Transcripts For BLOOMBERG Bloomberg Surveillance 20171227

Welcome. It is surveillance. Im manus cranny. Lets check on the markets. One view we have had dominating through the program is that inflation will recast itself during 2018. The market has the biggest long bets on bonds since 2004. We have got the three month yield here. That is driving the debt ceiling anxiety, shortterm investors demanding more. The bit to cover ratio, the highest stopover rate since 2008, and the lowest bid to cover ratio since january, 2009. But the asian equity markets and European Equity markets, rallying. Taking the cue from the commodity market. Copper is bid. Oil is bid. An overalleing move higher. Oil, we did make it above 60, i assure you. So, we traded post the close up at the highest levels since 201 5. We have the libya outage. Dont forget, we had the u. K. Outage a couple weeks ago and that spoke to market. This time it is libya, 100,000 barrels a day is a good be taken out of the supply chain as libya has an outage. More on that pipeline explosion a little bit later. This is what weve got in the show. At crosson the cio Bridge Capital will join me. We have got trusted sources jonathan fendi and the senior fellow at Heritage Foundation joining us. In the meantime, lets get your first word news. Reporter we are starting with the oil story, which is trading at the highest level in more than two years. Carries crudet exportsa and terminated yesterday. Saudi arabia is expected to see 23, revenue jump 80 by 20 helping the record the first Budget Surplus in more than a decade. Copper has surged to the highest level since 2013, after trying to have the parties are to halt outputs. Demand, as well as apply, hits the market. Days, after aine 30 jump this year, which makes the London Metal Exchange the topbased metal performer. Chinas Industrial Firm saw a slow month. Industrial profits rose 13. 9 in november from a year earlier. That compared to a previously reported 25. 1 jumped in october. TheUnited Nations say sanctions are unlikely to slow kim jon uns nuclear ambitions. The Security Council unanimously approved new sanchez on friday to slash imports on petroleum products. These are more likely to hurt ordinary people than the isolated nation. Earthe richest people on gained 1 trillion this year. Thats more than four times last years gain, based on the bloomberg billionaire index. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. This is bloomberg. Tom thank you very much raised the forecast for growth by. 4 for next year, comfortably above the 1. 8 rate estimated for the economy to be sustained in the long run. The equity will run will only come to an end when the fed starts raising rates aggressively, as was the case in 2006 and 2007. Great to have you with me. We had you on the radio show. So, look, the debate is this. Will the tax bill deliver the kind of nirvana growth rates that donnaald trump has for ecasted, or, are we looking at an impossible growth slowdown . This tax bill will not deliver the huge upsurge in growth that has been labeled by the presidency . If you are looking at shortterm, putting money into the economy, that has to be assumed. Whether that changes the path of the nominated growth for the u. S. Economy in the long term, that is debatable. Manus the noble laureate was literally scathing. He was repulsed. Manish you have had unfunded growth for a long time, in terms of money printing. The equity market will not go up. My point is, if you are looking at 2018, then this is can lid of. This is cumulative. Whether this will change for the u. S. Or not, thats a big question. We dont know. But i am happy to look at the data and go by the data. If you are looking at 2016 and 2017, that is the lesson. If you are trading on the headlines, you got it wrong. Manus i have got to have a word with you about phds, there are not many on the fed anymore. That worries me. I put together the s p 500 in dollar terms and in sterling terms, and in euro terms. 500. Ave 25 on the s p given what you have said, what is attainable in 2018 . Lets start off with the dollar. Manish on the u. S. . Manus yes, up 22 this year. What do i get back for my buck in 2018 . Manish i am looking at a low doubledigit return, 8 to 10 , i would say. It is very difficult to say where the numbers will be. You look at the bull market. Bull markets dont die of old age or valuation. Its difficult to say. I look at data more than anything else. The data points out this will continue. Manus does that mean three rate hikes . Manish well, three rate hikes is what i am thinking at the moment. Manus what turns you over to four . Manish if you have strong Inflation Numbers coming through, which we dont know. We are operating at 4. 1 for the unemployment rate, that is a low number. The counter to high inflation is, our people underemployed . If you are working less hours than you think you should be working. Look at the labor force division data. That is 4 or 5 lower than where it used to be. If they come back, you will not get inflation. If they dont come back and they are out for good, then inflation will come back. Manus goldman sachs, of course, you assume they look at the slack taken out. I started they show talking about three months bills. Take a look at this. Angst, anxiety. But i have been through this for 30 years. The bull market is covering the ratio the lowest since 2007. The price of money hitting the highest level since 2008 on the shorter market. Is this just a lot of noise about shutdown . Manish there is a lot of noise about shutdown, and thats a fac t. Thats all politics. You have far more politics than ever before. 20 years back, not everybody knew who the Central Bank Governors was. Now, Everybody Knows who the Central Bank Governor is. Manus we will talk more about the politics shortly. Stay with me. Singhch angst with manish from cross Bridge Capital. More to come. There was an explosion in libya and it cut the production line by tens of thousands of barrels per day. We will look at the real impact on the market. And bitcoin, it bites back. The cryptocurrency roller coaster continues its climb following a five day slump. So history. This is bloomberg. Manus it is just gone 4 13 a. M. In new york. This is bloomberg surveillance and im manus cranny. Taylor riggs is standing by. Taylor a capital stake in volvo, making it the largest shareholder. Nomura and Barclays Capital agreed to acquire the shares and tomitted to share the shares the chinese carmaker. Geely will they control of 88. 58 million class a shares, responding to 8. 2 of capital. Shell expects a potential impact to be favorable for the company and the operations in america. It says that will be primarily due to the future reduction in the income tax rates to 21 from 35 . Analysis is not a complete, but will impact fourthquarter results. Iphone shipment production for the first time next year. They are citing lackluster demand after the holiday season. Handset shipments during that could be 10 million less than he previously estimated. Thats your Bloomberg Business flash. Manus will is trading near its highest close well, closed at the highest level in two years. The pipeline carrying crew to libyas biggest export terminal has curbed the nations production. China ordered the top producer to halt output to combat winter pollution. Joining us now to discuss commodity markets, oil, and beyond is joe wallace. Still with me is manish singh. Thank you for coming in. Just a couple of weeks ago we saw brent well bid on the back of the u. K. Outage. Here we have the libya outage. Do we know the damage to the pipeline . We think it is Something Like 70,000 barrels out. In the grand scheme, that is not the end of the world and it does not compare to the u. K. Outage a couple weeks ago. That had a much bigger impact. No doubt, they are struggling. They have had problem after problem with militants, tankers being shot up because they did a deal with the wrong side, and so on and so forth. I dont think the Global Market is counting on it, but it is a nice bonus for prices when it does happen. Story i look at the oil and i just wonder where you stand on this. On the lefthand side, i have a u. K. Will outage and now this outage on libya and on the righthand side i have opec and nonopec telling us, apart from a review in june. I am looking at a squeeze in supporting markets, as opposed to something more substantial. Post the election in march, i think the russians will wobble a little bit. Joe there is certainly pressure building from the Oil Companies in russia. They are unhappy about the extension of the deal. On the other hand, there are bigger political constraints that have to be paid attention to as well. That there is no doubt that if you are russia, you have one of the lowest cost fractions in the world and you are asking yourself why you are restricting barrels in favor of other places which cost up to four times as much to get out of the ground. Manus if i look at the commodity market, manish, in a relative sense, if i look at the commodity total return relative to the s p 500, we are at a record low. People are saying, you should think of this as an opportunity to enter into commodities, whether it is oil and i think the saudis are talking 75. How bullish are you on commodities going into 2018 question mark copper is at a threeyear high this morning. On oil. I really bullish i think your supply will keep on growing in the u. S. , and that will be a big potential factor between the u. S. And russia in the latter part of 2018. In that sense, im bullish. However, i am not very bullish on the oil price. I think there is a sort of cap. The oil price cannot just run away, just because of supply i think, in particular from the u. S. Again, russia has far cheaper means of using oil than any other country. They are having issues and will think of how to produce more. Im not bullish on Oil Prices Going up. Manus i want to come back to the saudi story. The saudis expect oil revenue by 2023, rising to 11 Million Barrels a day by 2023. , hopes,e ambitious aspirations, or realistic targets . I have got a plan and i have to put something in the plan that with balancing the budget. This reminds me of the British Government balancing the budget. We are somewhere along the line in that plan. Theres two things. In terms of the production estimate, 11 Million Barrels, no question. They could do that tomorrow if they had the mind. They do have the capacity. The big question, which is unresolved for me, if you take 11r production to 1 Million Barrels a day, there is no doubt the pressure could round 75. There has got to be pressure on the shale producers. It is hard to see where they are making that calculation, but you could see at least half of that calculation being spot on. Manus one of the stories this morning is that we have recovered. We have found our footing. We are 10 years through the crisis. A new normal has been found and there is a firm footing for Global Growth. The imf says Global Growth will increase by 3. 7 . Goldman sachs says commodities will rally. Global growth is in a good spot. Is that something that will underlay these markets . Manish that is very important. That is why the miners are getting supported in that is a good story. Point we discussed during the radio interview is the u. S. Tax reform has a huge implications, for europe as well. That will cause European Countries to question whether they should be operating within a hightech environment. I dont think they will move lock stock and barrel with the u. S. I take it as a Silver Lining that the growth in the u. S. Could help emerging markets and in eu rrope. They could create the fiscal headroom for europe to create some reforms. If that happens, you could be in a multiyear growth story. Manus hold that thought. Stuart, thank you for being with us. My thanks to Stuart Wallace and manish singh. , looking toissuance accelerate on the back of a record 2018. Manus it is surveillance. You are watching manus cranny. Manish singh is my guest alongside me this morning. We are talking dollar bond issuance from the indian bond companies, accelerating to a record. Theys investors raised sovereign rate for the first time in 2004 in november. Lets have a conversation. Do you want to buy the bonds . Manish i would like to buy the bonds, and the reason is simple. We are looking for structural reform in india. We have an election next year, which means we will have better deliverance on growth and economic numbers. You should see the focus the whole of india has on gdp numbers. Manus 6. 3 , yeah. Manish besides that, we are collapsing many different taxes into one. Reflecting next year as well. Manus that is one of manish singhs calls for 2018. We will talk much more about the spectrum of inflation in 2018. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. 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. Economics, finance, and politics. Theres one destination for that, surveillance. Good day to you. Lets get you your first word news. Taylor riggs is standing by. Taylor oil has traded d knew the highest closing two years. The oilne run by company that carries crude to libya exploded yesterday, reducing output to 100,000 barrels a day. Saudi arabia said it expects oil revenue to jump about 80 by 2023 to help the kingdom record its first Budget Surplus in a decade. Copper has surged to the highest level since 2014 after china ordered its top producer to halt. That added further impetus to a rally in the metals this year that has been driven by optimism about demand as well as supply disruptions. Gains now run to nine days, the longest streak since 2004. That makes the London Metal Exchange a top eight metal performer. Chinas Industrial Firm saw Profit Growth slow last month as the Producer Price rebound appeared to soften. Industrial profits rose 14. 9 in november from a year earlier. That compares with a previously reported 25. 1 . The United Nations sanctions on north korea are seen as unlikely to slow kim jonguns nuclear ambitions. The Security Council approved new steps on friday two imports by almost to slash imports. The richest people on earth gained 1 trillion this year as stock markets shrugged off economic, social, and political divisions. That is more than four times last years gain. The increase on the bloomberg billionaires index compares with an almost 20 index for the msci world index and the s p 500. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs and this is bloomberg. Manus thank you very much. Investors are keeping an eye on the momentum of the euro ahead of the german cpi data. That is due friday. The currency is seen extending its run against the dollar next year even though the ecb is an expected to abandon the near zero rates until 2019. How does this feed into stocks . Our next guest says he remains positive on equities with the eurozone and switzerland. Joining us now from zurich is pierre bose, head of european strategy at credit suisse. Menacing is alongside me for the ride. If i look at the euro, eurodollar is up 13 in 2017. Eurosterling is up 3. 6 in 2017. The market says that is unlikely to be the end of the story. We are up 8 on the stoxx 600. Holding back the story in the equities for europe . Pierre we dont think so. We think it is more a story of fundamentals. There is good cyclical momentum in eurozone. That should feed through to an equity market which tends to be more cyclical by its nature, given the composition of the market. Also think we are in that stage of the Business Cycle that earnings will also support european equities. It is not so much the euro as fundamentals for us. Manus fundamentals for you. ,trongest call going into 2018 if i look at the growth rate in europe, the strongest in 10 years. France is hiring at the fastest pace in 17 years. If i look at what macron is telling the world, labor market will be delivered in 18 to 24 months. Where is the biggest bang for my euro . Mentioned,you just we do like the french equity market. That is one of our calls within europe. Risks at thecal periphery, so we wouldnt be spending their. But certainly we think french equities are wellplaced. When you look at france over the last six to nine months, we think the equity market may have underpriced some of the positive momentum in france. Like european energy, european telecoms, and European Health care. We also upgraded industrials, again playing to the idea that if we continue to get the cyclical recovery, industrials continue to do well. Manus of that thought. Mannish sing is with crushed Bridge Capital. Manish singh is with crossBridge Capital. Do you agree with that . Do you want how do you want to look at europe . How do you want to segregate the equities story . Manish in 2017, we didnt have any negative earnings predictions. That is a big change from what we used to see in the past. European businesses have higher operation leverage. Earnings dont start showing up unless you have a few quarters of continuous growth. Then you see the equities doing well. Atyou look at pmi and look what the other measures are indicating, then one has to be positive on that. Within the economy, i agree with being long the french equities. They are the most liquid and most attractive we have seen. My preference is france over germany. Just because you have financial stocks, look at italy or spain, financials are much higher than germany for instance, so if we are talking about growth picking to doingmay lead slightly better than the market is expecting. Manus i want you to have a look at this. This is what happened to the euro the other day. Look, these are idiosyncratic bots are lefthe to do their own thing for christmas. Herries. O many s if i said to you, how strong will the euro b, is that linked to your call on equities . I am not a big bowl on euro, the currency. I think that Euro Currency will remain range bound. We have to see the impact of what is happening in the u. S. And european economy. Euro is going to the range bound. As you mentioned, it is algorithm driven. Probably we are going to see more than that. Manus youve got to be able to manage that, or do you look through that . You dont take away from the fundamental reason. Selloff,he major bonds the most liquid european government market. I would say these things will happen. It is down to the structural nature. But i would say fundamentals. Manus let me bring it back to you. We have the good fortune to spend 15, 20 minutes together on our radio show. Part of the conversation revolved around the whole concept about inflation and whether inflation might return more vociferously than perhaps the ecb might think. Are you positioning in any way for a renaissance of inflation in europe moving towards 2 . Pierre sure. I think it is likely to be a more mediumterm story for us rather than a shortterm story. Weve seen a large number of tailwinds, for example including energy and food prices over the last year, to help spot inflation and shortterm inflation rise over the last six to 12 months. With that some of those prospects diminishing into the new year, pretty much in line with the markets. If there is a surprise, i suspect it is in the mediumterm. If there is a surprise coming into next year, we think it could be more on the real rates side as opposed to inflation. That would have impact for bonds. It would also have impact for currency. What kind of spook could that due to the bond market . It has been 0. 3 . Whichhere was this spike took us to 0. 6 . Regrasped the nettle as the summer went on. What kind of a flip could you see in the bond markets . I think it kind of rewinds the picture weve been seeing over the last few years. Weve had productivity trending lower,inflation trending and most measures of real activity trending lower. Over the course of time, weve also seen quantitative easing compressing the yield curve. If you begin to see a real rates coming back into the equation, if you did get an inflation spike, and you begin to see productivity trend higher, all those assumptions weve been making for two or three years about how low longerterm bond yields should be, weve got german bunds potentially headed higher to around 1 over the next 12 months. That would be a very significant move for markets, which are priced at low levels even after the moves weve seen over the last fortnight or so. Manus i dont think ive heard anybody talk about a 300 move as pragmatically as that. You stay with us. We will probe that a little more. That is pierre bose, head of european strategy at credit suisse. Manish singhs chief Investment Officer at cross Bridge Capital. They both stay with us. Up next, the homeowners in the United States reacting to President Trumps tax plan that can cap their deductions. This is bloomberg. Just on 4 43 a. M. In the United States in new york. This is surveillance. Im manus cranny. Homeowners in the United States are beginning to think about the possibility of higher property taxes as they look to prepay 2018 bills ahead of a 10,000 cap on deductions in the gop tax overhaul that donald trump has signed. Shell says it expects the potential impact of the reforms to be favorable to its u. S. Operations. Manish singh says the lower Corporate Tax in america is a big risk for European Companies. Lets bring manish singh back into the conversation. Of pierre bose, head european strategy at credit suisse. What is the risk . Manish the risk is very simple. If you have Corporate Taxes cut to 21 , if you are a corporate in germany or other parts of europe, and you are paying tax at 30 in an aging economy, theres demographic issues and growth issues. You have the u. S. Also you are selling a lot of stuff in the u. S. You will think about basing your Production Capacity or making the next Capital Expenditure in europe or the u. S. Manus good news for trump in terms of, this is what he wanted. Manish and i say that has a risk because there are a lot of factors at play. European corporates dont tend to be like u. S. Corporates. It is not quite in nature of european corporate. What im saying is, if this persists in europe has its own if you are do you do responsible to your shareholders . Landscape political in the United States of america is far from firm. Manish true. On the other side, you will also have to believe this will continue and a new administration will not reverse these changes. Those are factors to bear in mind absolutely. What does that mean for european corporates . You think they might do a little more m a going into 2018, maybe to pick up on this theme potentially . If you are not that sure about perhapsuge, you can buy a new addition in the United States. I think that certainly makes sense. In an environment such as we have, it might take some time, but it is a clear risk in terms of where you put production for your company. That has to be revisited over coming years. Potentially theres implications within the tax code for how the balanceructure of debt versus equity. In the shortterm, i think share buybacks and m a are one potential conduit for the cash flow that many European Companies are generating. That would be supportive for equities. The longerterm questions of where you locate this or how you produce and leverage your balance sheet, i think are just beginning to be addressed. Lets talk about tax. Ive got a chart talking about facingher Text Companies the way relative to the s p 500. Have you bought any stocks or adjusted for the benevolence of corporation tax, or will you make additional Portfolio Adjustments predicated on what is now law and tax in the United States . Pierre i think for us weve tended to adapt the existing calls we have. We believe it should be a more stock specific driver. If we look at the energy sector, which we were already favorable on, we believe it speaks to the benefit of refining companies, and so we focus there. ,f we look at u. S. Financials which weve had a positive outlook for global financials for some time, and tended to think that higher Economic Growth and Interest Rates will benefit that sector, certainly a change in effective tax rates will help the existing call we have. Calls,ook at existing telecoms, which we added towards late summer last year, this year, then we certainly think that continues to benefit us. Highoms currently face effective Corporate Tax rates, but they also have high investment needs. To the extent that tax reform addresses both those items, it should benefit. For us it is more stock specific and it has tended to underline the course we already have. Tous let me just bring that manish. In terms of the buybacks, the dividend payments, this is what a lot of institutions have modeled. They believe that money that is repatriated will come in the form of share buybacks and dividends. Do you concur with that . To what extent do you want to be positioned for that . But youpartly i do, have to see that all these that youe something completely trust is not going to get reversed. Should you bring all your cash back . Should you bring part of your cash back . I go back to fundamentals. If im talking about companies benefiting from growth and talking about u. S. Gdp growth, all these stocks are going to benefit. You go back to fundamentals. I use [indiscernible] manus as you said, a little more stock specific. Stay with us. Pierre bose is the head of european strategy at credit suisse. Up next, its volatile, but then again we wanted volatility. 15,850. The slump is back. It is up 1 at the moment. Volatility personified in cryptocurrencies. Manus you are watching bloomberg surveillance. 16,000 ink below todays session. Volumes at point base on the one of the biggest exchanges, forced the company to issue a warning that transactions for bitcoin and ether may be delayed by several hours. Lets get back to pierre bose, head of european strategy at credit suisse, and manish singh here in the studio with me. He is the cio at cross Bridge Capital. Interest is there, apart from your colleagues talking about bitcoin . How much interest is there in bitcoin . How much of a debate is there on the real value of bitcoin . Ive seen everybody talk about it as worth nothing through millions. How valuable is bitcoin to you . Fundamentally, theres lots of interest. Ive failed to be in a meeting in which i havent heard questions about bitcoin and blockchain. I think fundamentally theres very deep interest. In terms of value, that is a separate question. One has to separate the price which bitcoin is trading at to the level of underlying transactions. Trading has gone up by a multiple. There is a fundamental imbalance between demand and supply for bitcoin and perhaps between interest and reflectivity as well. Interest is an area of , but at this point we are manus pierre bose, head of european strategy at credit suisse. Manish singh, a short bitcoin . Manish neither. I dont hold a position on this. If you have doubt about investments, you dont fully understand where it is headed, you should not invest. Manus the regulator, i can see you coming back in the form of the head of Financial Regulation in london. Manish singh from cross Bridge Capital. The next hour youve got carol massar and nejra cehic. Bitcoin bites back. The currency dips below 15,000 after ending a five day selloff. Copper surges to a three year high after china orders the top desert to halt output. And more china changes. President xi entire policy changes will discuss amending the policy after more than a decade. Good morning. This is bloomberg surveillance in london. Ra cehic tom keene and Francine Lacqua have a little bit of time off for the holiday. Great to see you this morning. It is expected to be a little bit of a quiet morning. We will keep a watch on the news going on around the world, including in china. First up though, here is bloombergs first word news with taylor riggs. Taylor oil is trading near the highest close in more than two years after an explosion at a pipeline carrying crew to libyas biggest export terminal curb production. Yesterday,e exploded reducing output by 70,000 to 100,000 barrels per day. Saudi arabia say they expect output to jump by 80 . Copper surged to the highest level since 2014 after china ordered the puppies are to halt output to counter winter pollution. Days, therun to nine longest rate since 2004, for a 30 jump this year. Firm sawndustrial Profit Growth firm. Industrial profits rose 14 for 9 in november from a year earlier, compared with the previously reported 35. 5 in october. The United Nations latest engines on north korea are seen as being unlikely to throw kim jong uns nuclear ambitions. According to experts, the new restrictions are likely to hurt ordinary people. The richest people on earth gained 1 trillion this year. That is more than four times last years gain. 20 compares with an almost index with the msci world index in the s p 500. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Nejra thank you. Lets take a look at some data. We have got a lot of european embassies reopening after the holidays today. The stoxx 600 is premuch flat. It is thin trading, of course, but i wanted to show the ftse 100. 7601. 86. T a record, cable has gone above the 134 handle this session. Gold, also higher. In fact, all the g10 currencies are gaining against the greenback position. Copper, again reopening after the holiday. It is on his ninth day of gains, the longest gaining streak sinec 2004, hitting a threeyear high. Carol u. S. Markets opened yesterday and european markets open today. The quiet session continues here on is wednesday. Take a look at s p 500 futures. I want to talk about apple because we did have apple, chinese suppliers saying they are showing no sign of iphone x order cuts. There was concern over the popularity and demand for that iphone. Curde crude oil, surging past 59. We saw a pipeline blast in libya. 59. 53 is the trade on oil. Nejra i know you showed oil there, and we talked about copper rising. This is a really cool chart. Its showing the s p gsci total return index versus the s p 500. Its showing the Commodity Prices on this measure, falling to an alltime low relative to stop prices. Packetsident of president ial advisers highlighted this. Thats my chart. Lets talk about another asset that has been rattling through 2017. The bitcoin bounceback. It appears to have paused slightly today as the biggest Digital Currency drops below 16,000. A comes after it staged a recovery following a five day slump. Hydrating volumes at coin base forced the company to issue a warning on its website that transactions might be delayed by several hours. Bloombergs eric lam is in hong kong. Great to see you. We were talking earlier on the radio about the rally in already it has lost a little bit of steam. Really been, as you have described, a roller coaster december for december. A roller coaster second half of the year. This is the third or fourth time we have seen a drop of 20 for bitcoin in the last six months. The question is, is this any different than the ones we have seen before . In each of those cases, bitcoin bounced back. We have seen a bit of a bounce back in the last couple days, but it has bounced back today, but we still talking about a 1600 gain for the year. It is still a pretty big gain for the year for bitcoin. Nejra a huge gain. The big question is what happens in 2018. Is bitcoin going to stay the cryptocurrency, eric . Eric we really saw the emergence of some significant rivals for bitcoin this year, especially the likes of bitcoin cash. The list goes on. Going into next year, the question will before bitcoin and cryptocurrencies in general, how do you use these cryptocurrencies . That is where you will start to see differentiation. The question will be where we find utilities for these. Whichever Technology Comes out as the cryptocurrency people use, that will be the one people go with. We are still talking about it is with the kind of Technology Upgrades you are seeing. You are seeing more forks. Its going to be an interesting year in 2018, try to figure out how to use these cryptocurrencies. Carol we are all learning about the terminology. One thing that is key to bitcoins success is you need institutional investment, institutional interest in it. On the seen a pullback institutional buyers coming in . Eric that is an interesting question. When you are looking at the introduction of futures, for instance, its kind of showing the buy in has been a gradual process. Nobodys jumping in with both feet right away. I think going through this year has been a gradual acceptance or normalization or understanding of how these cryptocurrencies work, and people watching how these traits have worked out. It has only been about a week that we have been trading. Andit is still early days were still talking about with the likes of goldman sachs, setting up trading desks. Those are significant milestone, but it is still a gradual process. I dont think we are seeing the kind of rapid jumping in that many people were expecting, but we are seeing, elevated trading. They had hiccups earlier today, but they clear those up, so the trading on bitcoin and ethereum has stabilized. Carol you talk about a gradual adoption amongst investors. What about regulators, eric . What is the conversation we are starting to hear . Some are talking about cryptocurrencies becoming valid hin the financial process for that to happen you need to see regulators step in. Eric that conversation has been ongoing with central bank regulators. Every central bank in the world has their own opinion on bitcoin. Its been important to note that there are two separate cover sessions happening at the same time. One is bitcoin itself. Many Central Banks have talked about it as a bubble. Thats for bitcoin. There is also a conversation about the underlying Blockchain Technology. For Central Banks, it is the year of trying to grapple with utility and the technology itself. When we are talking about next year, i think he will mean more conversations about whether the Central Banks were interested in issuing a Digital Currency for them, as opposed to whether they have any sort of opinion about regulating bitcoin itself. Spacel be watching that closely next year when those conversations continue. Nejra a lot to watch next year. Thank you so much bloombergs eric lam. The ubs Private Banking economist is with us for the hour. Dean, great to see you. The ubs house view on bitcoin seems to be that you are a little wary of it being a speculative bubble, but you do say investor should tap opportunities in the Underlying Technology. How do you do that . Dean absolutely. The message we have said for clients is, most cryptocurrencies are showing bubblelike tendencies. But we should not be completely dismissive. The underlying technologies, the Blockchain Technology offers many opportunities. It is going to transform a number of industries, not just financial services. It will transform a number ofd industriese across the economy. That is the more important part of the story to watch. In terms of investing in that, it is still early days. Ubs haveu guys thaat put together this list of top 10 questions you have been asked. One is, should investors buy bitcoin . What do you tell investors . Dean our message is pretty clear. We are suggesting it appears to be in a bubble. That is not to say that bitcoin cannot rise, but we are not suggesting that investors should buy into this cryptocurrency. The real point is, we should not be completely dismissive year because there are a number of technologies underlying the cryptocurrencies that have the potential to transform a number of industries throughout the economy. Carol right, including blockchain. We will continue the conversation with dean turner. Coming up in bloomberg surveillance, we speak with Tony Krzyzewski from pimco. This is bloomberg surveillance and this is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. The largeste shareholder in volvo. Manufactureruto plans to have 88. 8 class a million volvo shares. That corresponds to it. 2 of the capital and 50. 6 of the vote. Potentialcts the impact of the u. S. Tax reform to be favorable for the company and the operations in america. It says that will be primarily due to the future reduction in the Corporate Income tax rate to. 1 from 35 . 21 come tax rate from 35 . from designsk has the core elements and is dying to build it. The next aeration of autopilot is undergoing testing and the results are blowing him away. Thats your Bloomberg Business flash. Nejra thank you. Chinas top policymakers are planning to discuss a proposal to amend the National Constitution for the First Time Since 2004. The decision was made today at a meeting headed by president manish singh. Turner. Us now is dean jonathan come welcome. Youve been writing about china for decades. I want to start by asking you, how stable is the state party system . It is pretty stable, it must be said. You can find flaws in china, as always. From the economic side, and the question of how the communist party relates to a rapidly evolving society, that is a problem. But xi jinping is aware of these problems and is planning to address them. How they will address them will be another question. Carol when will those questions be answered, then . Xi is a longterm player. The economic work conference, held every december, normally looks one year ahead. Three years looks ahead. He is clearly looking ahead to 2022, when his second fiveyear term finishes. And the constitutional changes that are now being talked about the probably be in that context, enabling him to stay on for a third term as state president if he wants to, and also setting up new supervisory bodies, which are basically meant to make the leadership decisions implemented more effectively manage the past. Carol i want to bring you into the conversation, dean. When it comes to president xi, would you like to see him stay beyond 2022 . Dean that is hardly a question an economist can answer. That is more of a political question. Ertainly, as jonathan said, with president xi there is stability. Whether that continues beyond that, i cannot see that as a bad thing for the economy because it should facilitate some of the necessary changes that need to take place. Carol when we talk about transformations, jonathan, two of the things the presidency has highlighted he talks about poverty and he talks about pollution. Do you see that if indeed he implemented these initiatives, that that is important Going Forward . Jonathan it is, indeed and it is quite savvy from a political point of view. He does not have to run for election, but if he did, given that the economy should slow down and reach a sustainable level of about 6 in two years time, given that, and that wealth accretion will be less extreme in china in the to go, its savvy for xi out and say, you might be getting rich a little less quickly, but i will bring you clean air, i will make the poor people less poor, im going to deal with social inequalities, which have grown up from this headlong expansion that we have seen in china. Im going to do something about cities, which are growing so fast they are practically unlivable, etc. The whole raft of other things. Hes using the power and it is often draconian power outside of the legal system to implement these measures. That is what we are seeing in the environment at the moment. One reason why copper has been shooting up these last few days is because he is serious. They have closed down the two biggest copper smelting groups in china, which does not hurt them that much because they can do maintenance during that period. Thats a very precise implementation of what was in the past just rhetoric on cleaning up the environment. Carol just a brief final because we, have not talked about deleveraging yet. How confident are you on the Deleveraging Campaign . Dean we get this question from clients a lot and it is one of the risks we highlighted for 2018. Our sense is the chinese institutions are strong and stab le. The fact that china still has a closed capital account means they should be able to manage the problem. And especially against that backdrop of strong growth, approaching 6 next year. Anda ok, dean Turner Jonathan fenby stay with us. Coming up on bloomberg. Urveillance, a conversation look for that at 1 30 p. M. In london. This is bloomberg. Carol good morning, everybody. We do want to talk about the u. S. Recovery, one of the biggest debates of 2017 is what the bond market might be trying to tell us. Ubs has weighed in and sees this as a sign of weak expected growth in 2018, and they also believe the flatter curve signals a downturner. You, becauseto ask one of the Big Questions you have been asked about at ubs is the flattening yield curve. Does it trouble you . Dean we are being asked this question because historically a flatter yield curve has forecasted an economic slowdown. Our sense is that in the current environment, its terrible to say this time it is different, but in the current environment, what the yield curve is signaling is not an economic slowdown. The Economic Indicators in the u. S. Are quite strong. We are expecting the u. S. Economy to expand by a pretty decent rate next year, probably slower than what we have seen of late, but nonetheless, it should be a good outcome nto account the recently announced tax reforms, that poses an upside risk. Carol many are saying that in terms of the Federal Reserve we could see three, possibly four, rate increases come 2018. What does that do to the economic momentum out there . Dean our thought is that is a little aggressive right now. We are forecasting that the fed hikes twice next year. Although the economy is likely to continue to perform relatively well. We will see how the tax reform plays out on the growth numbers. Our sense is those numbers are a little high. That said, given the fed is already signaling three hikes for next year, our numbers are a little bit shy. Carol we will leave it there. And dean turner will be staying with us. Up next, we speak with david burton of the Heritage Foundation on the impact of the new tax legislation. This is bloomberg. Nejra im nejra cehic in london. Carol is in new york. Taylor riggs has the first word news. In an Oil Explosion pipeline. The pipeline that carries crude to libya exploded yesterday reducing output by 70,000 to 100,000 barrels per day. Expects oil said it revenue to jump about 80 by 2023, that will help the kingdom report its first Budget Surplus in a decade. After orderinged its top producer to halt outlook output. Days, therun to nine longest streak since two 2004. Tops the london exchanges base metal performer. The Producer Price rebound appears to soften in china. Compared withfits a previously reported 25. 1 in october. The United Nations latest sanctions on north korea is seen as being unlikely to curb kim jonguns nuclear ambitions. Imports of Refined Petroleum byducts were to be slashed 90 . The sanctions are more likely to hurt ordinary people in the nation. The richest people gained 1 trillion this year. That is more than four times last years gains. Gain compares with a 20 index gained. Global news 24 hours per day, this is bloomberg. Nejra u. K. Chancellor Philip Hammond is said to be under pressure to release a set of documents detailing the impact of brexit. 25 of the Opposition Labor Party mps have demanded the release the confidential studies. The letter released to guardian, they say the public has a right to know what it will mean for their families. Our guests are still with us. Making anyre you predictions based on this outcome given that it is so uncertain . The uncertainty factor is probably eased somewhat having made significant progress in stage one of them go she editions. It looks like the u. K. Will enter some kind of transition arrangement. Nejra the hard work is still to come. The hard work is still to come. One of the things that has been weighing on the economy has been this uncertainty, will there be a no deal . The fact that that has lifted will probably be at the margin a positive for business and Consumer Sentiment Going Forward. As for what that means for the markets, it is quite instructive to look what happened to sterling through the whole of this year. Had in february, when we the lancaster house speech and we had sterling hit lows, since then, we have seen sterling gradually get higher. Nejra jonathan, the risk of a no deal has succeeded, but we had this bill whereby parliament could veto the final deals. What does that mean for you . Is it mean we are heading for a softer brexit . We are going toward a softer brexit, absolutely right. A lot of this has always been a function of the internal politics of the conservative party in britain. Anyway, theresa may has strengthened her position and the hard brexiters seem to have backed off for the moment. Increasingly, the potential for this transition period to go on and on and on. It is possible, we will never actually get to the brexit point because there were lowest bid negotiations. Will always be negotiations. The eu always has fish to fry. You have the labour party strengthening which holds a lot of conservatives back from rebelling in the u. K. Then the commons will have the last word with the vote, which seems a guarantee for the soft brexiteers. Carol dean, what are the broader implications for the eu at this point . What are the questions that still remain when it comes to the eu economy and the investment environment . Dean in terms of the impact on the European Union from the brexit process, i would go back to the point i made earlier. The fact that we have made significant progress in negotiations thus far does exite the threat of a hard , which would have been damaging to the u. K. And the European Union. The fact that that risk has been exitreduced should be relativey supportive to the european economy. Certainly, our view is that europe should continue to perform well next year. Carol jonathan, is there a chinese perspective . What is the chinese perspective as they continue to watch these negotiations unfold . Jonathan the chinese have not quite said so, but they would have preferred britain to stay in the eu. The chinese want to invest quite a lot more in britain and the kind of assets china needs to increase its overseas footprint. There is still this continuing , which, as a chinese official once put it to me, what is this union that is so disunited . The chinese find it rather difficult and they tend to cherry pick country by country in europe and if they want to bring up europe, they ring up berlin. , you were talking about sterling and how it is valued right now. You got to look at the dollar when you look at cable. Is it the purest way to look at the pound, the cable trade . Or would you be looking at eurosterling . Dean from an economists perspective, i would tend toward the eurosterling purely because that is in terms of the economy where most of the u. K. s trade goes. On something with the performance of the sterling performance against the dollar, a lot of it has been a dollar weakness story which we expect to continue into next year. With the eurosterling forecast, we can see sterling a little bit weaker Going Forward. Sterling is already a very cheap currency at this level. We are starting to see that come through in some of the hard data now, in terms of what is happening to exports, not just survey data. You can see sterling significantly weaken from here and that is a hard one to grasp. Nejra jonathan, would you agree that even if we see those protracted negotiations . Jonathan i think we are going to see a lot of strength from the euro from the eu next year. Germany is in a political mess forming a government, but all the prognosis must be good for germany. France is finally getting some reforms going. Spain is showing very strong growth, forget about catalonia for the moment. Goodave the eu in quite a position here and the question is how far the euro will go as a result. Particularly because the euro was one of the upside surprises. Dean turner and Jonathan Fenby stay with us on bloomberg surveillance. On your commute, tune in to radio, bloomberg daybreak, can be heard in across the u. S. Nejra im nejra cehic. This is bloomberg surveillance. Has tipped a little bit lower after an explosion on a pipeline carrying crude to libyas biggest export terminal and that curved production. Copper has surged to its highest level since 2014. Isning us to discuss bloombergs executive editor for energy and commodities, hewitt wallace. Still with us are Jonathan Fenby and dean turner. T, let me start with you. More broadly it was a pretty good here. It has been a pretty good year for commodities. Our people expecting that to continue in 2018 . I think we may be will and the year slightly down depending on where you look. That is to do with market structures. Individually within it, base metals have a terrific year. Oil, slightly more muted, but a good return. I think the story we are seeing today is partly individual stories, pipelines growing up, down, buteing shut there is also a Global Growth story. The sentiment in the market feels like we are going for another year of growth and it is looking pretty solid. I think that is what the that is about. Nejra dean, would you agree with that . Dean certainly on the Global Growth story. That should help support commodity demand next year. We are little bit more cautious on demand. Especially in the oil price. Within commodity markets, we tend to see that whenever we see periods of high demand, it tends to be met with increased supply. Carol jonathan, what about china in terms of their drawdown on the commodity universe . We have seen some of the growth sing just a hair come but what will be there demand . At ahan china is moving longterm policy, which was endorsed yet again earlier this month, to getting rid of excess capacity, using supplyside measures to keep industries going, but to move them really of quality, upmarket. What they will be wanting is more better quality rather than more absolute quantity of metals. At the same time, youve got the impact of the environmental measures, which seemed to be pretty serious this time around. That will reduce the amount of old rust belt state owned enterprises, which were guzzling up commodities. You will have a reduction in quantity perhaps, but an increase in quality. About inflationary pressures . Some of the players within the commodity universe tick higher. Oil, for example. A little bit of a blitz higher. About thisto worry adding to inflationary pressures globally . Dean i dont think we have seen the kind of moves that would put significant outward pressure on inflation 12 months from now. If we see prices stabilize around where we are, that is probably worth a little bit on headline cpi numbers. Nothing dramatic. I think we would have to see a bigger move to be concerned. Nejra stuart, let me bring you back in. I like looking at what etf investors are doing. They are pouring into commodities for a third year on that growth we were talking about. From material inflows. Metalsf the inflows in have been more toward the precious metals. This that look like it might reverse in 2018 and go more toward base metals . Stuart that is partly a function of the products that are out there. In terms of the precious metals, they are by far the biggest in our space. What can you actually invest in . They are base metal etfs out there, but they are nothing on the same scale. Do we think the base metals are going to be more attractive more broadly . I think that partly depends on what we will see in china and we have been hearing good comments about how serious they are. ,f we keep going down this path then that should be positive for base, as well. Any idea in terms of 2018 what people might be talking about when we look at the commodity universe . We talk about oil on a regular basis, but is there a surprising commodity story that might come our way in 2018 . Carol i think so. Itause there always is turns out there are always essential stories. The story this year has been very much about evs. Cobalt, lithium. These are very difficult to invest in. They are difficult to get to. I would expect something along those lines. Next year, there will be some component of a battery that no or has quite thought of yet there will be something essential to a Nuclear Warhead and we are running short of that, again. The trick will then be, how exactly do i get exposure to that very obscure commodity . Nejra absolutely. Thank you so much to bloombergs stewart wallace, dean turner, and Jonathan Fenby. Look at tv you can go to that function on your bloomberg. You can watch the show live, you can see Jonathan Fenby and carol on the righthand side. You can even click into charts we have shown. Have a look. This is bloomberg. Taylor this is bloomberg surveillance. Healy is set to become the single largest shareholder in volva after sent he and capital decided to withdraw sentient capital decided to withdraw. Class a and buy class b shares. Shell has said it expects to the impact of u. S. Tax reform to be favorable to the company and its operations in america. That will primarily be due to the impact of the Corporate Tax rate cut. The change to impact fourthquarter results, but analysis is not yet complete. While Way Technology says the head of sales has been detained in a corruption case. Teng brands rose to number one in smartphones at home and number three globally to become a major rival to apple and samsung. That is your Bloomberg Business flash. Carol thanks so much. Homeowners in states with the highest property taxes in the United States are looking to pay 2018 bills head of a 10,000 cap on the deduction for state and local levies, that includes property taxes in the gop tax overhaul. President donald trump just signed that legislation. Expects the tax reform impacts to be favorable to its u. S. Operations. Jonathan fenby and dean turner are still with us. Trump,ask you, president how do you see him impacting the world and 2018 . Jonathan i think there will still be a lot of uncertainty, a lot of ups and downs, a lot of for a and tweets and people wont know quite how seriously to take but i think there is that a more stable series of relationships will be sketched out next year as we go ahead and as we go ahead to the midterm elections in the u. S. Carol dean, come on in on that. Dean i absolutely agree with that point. Certainly what we have seen has been a significant amount of volatility and we will expect more as 2018 unfolds and we will hear most of that on twitter, i would guess. In terms of the Overall Economic outlook, i think one of the key lessons we have learned from the last couple years is that high and itise is is not going to get any quieter anytime soon, but the underlying economy has shrugged this off and that is what we expect to continue going into 2018. Terms of the tax legislation that just passed and u. S. Corporations and their tax rate more on par with the global environment, how might that impact things . Isn well, at this stage, it a lot to work out. Our estimates are that the total tax package could be worth around 0. 3 of gdp over the next couple years. In terms of what would it mean for a share for the s p 500, we are looking at around a boost of around 3 to 5 over the next couple years. That certainly signals some upside. Investors thinks should still stay invested in equities. Is that based on the tax cuts or is that already baked in . Dean it is based on the Global Economic backdrop. We are expecting a continuation of the current rate of growth for the Global Economy. We are expecting the economy to expand. Where we havement strong Global Growth, it is not just the u. S. Or the euro, it is a broadbased global recovery. That is a very supportive environment for corporate earnings. Nejra we do keep hearing a lot about this synchronized global recovery, but some of the people have said, we are actually just back to normal now, it is not necessarily something to celebrate yet. Any risks from china in 2018 . Jonathan i dont think from china. Prettys actually on a stable set up. You may not like the way it is being done or the way the place works, but that is a different question. You can see this with xi. He has a longterm view, which is to keep himself in power. I think that is going to be pretty stable from china. You have the uncertainty of north korea. That could blow up, literally. Far china and the u. S. Can work together, we have the latest sanctions, which seem to show some kind of progress, and there are rumors that President Trump is basically told the chinese, im not going to launch a military operation and the chinese will go along with steps as a result of that. That theave the rumors north koreans are using bitcoin alot and cryptocurrency as way around sanctions. I have no idea how much truth there is in that. We are going to jump in. Dean turner of ubs private bank lombardthan fenby of ts , thank you so much. Coming up, we will speak with tony chris enzi of pimco. This is bloomberg. Copper surging to a threeyear high after china orders its top producer to limit production. Bitcoin and its wild ride. Dipping below 16,000 after having ended a fivesessions a lot. The secret to success. Sitting down with Francine Lacqua. How the Worlds Largest Products Company stands to play best stay on top. Good morning, everybody. This is bloomberg surveillance. Lacqua and Francine Francine is busy, but she does have the day off overall. Lets get things started with the first word news with taylor riggs. Taylor starting with that oil story. Oil trading near the highest close in more than two years after an explosion at a pipeline carrying crude to libyas biggest export terminal curb to the nations production. , pipeline exploded yesterday reducing output by 70,000 to 100,000 barrels per day. Said it expects oil revenues to jump about 80 by 2023 to help the kingdom record its first Budget Surplus in a decade. The highesturged to level since 2014 after china ordered its top producer to halt combat winter pollution. Days for aun to nine 30 jump this year. That makes this the London Metal Exchanges top base metal performer. Chinas Industrial Firm saw Profit Growth slow as the price rebound appeared to soften. Compared with previously reserved it sanctions onions north korea seem unlikely to nuclear jonguns ambitions. They unanimously approved new steps on friday tos;ash imports imports of Refined Petroleum products. The new restrictions a more likely to hurt ordinary people in the isolated nation. The richest people on earth gained 1 trillion this year as the stock market shrugged off economic and political divisions to reach record highs. That is more than four times last years gains. Global news 24 hours per day powered by more than 2700 , imalistss and analysts taylor riggs. This is bloomberg. Nejra thanks so much, taylor. Lets get to the data. We have a lot of the big european indices opening up after the break. You are seeing the ftse 100 on the front foot. It has touched a record high in todays session. Thee bit has gone above handle today in the session. Session today. Up. Lly, ive got lme copper it is on nine days of gains, the longest winning streak since 2004 for copper. China got its top producer to halt production. There has been a pretty good run for copper this year, carol, not only on questions about supply, but also on the outlook for Global Growth. Carol thats continue with our data check on this wednesday morning taking a look at futures. Little changes. Call it unchanged, if you will. We have talked about some pressure in the oil market. We have seen that move up a little higher. Bitcoin, we seem to talk about a daily, always a bunch of stories. Down 1. 2 . To take you into the bloomberg terminal. A big story we have been talking about over the last few months and that is the flattening of the yield curve. This specifically as we take a look at what we are seeing is more strategists see treasury yield spreads inverting in 2018. Some of that picking up momentum. So, some concerns about that and whether or not that portends slowdowns in the economy. We do want to get to and next guest. Nejra yes, love that chart, carol. Have shown various iterations of it through 2017. As we have been talking about commodities, just wanted to show this. It has shown the s p gsci total return versus the s p 500. Is it too late to get into equities given how much they have risen this year . This is showing that Commodity Prices have fallen to an alltime low relative to stock prices. It begs the question whether it is time to move into commodities , perhaps take rotation out of equities. Carol lets talk about some of the things, some of the big stories. , has released its 2018 Global Economic outlook. Barring a Zombie Apocalypse or a spontaneous collapse and asset prices, the current goldilocks environment will likely persist. It adds that investors should be prepare for the consequences of policy shifts and the opportunities presented in more difficult market conditions. Joining us is the pimco portfolio manager, Tony Crescenzi. Zombie apocalypse. Good morning. Tony good to see you. Carol i want to ask about the headline that pops on the bloomberg and this is a report in the wall street journal that rich claritin might be considered for a fed vicechairman position. He and another economist are said to be in the running according to those in the know. What are you hearing . Tony news to me. Great news if true. I would say the great thing ida, hes anlar exceptional leader, great listener, hes exceptional, exemplary, and he is an expert. He would be wellsuited for the job if chosen. That is as much as i could say. Tony, tell me what rich would contribute to the fed. We are seeing a reconfiguration. A lot of different nominees, a new head coming in in 2018. What would he bring to the table in terms of the discussions . Tony he is an expert on the issues of Monetary Policy being an expert on the issues of Monetary Policy is important. Ben bernanke, who is an investor expert for pimco, understood the Great Depression and that was very important, in terms of where Monetary Policy could fit in and what it could do. And the Great Depression, there was a decline in the money supply. The amount of money that existed fell by a third. Ben bernanke understood that, so they printed lots of money so banks could give enough money in the system, so we could keep spending as much as we normally would and the economy would not collapse. That principle was something that one with great expertise about Monetary Policy would bring to the table. There are numerous circumstances like that, that is the most severe in the most important one we have experienced in our lifetime, but things that would come along along the way, expertise on Monetary Policy and it can help an economy is vitally important because there are certain things that the fed can and cannot do. Milton friedman has said that one thing it can do is just to stabilize things when it is Something Else causing a problem and that is Something Else with the Housing Market in 2008 that they were able to help out. It cannot generate new jobs, etc. , but it can ease these instabilities when they occur and if it is caused by money itself. That is what happened in the Great Depression. Or in other cases when it is high, the 1970s, too much money. The Federal Reserve can play a big role in understanding these roles of Monetary Policy and what it can and cannot do. I advised google to go back to Milton Friedman on what it can and cannot do, which is only a few things. Tony, great to see you. One of the big puzzles for the fed right now is inflation. When it is going to come, what form it is going to come, and the bond market and the flattening yield curve, what enlightenment might richard give us on that do you think . Tony our general view on the flattening yield curve is that it is related to a decline in the term premium. Would understand this idea. The Federal Reserve over 30 years has been a part of this. It has decreased the amount of inflation that Bond Investors decided they want to demand compensation for. Also what the fed has done is communicated very well its and the highcies level of communication can keep Bond Investors calm. As is occurring by the fed now and will occur in the future by the European Central bank and the bank of japan. They will be raining and their high degree of monetary accommodation. It does reflect the high amount of communication that might exist between officials and this is something that will continue. What investors demand compensation for, something that has changed versus 30 years ago. Nejra are you not recommending right nowener trades and that we could see upside risks to inflation in 2018 . Tony even though we expect the yield curve will likely flatten, being in the steepener likely make sense. Owning a fiveyear maturity is better than opening a 30 year maturity generally speaking. In a year, the fiveyear will become a fouryear. If the yield is lower by 20 basis points versus a fiveyear, it is simple bond math. By one pointange in a year. Aroundual return will be three. Carry anday from a role standpoint, being in the steepener is generally a good idea and from a risk reward standpoint, it makes sense now because the yield curve has flattened so much that what if things go wrong in the Global Economy, certainly short rates will move down the most. Therefore, you probably benefit a great deal. Carol you dont know if he got the job yet . Tony we dont know. [laughter] tony only one confirmation on that particular story we will get, for sure. Carol we will continue our story. Pimco has a Great Research report out and we will get more from tony. Tony crescenzi staying with us from pimco. 9 00 a. M. , scott Bridge Capital. Sky Bridge Capital to you are watching bloomberg surveillance. Taylor this is bloomberg surveillance. Lets get the Bloomberg Business flash. Geely is that become the single largest shareholder in volvo. Ent capital decided to withdraw. The chinese auto manufacturer shares class a and class b, corresponding to a. 2 of the capital and 15. 2 of the votes. Shall expect the impact of u. S. Tax reform to be favorable to the company and its operations in america. It says that will be primarily due to the future reduction in the Corporate Income tax rate to 21 from 35 . The oil giant expects the change impact. Is bosque elon musk boss elon musk is working on a pickup truck after working on it for almost five years. He tweeted he is dying to build it. He said the next generation of autopilot is undergoing testing and the results are blowing him away. Carol thank you so much. The bitcoin bounceback appears worldspaused as the biggest digital currents he drops back below 16,000. Traders are looking to draw a line under the cryptocurrencys fiveday slump after a roller coaster december. There is a look back at some of the worlds biggest mines and finance speaking about the ups and downs. Im very excited about that coin. This is a global phenomenon. It is a global currency. It is frictionless. It has that trusted third party that is not subject to the whims of some political force. Orit is not a stable source store of value. It does not constitute legal tender. It is a highly speculative asset. First of all, it has to Gain Momentum and popularity. It has to serve as a meeting of exchange and a store of value. The demand is for people who want to engage in activities. The current fascination with bitcoin and other cryptocurrencies feels more like a speculative mania. How do you Value Bitcoin . How do you decide what the value will be next year or in five years . I think that is what Institutional Investors are evaluating. What i know about monetary economics is bitcoin is pretty valueless, it has no Intrinsic Value. I dont know what it is, but it has no Intrinsic Value in our definition of Intrinsic Value. Anything that goes from one dollar to 20,000 and then back to 16,000 with nothing behind it i think is very dangerous. I think it is going to be more of a bubble. It has been a bubble for two months. We are not in the business of investing in a bubble asset. Dont put your life savings in it, ok . [laughter] carol Tony Crescenzi still with us in our new york studio. Bitcoin. What are your thoughts about it . The financial industry is certainly looking at it to see what might be the uses. Tony it does seem to affect some anxiety among consumers and investors perhaps about central banking. Rote a note if you use ago a few years ago about the dangers of not gilt. There has been fear of this sort of thing for a while they read the amount of cash in circulation globally has increased a lot, so people fear that they may become less valuable. They also fear the banks and perhaps have a certain asked against banks angst against banks. Gilt wasn not protection against banks. What is very important, it is like the shadow banking system. Banks can create new money. The fed puts money into the system, banks lend it, they lend it and they lend it. One dollar can be turned into about eight dollars. The only reason cryptocurrency exists, what am trying to say is that only when banks create money, only if they create money can these things be bought. In the end, what matters most is the amount of money that banks create because these things, let gold or any other item, cannot be bought until that money has been created. People want to own them. It is a substitute for cash, but it is not as janet yellen said, a stable store of value, which is one of the most important things to keep in mind. Carol my guess is we will be talking about it a lot next year, as well. Nejra yes, we might have to discuss another question later. Tony crescenzi stays with us. Coming up on bloomberg daybreak the conversation with gene munster at 8 30 a. M. In new york. This is bloomberg. Nejra im a neighbor che etch with carol massar nay rich a cehic with carol massar. Are they trying to Value Bitcoin behind the scenes . Tony the valuation of these currencies is probably an effort in behavioral science. One has to determine what others think value is because learning its Intrinsic Value is something that is difficult. It has me thinking of a line from george soros, the billionaire investor, one of my idols in my youth, you could say. He said that economic history is truths,ith lies and mis but that the path to big money is to recognize these lies and mistruths and get off before they discredit it. That may be the way to think about that coin. Once a plea has to ride the wave every trying to see value in it maybe difficult because there is no Intrinsic Value in it, like gold. It is just worth what people think it is worth on any given day. Nejra so do you stay on the sidelines at the moment or du try to get exposure to the Underlying Technology . Tony we have zero interest in the currency as an investment. What pimco is most interested in is protecting peoples wealth and growing it and as bond managers that does mean looking for securities that have stable value. Is blockchain story interesting, though. That is probably what we will take off over the long run. Those who are good might be worthy of investing in it. It may be in medical company that sells prescription drugs. Maybe some of those get returned to the manufacturer. It is difficult now to determine when it is returned to the manufacturer, if it is the same. Blockchain, one can determine more precisely where it is. It is a pretty good example. Do you own any bitcoin . Tony i own no bitcoin and i plan to own none. [laughter] carol i figured that might be the answer. Tony crescenzi will stick around with us. On your commute, tune in to radio, bloomberg daybreak. This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Carol im carol massar with nejra cehic. Keene and Francine Lacqua have today off. Lets get the bloomberg first word news. Taylor oil is trading near the highest close after an explosion curbed libyas production. A pipeline that carries crude to libya exploded yesterday reducing output by 70,000 to 100,000 barrels per day. Saudi arabia expects oil revenue to jump about 80 by 2023 to help the kingdom record its first Budget Surplus in a decade. To the highested level since 2014 after china ordered its top producer to halt output to combat winter pollution. That added further impetus to a rally in the metal this year driven by optimism about demand. Gains now run to nine days, the longest streak since 2004, for a 30 jump this year. That makes it the London Metal Exchanges top base metal performer. Sawas Industrial Firms profits slow last month as the Producer Price rebound appears to soften. 14. 9 rial profits rose from a year earlier compared with previously reported 45. 1 in october. 25. 1 in october. The United Nations sanctions on north korea seem unlikely to slow kim jonguns nuclear ambitions. According to experts, the new restrictions are more likely to hurt ordinary people in the isolated nations. New Jersey Governor Chris Christie has proposed settling rail passengers with a surcharge to pay for his states share of the 12. 7 billion to two manhattan. Yorks governor plans to tap the state budget to cover his portion of the cost. The move comes less than a month leaves office. Global news powered by more than 2700 journalists and analysts, im taylor riggs, this is bloomberg. Carol thank you, taylor. With the new tax plan now law, republicans and democrats in the house and senate, republicans preparing for more legislative battles come 2018 with republicans expected to announce their own agenda for the coming year in january. Joining us right now to take us through what we can expect in the new year, Marty Shanker joining us on set. What can we expect . Marty expect the unexpected. [laughter] marty that was the theme of last year. We were preparing for Donald Trumps inauguration last year. Everyone was wondering about his cabinet, his agenda, who would have predicted a max of tax bill . Two months ago, people give it less than a 50 chance and now it is law. Carol does that mean Something Like infrastructure could be the next step . Marty there have been competing talk about that. Donald trump himself has said infrastructure is a good bipartisan way to get things moving. What the democrats think about infrastructure and republicans think about infrastructure are two different things. Democrats would like to see government spending. Republicans are concerned about budget deficits brought by the tax bill. So how they would ever accomplish that in a bipartisan way is very questionable. Is anif there infrastructure plan, it would probably be pretty small in terms of the actual amount of spending. There will be concerns about fiscal multipliers and private sector involvement that would probably be a bit too high. About they are talking 200 billion per year for the next 10 years. When you talk about what is necessary, that is a tiny amounts to build up the u. S. Infrastructure. A lot of people think that should have been his priority to begin with. Carol people thought that would have been an easy one. Nejra yes, then there is an issue of the government shutdown, the can kicked down the road. How messy could that get in the First Quarter of 2018 . Marty extraordinarily messy. Theyve got many very difficult issues they have to deal with to avoid a government shutdown. One of the primary ones is the dreamers act. We have these hundreds of thousands of children brought into this country legally. Donald trump has promised to take care of them. The republicans, many on the conservative side, dont want anything to do with any plan that smacks of amnesty. How they are going to reach a deal, the democrats have made this a redline, they must get this solved, so that is all going to come due on the 19th. Marty shanker is going to stay with us. Tony crescenzi, as well. Lets get a closer look at the gops 2017 legislative victories. David burton joins us. He joins us on the phone from the nations capital. David, good to have you here with us. This tax overhaul package, what do you see as the big impact on the American People and on the economy . Biggest singlee thing that will have a positive Economic Impact is the reduction in the corporate rate. Everything else is much less important. There are other positive things in the legislation, positively the second most important is five years of temporary expensing where businesses are allowed to deduct the cost of their equipment immediately rather than having to deduct it over many years. , thee individual side effects are much more muted. Federal rate reductions are relatively small. They will be taken right back by the repeal of the state and local tax deduction. Have said thisks is a great win for american corporations. What about the projections of a 1 trillion addition to the u. S. Deficit over the next 10 years . Does that not do you not find that worrisome, especially if we start to see the economy slowdown . David well, that Economic Growth will reduce considerably probably by about half. ,hen you really think about it if it increases the deficit by 500 billion over 10 years, that , which islion a year a relatively small price to pay for trillions of dollars of Economic Growth. Nejra is the Corporate Tax cut alone enough to offset the loss to federal revenue . David not entirely, no. Economic growth nejra take us through the math. David well, the proposal economicwill increase growth by about 2. 5 over 10 , most of which will probably come in the first five years. On average over the next 10 approximately 0. 3 of gdp, which is a nice Economic Growth effect, but nothing that is going to be transformative in terms approxiy 0. 3 of of what it could have been. Something along the lines of the better way proposal that paul ryan and kevin brady were talking about last summer could have that Economic Growth as much as 10 . It isng and the short of that when you have a larger economy, you have more people working, you have more corporate , the revenues of the federal government grows, they are not going to grow enough to compensate for the roughly 1 trillion versus current policy that the tax bill will reduce federal revenues, but it will probably be something more along the lines of 500 billion. Nejra in terms of the impact on labor markets, some might argue that that is not how labor markets work, that is not how businesses work, whereby they get a tax cut and then they pass that on in the form of wage increases, for example. Would you agree with those critics . David no and i think they need to go back and reacquaint themselves with pretty basic economics. It is supply and demand. Payses dont they employees because they like to, they do it because they have to. The bottom line is that if the businesses have a demand for more labor, the price of labor will to mend tend to go up. It is pretty basic. When you look back in history and prosperous times, wages tend to increase. In recessions, they tend not to increase. This will contribute to Economic Growth. There is one other thing that perhaps your listeners should net of Economic Growth sounds like a lot, but that is over a period where the federal government is projected to collect 43 trillion. 500 billion divided by 40 3 trillion is about 1 . Carol marty . Marty one of the narratives we have heard in advance of the tax bill being law is that corporations are having record profits. They have trillions of dollars in cash overseas. Record low Interest Rates. Expand really wanted to businesses, they had every opportunity to do that before this tax bill. That thesethink reductions in Corporate Taxes is going to make that big a difference . David for one, the money they have invested offshore, if they brought it back, they would under current law have a 35 tax. So they dont bring it back. The tax bill does have a socalled deemed repatriation, where they will be taxed at a lower rate, but they will be treated as if they brought it back. The bottom line is that in the United States, we have the highest Corporate Tax rate in the industrialized world and there is no particular reason why they should invest here. When you reduce the tax rate to approximately the average, it becomes more attractive to invest in the United States than it was. It is not as if we are going to have some magical tax rate of 25 , we are going to be very middle of the pack. His the Congress Just did make is a middle of the pack country from a tax competitors point of view. Middle of the pack does not sound too sexy unto you realize we were the worst tax country in week. Rld until next carol i want to bring tony in for a question. Animal spirits matter and Companies Act differently when the feeling government is friendly to them. To theit is very simple finer nations Growth Potential. It is the amount of new people to buy and produce goods and services that has increased sharply by 1 per year. These days, that 1 has become 0. 5 because of the demographic story in the productivity has become less than 1 gain on the past five years. Do you think the tax plan that was just implemented will encourage companies to invest more and boost productivity and boost the Growth Potential of the nation . David yes. It reduces the user cost to capital primarily because of the reduction in the corporate rates , a little bit because of the improved treatment of passers, and because for five years you can expense equipment. It does not do it nearly as much as it could have and should have. All right, think is so much to david burton from the Heritage Foundation and also to bloombergs Marty Shanker with us here on bloomberg surveillance. Tony crescenzi stays with us. Later today on the bloomberg at 3 00 a conversation p. M. In new york from the hoover institution. Ehic withm nejra c carol massar. An explosion at a pipeline carrying crude two biggest to libyas biggest export terminal. China ordered a top producer to hold output of copper to hold winter pollution. Joining us is bloombergs executive editor for commodities, stewart wallace. Pimco alsonzi from still with us. Stuart of a thanks for coming back. If we look at the broader picture, you highlighted this chart to me, the bloomberg commodity total return index. We have been talking about individual commodities doing well this year, oil and copper being a couple of them, but this index is pretty much flat. This this mean you really have to do the hard work . Stuart thats exactly right. This is the mindset that needs to change. Four or five years ago, we were on a super cycle, everything was going up, you could go long on commodities and make some money. That was true for a number of years. Things have changed in the last two or three years for we are guessing great differentiation between the individual index component numbers. The other thing is the structure of the market has changed. It is flipping between and that makes it very difficult to trade well. Volatility is not what it used to be, so that makes it difficult for hedge funds to make money out of this. Good place fora 2018 . Copper . Oil . Stuart i think, yes. We would be having this conversation on a beach in barbados if i knew the answer. The positive noise is around the base metals. Copper, aluminum, zinc. That is what we have seen in china. They have cut back production, increasing demand. Oil depends on the opec deal and whether they renew that and whether there is an indication about compliance diminishing. In the agricultural complex, that is going to come down to the weather. Carol as you look at the commodity complex, we are going to end up a little bit lower overall. How does what is going on in the commodities sector all into your Overall Investment outlook . Risks is of the key that inflation will break a little higher. That is not something we have repeatedly said, as many have. We believe inflation might pick up a bit because we do not see a meaningful breakout in inflation. The good this, the Global Economy this year grew nominally , which means including inflation, about 6 . It should grow again in 2018 a 6 . Er another this is a big increase in the amount of gdp in the world and it does mean more demand for goods and services that will drive Commodity Prices. In terms of investing tips, it makes sense to have some exposure. If treasury yields rise, we do think there is a risk that it does break a little higher from 2. 6 for the 10year. When that happens, because of an inflation fear, one has to be leery of that. I last point is that if inflation does break higher, it means a little bit more fed action and risk to other assets. Carol and we could see four moves. Thanks to Stuart Wallace. Tony crescenzi sticking around. If you have a bloomberg terminal, be sure to watch us on tv. Jump to your favorite moments, ask us any questions. Click on data and charts to help you through the day. This is bloomberg. Nejra this is bloomberg surveillance. Tom keene and Francine Lacqua have the day off. Francine has been busy. The worlds biggest beauty company, loreal, is on a mission to transform its business, boasting a portfolio of 34 international brands. It is heavily investing in ecommerce. The ceo talks about the companys secret to success and how demand in china is growing. Here is a taste of the show Francine Lacqua began by asking what sells at the moment. This year, luxury. This year, luxury has been booming everywhere. Mostly with chinese consumers. Chinese consumers are fantastic. They love beauty, they love luxury, they love our brands and their business with chinese consumers everywhere has been booming. Not only in china, because they are everywhere. They are in china, they are in hong kong, japan, they are even in london. Have you had to adapt to the Chinese Market . Yes, the products we sell not for all brands. The Luxury Brands are the same over the world. For our brands like loreal, maybelline of the products that we sell in china are made and formulated in china, by our chinese labs. Because of regulations . Not only, but because we want to create a product that is absolutely right for them, especially skincare because needsneeds, their skin are different, are specific. We manufacture in our chinese factories. Loreal paris is been number one beauty line in china. Tell me about your success in china. Is it to distribution . Ads . Celebrities . What is the attraction for your brand by the chinese . The reason is always the same for the success of our brands it is quality. For all of our brands, the absolute priority is quality and safety of our products. It is something that the chinese respect a lot. It is very important to them. Number one, innovation. Innovation is extremely important. You have to innovate a lot. More than 15 of our products every year are new in order to keep innovation flowing very strongly. Of course, it is the imagery of the brands. Laurent, ityves st. Is a beautiful imagery. Chinese consumers are very sensitive to that. They like it. That was the ceo of loreal speaking to bloombergs Francine Lacqua. You can see the full interview on leaders with lacqua. You can catch it in the u. K. And europe at 7 30 tomorrow night london time. Carol, you have the single best chart. ,arol i do with Tony Crescenzi pimco portfolio manager. If you take a look at the vix, on track for the lowest ever, how important is the vix to you . Tony Central Banks have been suppressing volatility and china , which francine is looking at, those are the two powerful forces. The china factor will continue this press volatility in 2018. , a littleccommodation less of it, so it might pick up a little bit, volatility, next year. Dont dismiss the possibility that Central Banks will do what they can to suppress it when they need to. Carol tony, thank you so much. Tony thanks for having me. Carol Tony Crescenzi will keep joining us on bloomberg surveillance radio. I will be there with pimm fox. You are watching bloomberg surveillance. This is bloomberg. Bloomberg. David commodities charge into the new year. Copper hits a threeyear high as pollution, to cut and a libyan pipeline explosion. Early numbers show a strong Holiday Shopping season, but people were not buying the iphone x. Ew year, new fed reports the white house may be talking with Richard Clarida and lori lindsey about the vice chair job. Welcome to bloomberg daybreak, i am david westin finally back with alix steel. Alix you abandoned me yesterday. David i feel guilty. Alix it is good to see you. About two and a half hours before the cash open, s p futures a tiny bit firmer. Eurodollar up by 1 10 of 1 . A broader, weaker dollar survey story. A dollar rally next year not in the cards