Good morning, everybody. Welcome to the pulse live from bloombergs European Headquarters in london. Im guy johnson. Francine is off today. She is in italy. She will be back tomorrow. The markets are surging. We have seen a positive reaction in stocks to the news out of the Federal Reserve last night. We are up nicely across the board. Some markets up well over 1. 5 . London up nearly 1 . Gold has been under pressure. That has certainly been the story of the morning. Lets show you what is going on some of the other asset classes. Gold at 1205. Well deal with the Foreign Exchange markets later on. The yen certainly fascinating. Lets get details of what we lernt last night. Seems like we could be in for a positive taper, a dovish taper, a bullish taper. Hans nichols joins us. He spent years in washington covering all kinds of things there. What do we get . We get that ben bernanke finally hit one out of the park. His last atbat. We have a slow taper. He has finally convinced markets that tapering does not mean tightening. They are going to keep low Interest Rates. The key changes they made in terms of the policy decision is they will keep unemployment, the when term rates well past unemployment dips below that 6. 5 level. We certainly have not given up. Nothing we did today was intended to reduce accommodation. Well still buy assets at a high level and increase our Balance Sheet and hold on to those assets. We strengthened our guidance to make clear that we expect to keep rates low. They are going to be increasing the Balance Sheet. At the end of quantitative easing if you take the stedge of 10 billion a month, you get to about a 4. 5 trillion Balance Sheet at the end of 2014. Then we talk about how they unwind it and that is a fun conversation as well. Guy . It is like the whole challenge really is laid out in front of us. Presumably bernanke and yellen joined at the hip on this one . All we have is bernankes word for it but so far his word looks pretty good. He says that janet yellen is with him and they are committed to this idea that the data will driver the decision. Have a listen. If incoming information supports further progress toward ts objectives, the committee is likely to reduce the pace in monthly purchases in further measured steps in future meetings. Asset purchases are not on a preset course. Guy, inflation is the new data point. The sound youre hearing across trading floors is traders switching their cal ders to look at when the Commerce Department reports inflation opposed to jobs numbers. Hans nichols, thank you very much indeed. Our international correspondent. Saab shares are taking off this morning. The Swedish Companys stock up more than 30 at the open of trade because it has been beaten boeing and rafael combat over brazil politics or spying could be to blame. Itthe saab gripen beats out, would seem. Up the most we have ever seen. Currently trading up about 23 . It snatches that deal, 36 jet fighters going to brazils air force worth 4. 5 billion over the next decade. Now it is a strong buy. The order that brazil has placed has doubled saabs order backlog and will work as a door opener on other contracts. This is the sort of thing that boeing has lost out on. Fascinating reason to why it has lost out. Down to politics. The spying incident. Of course it was alleged that the u. S. Was spying on the razilian government. This is an t said affront. The defense minister himself seems to be saying not quite true. Yeah. The seen as being a real frontrunner. Everybody i was talking to said it is almost a done deal. It all happened so quickly. The lowing problem looks like we can draw a line back to the n. S. A. Thats why many are saying it is definitely because of the spying scandal and they dont feel they can trust United States anymore and it is a slap on the wrist. Brazil is spending 8. 6 billion per year over the next two decades. Is any of that going to go to u. S. Companies . Certainly the defense minister said no, the reason we chose saab is because of the performance and cost. Saab has always said they are a less costly, more reliable alternative and there is a willingness to transfer technology. There is more politics to this one than meets the eye. It has politics written all over it. Caroline hyde on the story coming out of brazil. A couple of pharmaceutical deals out. Bayer has agreed to buy algeta or 2. 9 billion. Astrazeneca buying Bristol Meyers. Research across a series of major sectors. Lets start with bayer. This fits the bill. They have done a series of acquisitions which this looks pretty much in context. It certainly fits the bill. It is actually one of the largest deals they have done in the past quite a few years. You look at the table, you find this is about the fifth largest deal they have done. It is actually the biggest drug deal they have done. There has been some deals on the chemical side but not on the drug side for quite a while. That is an easy deal to understand. This is they are in the diabetes business. That is a growing area. We all know that. It is an epidemic affecting everybody in the world from china to the United States. It is a good area to be in this terms of the growth potentially. However there is a lot of competition. It is where they have half of their business. They are buying the Bristol Meyers half. Hese are troubled assets they are taking a 1. 7 billion charge. They paid 3. 4 billion for that. This deal this half is about the same sort of number that they are paying for. That has got some issues. Another product that is part of this package, you know, it has lost its lead in the u. S. It is going to be potentially second in the u. S. Market. So we have some issues with the number of products in this portfolio. It will be interesting to see how this pans out in the end. Cool. Youll provide plenty more analysis. What else is on our radar screen this morning . The russian president Vladimir Putin is speaking at his annual conference in moscow. He said the bailout is spurred on desire to help a partner. It is not linked to the ukraines twalks the European Union. A fund manager has been onvicted of insider trading. Michael steinberg agreed to plead guilty last month. E. U. Ministers reached a deal on how the handle the bailout of banks that get into trouble. Well have more on this story later on in the program. As we head into break, the unit eads is about to launch the mission from french guyana. Youre looking at live pictures. Well be back in two minutes. You are looking at live pictures of soyes flight launching off from french guyana. This is a space telescope that will reveal things about the universe that are going to be absolutely incredible. This is a platform thas going to be able to see that is going to be able to see further and in more detail than we have ever been able to see in the milky way. It will map out the milky way and plot all kinds of objects that we have never been able to see before. Once in orbit which will be a pening in a few minutes, series of key bolt also need to fire to shield the satellite from the suns rays allowing it to become cool. The next hour is probably the most critical in the process. Live pictures coming to you from french guyana. It is a pretty clear morning out there. If you poke your head out to window here in london, you might be able to see it going overhead, if you can open the window, that is. Lets return to another liftoff of kinds that we have seen over the last 24 hours. This is story that the World Markets have been waiting for. The feds decision to begin scaling back its record stimulus program. Chairman ben bernanke bern said they would keep rates low well fast unemployment threshold of 6. 9 . Joining us is mitsubishis global head of market research. Good morning, derek. Appropriate pictures there. We have liftoff finally. How should we read what the fed has told us . Well, what the fed has told us is that based on the current pace of removal of asset purchases well be in q. E. Mode for most of next year. There is a lot of celebration about this wonderful Forward Guidance by the fed and Risk Appetite is growing stronger. The word could become meaningless very, very quickly. The only real credible element of forward guide sans the action of the fed and the fact that they are telling us q. E. Is continuing on for most of 2014. That is an important aspect. In england, forward guide sans much more difficult. They finished asset purchases last year. The e. C. B. Forward guide sans not credible. Money is pretty hard to understand. Talk is a lot more difficult. And were going to be dealing with yellen so we have to learn a little bit about her communication style. She has been running the communication strategy. Are we in for a more volatile period then . Youll probably hear this a lot. If you go obviously at the 10 billion pace, were through until the end of next year. It was notable if there is an implicit bias in the speed of removal of quantitative easing, it is a bias towards speeding up. Bernanke said if the economy improves, we can speed it up and if it disappoints well pause. There is an implicit bias there. They have been forced to backtrack before. When the Economic Data has oftened. Teetering on a deflationary shock rather than inflationary shock. That is a significant risk. Sure. There is a risk absolutely that they could slow. In terms of inflation. I think there is a danger here. Any economist will tell you that inflation reading today is telling you where the economy was maybe 18 months ago or even two years ago. There is a danger we make the same mistake that was made in 2003 and 2004. That is when ben bernanke got his name of helicopter ben. There was a great fear of deflation in the u. S. Economy. They actually cut rates in 2003. Of course the activity data was picking up. Essentially the concerns of the deflation back then were wrong. They have to look at the activity data. To date it is clearly picking up. When you look at the implication s of this for other Central Banks, what are they . Ben bernanke has an effect well beyond the shores to have United States and the e. C. B. Has got to be looking at this. The dollar reaction hasnt been that strong. Draghi has to be nervous about that. He will be hoping the dollar is surging. As i have said here before, the direction of the dollar is not just about fed policy. It is about how other Central Banks respond. The dxy is nearly at 80. Were in the middle. Where does it go . You have to pick and choose. Euro dollar, i would say forget about it. Traders and investors are tiredor trying to take a position there. Nobody wants to sell euro. I cant remember the last trader i met who made money out of selling the euro. What i would look at is for example, one interesting aspect today is if you look at asia, their markets portland well part from china performed well, apart from china. It looks like what happened in the summertime. There is a risk there that maybe Commodity Currencies come under greater pressure as the markets start to focus on potential risks over the shortterm on whats happening to china. I would look at aussie dollar. They are looking at all of the flows. Were at a record deficit in canada because bond inflows to canada have dried up while we have a current deficit. There is a lot to argue for the dollar to continue moving higher. Especially if the china story were to reverberate. Shortterm funding for the china money markets. Liquidity is becoming an issue for them. They are becoming concerned. Sure. They dont want to see a repeat of what happened in the summertime. They are going to try to deal with that more proactively. Certainly that could help ease concerns. But no doubt, were in a situation where yields are moving higher there. That could result in some concerns over growth Going Forward. Bernanke has to be sitting there this morning when he wakes up thinking finally i got this one right. The fed is going to take a great deal of comfort from that. Do you think the Market Reaction is going to feed back into a further acceleration of q. E. . The fact that we can do it and nobody is freaking out and it seems to be a fairly calm reaction or positive reaction means that we can get it done more quickly than anticipated . Yeah, o i do think so. The reason they have gone today is they realize that tapering is not tightening have sunk into the markets and they were comfortable doing it. I would not be surprised if the pace picks up. They have been ultracautious. Dont forget in the summertime they said tapering would be finished when the Unemployment Rate got to 7 . We just started. Once the pace picks up, Forward Guidance, verbal Forward Guidance becomes less credible and inevitably at some point next year, i think the twoyear yield in the u. S. Is going to start moving higher. Derek, thank you very much indeed. Always a pleasure to speak with you. As we head into break, lets take a look at how the feds move has impacted the markets. We have seen a positive reaction pretty much across the board this morning as you can see. A sea of green. Gold touched 500 earlier on. Not a huge amount of reaction. There is gold. Below 1,200. Gold has been under pressure for quite sometime. Were going to take a break and be back in a couple of minutes. Good morning, everybody. Welcome back. Youre watching the pulse live on bloomberg television, radio and on your tablet and phone. Lets look at the hot shots on this thursday morning. In sydney, australia. The sights at st. Marys cathedral. Lights illuminating the church to celebrate the christmas season. The light show will continue daily until christmas day. Clowns marching through mexico city. E event is part of an annual pilgrimage to give thanks to the patron saints. The school established in 2002 has grown into a countrywide program, teaches kids to become leaders and pretty good jugglers by the looks of things. Ine hyde juggling ling all the stories you need to know. He has had a bit of a trick. Ben bernanke managing to taper and convince the markets that he wont tighten. Stoxx 600 currently up. United states stocks at record highs. Every single Industry Group is gliming as i speak. Rates will remain near zero even if we see unemployment fall below 6. 5 . Barclays says look for 10 billion to come out in stimulus each month. Rate also not rise until mid 2015. That is why were seeing such jubilation in the markets. Yields creeping higher for the United States. Up four basis points. 1. 6 . Remember, u. S. Rates overall, if youre going to see less purchasing of the bonds by the government, well see yields edging that much higher as bond prices fall. Were seeing more buoyancy in the markets. The u. K. As well seeing bond markets fall. Yields, borrowing costs rise. The dollar is on the rise. 1. 3670 across the board, the dollar is strengthening. That is going to be the tale of the next year. Stimulation has tended to keep the dollar lower. Back to you. Thank you very much indeed. As we head to break, time for the pulse number. 2. 3 million. Stradivarius ch a violin sold for at auction. Well see you in a moment. Good morning, everybody. You are watching the pulse live in london. Im guy johnson. Francine lacqua off today. These are the top headlines. The Federal Reserve is trimming its monthly bond purchases to 85 billion. Inis the first step unwinding the historic stimulus that was first put in place during the financial crisis. Is likely to stay low well pass the time that unemployment drops below 6. 5 . Bank is looking to cut costs. Investment bankers could receive bonuses. Sales people could get cuts of around two percent. Finance ministers from the European Union have delivered an agreement for paling banks failing banks. They will pledge to develop a fund tofor failing banks. And they agreed on costsharing procedures. Lets talk about the story, and how it has been progressing with david tweed who joins us from berlin. Up, merkel said, hurry but the criticism is ringing in everybodys ears. Draghi criticism. If you look at the way they are structured, the european banking resolution mechanism, it looks clunky. Let me tell you how it is supposed to work. The European Central bank in its role as the single supervisor is supposed to identify a bank that is having problems. It goes to the banking Resolution Authority, which then decides what to do. If the Resolution Authority wants to wind it up, it lets the European Commission know. If the European Commission does not agree with that course of a ction, then it goes to the council of ministers. That is suppose to only take 24 hours. Maybe 100 people involved in that process. It looks extremely clanky, and difficult to administer. The other problem is that this entire Resolution Fund does not have a backstop for 10 years. If a bank needs money, where will it come from . The National Governments will have to stump up the cash. That does not break the Government Bank they were trying to break. Focuses on market this, it will be interesting. Leaders are getting together in brussels today and tomorrow. Merkel has been talking about where the eu goes next. What implications are her comments going to have on the conversations these guys will have in brussels . The thing to focus on is a german proposal about greater integration. They call it contractual agreements arrangements. Member states will have to agree uh, certain reforms or certain targets to make their economy more competitive. Merkel said there might be 10 of them. One of them