strong session. The equity markets of their are very strong. The omx and the s p 500 pushing above that 27 level and continuing beyond it. Riskally is definitely on off, risk on. Its a very much risk on at the moment. 3 ,ese yen fading, down the aussie dollar also down. 2 . Gold is trading up. Back into the start, copper trading down. 2 . Oil is reasonably flat. We have data yesterday, payroll is coming up later on. Interesting to break them down. Just a quick look at what is happening in terms of fair value, ftse is trading at a slight decline at the getgo of trade later on. Back to you. Anna guy, thank you very much. Angela