Transcripts For BLOOMBERG Bloomberg Surveillance 20240713

2700 journalists and analysts in over 120 countries. Trading. I am Karina Mitchell. Edging into the red after two days of gains gains. This is bloomberg. We had to the end of december. Nejra lets kick off the show with the u. S. And the year end it has been a good month. Melt up. Equities in europe and u. S. And in asia. It. Arie hordern has the dollar on a third day of decline. This has been a melt up but it a 10year yield study for the Asian Session but we edge up has been a stellar year for three basis points. Equity especially u. S. Equities you are seeing a little bit of but we are badly overbought. We could see this technical rest gauff of equities. Signal. Lets get to bloomberg first this is one of the things to watch for but for 20 20, we are word news. President donald trump is seeing a lot of calls come in facing criticism for ousting the seeing a lot of optimism. Allegedly whistleblower. Nejra thanks so much. Heres what our guests have been a lawyer who specializes in saying. Representing confidential informants says he may have weve got all the ingredients violated the law. For melt up. Melt up scenario in the first half of the year capitalized by the u. K. Election. Russia and ukraine are remaining acceleration of data. Silent on the closely watched liquidity. Gas talks. There are still risks out there. Candice stocks liver the this to reach an agreement earning desk can these stocks deliver the Earnings Growth . Allowing gas sold to europe tension, move away continue to pastor ukraine. From some of the political concerns. Investors sentiment, they are bullish. Cannot be too bullish or bearish. We are going to see the environment become an issue. Where we start fearing the fear of missing out. Nejra joining us for the hour is paul markham. Than 20 in the s p. Is this a melt up . Paul seems like it could be the beginning of one. Maybe some of the headlines around u. S. And china trade will clampdown and derail. Nejra what is interesting about earnings when people show concern that earnings and the level of s p 500 have become divorced, isnt this the whole point that equities front run what we are going to see out of earnings . Research has found that stock return lead s p earnings by a quarter. Worried about the fundamentals right now . Paul a very different scenario to what we have seen in previous cycles. It has been flat and we havent had the same sense of the rate cycle driving destruction and the shopper difference between trough and peak. We havent seen such a strong economic balance we have seen in the past. Those things taken together means there has been leadership from the market but on a much longerterm basis. Feeling that the market is dragon the economy clicking and screaming is it dragging the economy kicking and screaming. It is going to be important and interesting to see. Nejra what does that mean to how you would want to allocate to u. S. Stocks . Paul the question is whether we have the value. The Growth Stocks had been. Trong and they got sold off seehat continues, we could the indexes shift toward a more cyclical climate rally. However, if we dont see that happening, u. Stocks investors retreat back. Willwill be something that be less of an extra leg of growth. Nejra if the attention turns toward dividend yielding stocks, are there parts of the world the look more attractive . Europe, u. K. , leaving side and every thing else that is happening in the u. K. , that will be an attractive aspect. Emerging markets, as well, particularly south america. Higher andxposure is risk is elevated. Those things are being priced relatively effectively. Within the u. S. , stocks that toplinedend yield growth really. Bet is something that will certainly difficult to discern. I think health care will start u. S. Ok good in the elsewhere, if you want more , those high yielding can give you that as well. Are we going to see growth match what equity markets are pricing . What is your outlook for Global Growth . Paul the u. S. Economy is more influenced by the influence of the equity market. Other parts of the world, the economy is independent of the equity market. Exposure. H there will be a difference in how that plays out. As we go through the year, politics will be very important. Ease to be the fact that we tried to it used to be the fact that we try to ignore politics in markets. Certainly the secularity between the u. S. China trade wars have a crucial role to play. Nejra paul markham stays with us. Coming up, the fed in 2020, this joe bank injections show no rate changes. What impact for the annual rotation among voters have. A dove replaces two hawks. This is bloomberg. Nejra economics, finance, politics, this is bloomberg surveillance. Lets get the Bloomberg Business flash with Karina Mitchell. Explore exotica has uncovered 190 million euro the eyewear giant is working to recover the lost funds. The scam reignited concerns on how it is run. This after an internal power struggle earlier in the year. Labor will have to pay 17 million if they are fired or leave the company according to the Financial Times. The exit package ahead of a 3 billion offer by softbank. The documents note that they will continue to experience a lot of turnover among Senior Management. In the u. K. , farmers are getting 3 billion pounds to offset leaving the eu. This was announced by the chancellor woman. Many u. K. Farmers arent valuable without the payment. This accounts for 6 of the average farmers income 60 of the average farmers income. Chinese8 or a senior diplomat says the u. S. Should honor its agreement chinas ambassador to the u. S. Has added his nation will always implement what has been promised. Beijing and washington are working on the final details of the interim deal. China central bank scrapping its rate. It is the latest step toward a liberalization of the financial sector. Us. Markham is still with we are talking about the loan prime rate. What does this signal to you . Is it just an opening up of the Financial System . Paul it does look like more transparency which has to be a good thing. Some concern of some of the recent changes. Looks like it kind of closing it down. I am not sure it is addressing some of the big concerns, however, which is the asset basis are pretty insolvent. Theainly that some of issues have not been addressed for a long period of time. Nejra it is the transmission mechanism that might be improved. The other big question is, is this going to do much without some bigger reform . Paul certainly those assets, asset quality issues are because of the s always. If you think about the wider economy in china, a commitment to the Big Companies to maintain employment at the high levels. The Chinese Government will not be willing to risk high unemployment. They will not be willing to reform the space in that regard. Some examples of where they have been some small reforms around the s oez. The banks are instructed to inform to fund them. Nejra you are quite positive on the Chinese Consumer. Is one of the reasons is that chinas authorities are focused on maintaining high employment . Paul that certainly supports. The other thing that has been positive is raining in the growth rate of chinas gdp is something which is not sustainable longterm. We are seeing such a strong catchup for many years where the Chinese Consumer didnt have access. They couldnt by brands and certain goods. And now they leap to electronic goods. Online,ity to buy players within chinese ecommerce. They will add up to continue to support that. Gdp will grow as well. Nejra how would you like to participate and reflect your faith in the Chinese Consumer . Is it directly via chinese equity markets . ,aul there are two ways ecommerce plays. Also through some of the Luxury Brands. We have tended to favor the former really. Only really in the sense that the leverage is much higher in a direct way. The visibility of pricing, transparency of pricing. Some Luxury Brands have done well. Evaluations are pretty high there as well. I would say the direct route has been favored. Nejra if we see more stimulus in 2020 from china, and they would like to focus more on physical than monetary. Would that give you more faith in the sustainability of growth . Would it be a concern something untoward is going on below the surface . Paul we would want to see some of that fiscal stimulus if there is some coming directly to the consumer. A pumpikely to come on priming basis. That. Nly china has done there may be some optimism that any fiscal transfer would be directly toward the individual. I dont think theres anything to be concerned about. It is another move toward a more consumer economy. Nejra paul markham staying with us. The electric car delivers its first built in china. Musk a key moment in eons push into the world market. This is bloomberg. Nejra this is bloomberg surveillance. I am nejra cehic. Kettler has handed over its first car built at a multibilliondollar shanghai plant. The first round of cars are going to local employees and deliveries to customers outside of tesla will begin in january. Benedikt kammel joins us now. Great to have you with us. This factory pulled this incredibly quickly. Wound up the factory in record time was less than a year ago that we wrote about these plans. Showcasing the bulky, muddy field. We wouldnt thought there would be cars rolling out that facility less than a year later. Here we are. It shows the breakneck speed in which the industry is transforming and how elon musk isnt looking for global footprint. China is the market where you have to have that. It is the biggest market locally. Conventional cars and we have had he has had these aspirations to be here locally. Initially for employees but later for the global market. Nejra i know it is early days and what you are suggesting is people are going to look to this example in shanghai to see whether tesla can go global. Germany is on the cards. What we have seen in shanghai, does it bode well for going global . Yes and no. I would say it is difficult to translate what happened in china to other markets. Slower. S grind much we have had issues with getting an airport up and he has had a plan to build a factory not far away from the airport, but that i would say will not happen within a year. That will be interesting how he can replicate what hed has done in china elsewhere. Germany which is still the home to the combustion engine, candy replicate that success here . Can you get the sales momentum here can he get the sales momentum here the way he has in the u. S. And china . We will see how the German Market responds. The model three which is the car which is being produced in china is becoming a bigger hit over here, the biggest seller in terms of entrylevel audrey cars. This is all a good sign. Benedikt kammel, thank you so much. Us. Markham is still with what sort of signals when you read from this would you read from this . A natural consequence of the trade war is we should expect these kind of shifts in production closer to the site site of conception . Consequence,nded we have been in a world of unintended consequence, of the trade wars is we get this kind of thing happening. I imagine the u. S. Administration would be overjoyed at this happening. Demand,y, in regard to it is a crucial market for any car manufacturer. It is something the chinese in ministrations will take very positively. All these things go together to say we would like to see more of this going forward. The only caveat to that is the Chinese Government does some very High Aspirations to be a player in the market. Nejra really briefly, paul, is ev an area you are betting on . Paul we do indirectly through some battery providers. That is the technology that is crucial in terms of size, weight, safety. That is an area we are playing. Nejra paul markham, he stays with us. Up next we will bring the stocks on the move including the italian french eyewear giant that is the target of a fraud. This is bloomberg. Whether youre out here on lte or here on a wifi hotspot, Xfinity Mobile has more coverage to keep you connected to what matters most. Moooo. Thats because its the only Wireless Network that automatically connects you to millions of secure wifi hotspots and the best lte everywhere else. Save up to 400 a year when you switch. Plus, unwrap 250 off our best phones. Click, call or visit a store today. Era, banks adopt a loan fighting regime. Another step in the opening of chinas Financial System. Faces trump places criticism for it the alleged whistleblower. 2019 is drawing to a close. We examine some of the best performers and a look ahead to 2020. This is bloomberg surveillance. In on the european stock movement. Bit of a muted session. Not a ton of big movers. Three to keep your eye on. One is down 2 this morning. This comes as they were subject of fraud in their factory. Theirillion was stolen by own employees. They are working to recover that cash. A. S. Roma is up more than 4 . U. S. Billionaires are looking at buying the club. I asked if they will call it a soccer team or his football to tha he was seeking sticking to soccer. Nejra it is called football but that is a conversation for another day. Lets get to Karina Mitchell in new york. President donald trump is facing criticism for outing the alleged whistleblower. The retreat may have violated the law. Hasrepublican senator advised the president to spend less time tweeting. The u. S. Encouraged to honor the policy. That is part of a trade tax that says china will honor its part of the phase i deal. Stock using chinas previous benchmark rates. Beijing tried to liberalize Interest Rates. For can lower costs denominated loans held by institutions. U. S. For thanking the helping prevent terrorist attacks. President putin and trump spoke on the phone. The russian president , thanking the white house for sharing intelligence. They discussed combating terrorism. This is bloomberg. Federal reserve projections show no Interest Rate changes next year. Include dove. Rs Robert Kaplan joins from dallas, as well as patrick and loretta. Lets focus in on Central Banks. James, who is departing. Does this rotation mean anything for you for 2020, in terms of the direction of fed policy . It could make a difference. Some geopolitical developments. Some think which could upset this. How they act will be important. Indont see too much change 2020. It would take something relatively major to change that point of view. Change,f there is a ,ould you say that it is dovish when you take into account the review of the framework . More dovish than hawkish, i would say. Somed see selfcontradictory comments last year. Up. Aw markets push rates we saw fall in december. The year end was much weaker. Nejra some of that was risk around the u. S. China trade. That goes handinhand with the rally and equities. Structurally, Central Banks will have to continue to be really concerned about the rate of zero. The fed looks at japan and europe, you have the euro zone and that is something that is hard to escape from. They will want to avoid that, i think. In terms of the ecb for 2020, is that going to be a smooth market in terms of no change to policy as well . There has been hope around ecb, i dont the think they have a lot of wiggle room. Improvementd to see in prices. We see a continuation of the fall on unemployment, which is encouraging. I would say it is likely to be nejra what about fiscal policy . There has been a lot of conversation around this. Do you expect any kind of action at all in 2020 that will actually impact markets . Bond markets first and perhaps equity markets too. Is a bank rate policy, any deal is likely to come from headlines. It less likely to see is different between china, where we would see more stimulus of the consumer. They would like to see more big projects and infrastructure. They could probably that would have an impact on government Balance Sheets. Some of that could be inflation. I dont think the ecb will mind that. The thing that draghi was keen to emphasize in november, it was over to you to have government stop stimuli. Disappointing but i think we will see them nonetheless. Yields might stay suppressed. When you look at the bond market, bond yields move higher. What is the relationship to equity markets. How does it impact how you view indexes or individual companies and sectors or regions . It looks serene. That would be because there could be some rotation. If you expect there to be significant stimulus around the theystructure sectors, would tend to have structure related things that are cyclical. That could continue. Whether the stocks can continue is slightly questioned. Be watching closely for that. Nejra you suggested that government stimulus alone might not be enough to lift Global Growth. What is it going to take for that to happen in 2020, lets say in europe . Certainly, unemployment is one of the biggest things that will be necessary. Lets not forget that europe does not self start economically. They tended to take their cue from the u. S. We mentioned the auto market, that will be a crucial driver as well as china continues to grow. Those are some things the market will be watching. That value tilt for the markets will be crucial for europe to continue to move forward. Stay with surveillance. Plenty coming up, including more people for the em rally. Nations outperform their peers in 2020. We will discuss next, this is bloomberg. Nejra this is bloomberg surveillance. Lets get the Bloomberg Business flash Karina Mitchell. Tesla is handing over its first china bill cars. First cars are going to be local employees. Willkers will see receive vehicles over the next couple of days. Pay 17will have to million to its ceos if they are fired. To package terms were sent shareholders ahead of a 3 billion tender offer. We work may continue to experience turnover among Senior Management. Goldman sachs said jp morgan has found ways to limit regulation on trading. That is according to the Financial Times. More Capital Requirements than regular repo trades. That is where clearinghouse fits between the trades. That is the Bloomberg Business flash. Emerging markets are about to embark on another year of Wealth Creation after adding 14 trillion to investment portfolios in the past decade. Asia has the best prospects. This is according to bloombergs survey of 57 global investors, strategists and traders. Still with us. What has been interesting is that emerging markets, stocks, bonds and currencies have done well. Not necessarily outperformed but, as we heard in the survey, outperformance is expected in 2020. Well em equity markets outperform in 2020 . Will em equity markets outperform in 2020 . The path of the interest bees and the fed will always crucial. There is a tendency to lump the into one nebulous. There is a difference at individual country levels. Those with lower Commodity Exposure act quite differently. Whether or not this year would suffer a hangover from last year is in the question into question. Nejra the dollar is in the top three things that people said will drive the emerging markets in 2020. China trade issues and chinas Economic Growth outlook. Would you agree that china is more important in 2020 and what parts of em would you be attracted to, if so . Pivotal has been the aspect for the last 10 years or more. Period,t part of that china exercised its influence. We saw rerate growths growthcantly rerate that was significant. Areas around Southeast Asia will be closest economically to that. They could benefit if they get themselves in position correctly. From the point of view of the fiscal stimulus that we have already mentioned, whether or will be more consumer related as opposed to infrastructure related could be a question we will be asking. Nejra are you thinking specifically the Oil Importing nations or other commodities that concern you . If so, why . Is it just that you dont have full strength faith in the strength of Global Growth in 2020 . Saw strong growth in devices around the world and communications of infrastructure. Those things drove commodities out. We see that as being much more cyclical going forward. We have seen the benefits of rationalized production come through in stock processes. We are in a. Period of great change. We have been a little bit cautious. Both of those areas can be challenged but for different reasons. There are pups parts of the world that are correlated as regards to energy prices. Some of the other markets such as brazil have long oil. Nejra what about a market like russia . There is a great piece on the bloomberg talking about if you put 10,000 in these assets, what they would have returned in 2019. Russias market has performed totalst, globally, on a return basis. Currently secondbest worldwide. Is russia an area of interest at all . Whether because of oil prices or because of other reasons . Paul there has been interest. If you dont want to buy the energy and if you are not comfortable with the Balance Sheets or the transparency of the Balance Sheets, it is hard to buy anything. Corporate governments can be an issue because it is quite often controlling a shareholder which makes it difficult. Government has been have shorted around its economic policies. Equal, if iting much, do too nejra paul is staying with us. Coming up, golden parachutes and a busy year for we work. This is bloomberg. Nejra economic finance on politics. This is bloomberg surveillance. Lets get to another of our top stories. We work will have to pay millions to its cochief executive. Emory is here with more. How much are we talking about . 17 million is what they will have to pay if the executives are fired or if they decide to leave the company. More than 8 million each under these exit packages. The Financial Times citing these documents. Why it is so important is wework may continue to experience turnover. Lot could be paying out a with these golden parachutes. Nejra paul is still with us. When we look at wework, this story aside, we are talking about a company that lost 40 billion in value before its ipo. That along with some other stories has led people to call 2019 not the year of the unicorn but the year of the dont key. Donkey. Is 20 20 going to be a similar year because we have other highprofile companies excited to go public . Continue tok if we disappointingly, that will be a concern. See them become a bigger part of investment term considerations, that will be an issue. About these golden parachutes which have been mentioned this morning. Hat is bad esg investors will not want to participate. I think you will have to see more going forward. Been when investors have assessing ipos and the business prospect, there has been too much pork us focus on how much they perform in the u. S. Market and not enough attention to how they perform everywhere else in the world. You assume they can perform everywhere but there are nuances that can be stumbling blocks. Is that something investors have overlooked . Paul to some extent. There is exposure to investors. We have seen companies this year listed in their home country. They want to have exposure. That,y want to do investors will have to be more cautious. They want to get their arms around things more tangible. I think you have a good point. Nejra you were mentioning esg. As we look to 2020, how are investors owing to factor esg into portfolios differently than they were in 2019 . Will be more influenced by younger generations. They see esg is nonnegotiable. I think that that will start to be something that is challenged to some extent. That is something that will continue into 2020 and something that will be paid attention to as well is the idea that certain funds could be green washed. That is something where we encourage them to do the right thing going forward. Nejra we dont have much time left. I know you are not in the business of making productions. You are good at them, nonetheless. What would be your top prediction for 2020 . Markets will rise a little bit. The first half done made by the u. S. China trade war. Second half be dominated by u. S. Politics. They have been so constant. I think that will be the shape of it. Beont expect markets to tremendously weak in 2020. Expect the same kind of returns expect in the same kinds of returns would be a stretch. Expecting the same kinds of returns would be a stretch. Nejra great to have you with us. Bloomberg surveillance continues in the next hour. I will be joined by tom out of new york. In terms of how markets are performing, the euro is on the front flip. Year yields are on the 191 handle. This is bloomberg. Y95ooo era, the pboc tells banks to adopt a fighting regime for 2020. , President Trump faces criticism for tweeting the name of the alleged whistleblower whose complaints led to his impeachment. 2019 is drawing to a close. The years best performers and a look ahead to 2020. This is bloomberg surveillance. Bloomberg news with Karina Mitchell. The u. S. Has launched airstrikes on basins in iraq and syria. Mark esper called the attacks successful. He did not announce further action. There have been rocket attacks aimed at iraqi installations where u. S. Troops are based. Vladimir putin called President Trump to thank him for intelligence that helped him prevent terrorist attacks in russia. The leaders discussed further cooperation to fight terrorism and other matters. China is taking a step to liberalize its Financial System. Lenders have been told to quit using the old benchmarks. They will be converted to a new base rate. Global news 24 hours a day, on the air at tictoc, on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am Karina Mitchell. This is bloomberg. Nejra thank you so much. Lets get to the markets. There is trading in this holiday season. Stocks have been down almost 4 10 of a percent. Europeanbit of risk in equity markets. The 10 year yield is above a 1. 9 handle. Dollar weakness for a third day. The eurodollar touches a 1. 12 handle. The euro is that 116 through 2020. Cable touching 1. 32 by the First Quarter. U. S. Equity, trade is flat. People are asking the question, when will we continue to see the same gains and question, will we continue to see the same gains and equities in 2020 . Recessions really happen after years with rallies this large. For those concerned about firstquarter earnings, perhaps that could give a little bit of optimism. A senior chinese to plant has suggested the u. S. Should honor its commitment as part of the phase one trade deal. He said they will always implement what has been promised. This comes as beijing and washington are working on the final details of the interim deal. Chinas central bank is scrapping its is g us now how significant is this in terms of actually being able to improve the transmission mechanism of the Monetary Policy . Move as youymbolic mentioned. Doesnt have rate the same level of transparency you would see in other banks. Over one dozen banks will have the rates between them. It is more reactive of what is happening in realtime time to the economies. From that point of view, it is a positive. Bring down the current cost of borrowing. Cog in a much bigger system of reform or series of reforms that are needed in chinas economy. The banks are state dominated. This is only 17 that process. Nejra exactly. How effective can it actually be without a bigger reform . Is the question everybody is asking. We know they have been tweaking at the margins. Know they are pushing for liberalization. We should see more progress on that next year. This move, i dont think it will be considered a game changer. It is important from the pbocs point of view. I think that it is only seen as one part of a jigsaw where a series of changes will be needed if the Financial System is to keep pace with the pace of economic development. Set,enchmark rate being back when chinas economy was. Eveloping and it needed credit the reform of others will be needed to keep it on track. Nejra thank you so much. Joining us is Mike Gallagher. Welcome to the show. This is oneying, piece of the jigsaw puzzle. Should we be positive that the jigsaw is starting to take shape . If you are looking at the structural, it is a further step on the part of china. At the moment, what is more important is the cyclical position. If we look at china, we are seeing a degree of stabilization in terms of the economy in the second half. The impact of the restructuring is ongoing at the moment. Slow lending growth. Normally, we see a big bump in the First Quarter. People are looking to see whether that will be repeated as traditionally is the case. We think that it will but it may not be as large as the First Quarter in 2019. Nejra does that mean the credit impulse is causing you a little bit of concern in terms of the stability of chinas growth in 2020 . The thing that you will get is you will get a certain degree of relief in terms of the u. S. China trade deal. Lift theot going to chinese economy because you have iss ongoing rebalancing that suddenly occurring in the Financial System as well as in parts of the economy. That we couldks slip to below 6 growth. Thes just an acceptance on part of chinese authorities that to keep 6 growth would cause problems. Nejra we have heard signals that they would rather lean on fiscal than monetary. The chinese authorities ertook there was a bias for tax changes rather than infrastructure. This year, i think we will see some further measures to cushion the economy. To provide them a safety net. They may not be as large as last year. There has been a lot of optimism around the u. S. China phase one deal, toward the end of this year. Even if we were to put that aside, what is your view of chinas economy, in isolation from u. S. China trade. It might be hard to separate the two but there are people who are concerned about chinas economy. Chinese a 30s except that the old model, which was an export dominated Business Investment, they have been trying to transition away from that. Technologyrvices and have taken a bigger part of the growth pie. That is good for chinas economy in the long term. Take 45 years of transition before we see four years of transition before we see issues resolved. It will help the trade balance. But not her medically. Nejra Mike Gallagher will stay with us. Coming up, we take a look at Central Banks in 2020 as investors weigh the roles of monetary versus fiscal policy. This is bloomberg. Tom keene and Francine Lacqua are off today. It has been an upanddown year for Federal Reserve in the face of weakening Global Growth. Roma kaplan sat down with Kathleen Hays to talk about Global Growth and the year curve. Rollback the clock, it ak globalust we growth. It was weak business and fixed investment. I said we should do modest, limited restraint adjustment to the feds rate. Was the curveg was inverted and i felt it would be better if we had a sloping curve. To me, the curve is a symptom that may our adjustments were about right. Intended to solve these issues. It was intended to adjust policy. I think the curve being upwardly sloping tells me we are in about the right place. Signal curve is a strong but if it were move into the other direction it would concern me. Investment has been week. Ak. Retail sales have been decelerating. Economic teams are expecting holiday sales to come in at a gain of 3. 4 over last year. That would be the second weakest of the cycle. Main engine of growth is running out of gas . I dont think that will happen. Here is what i will be watching for. I have been worried that weak Business Investment and weak manufacturer would seep into other parts of the economy. We have not seen that. Even if Consumer Spending is weaker than it might have been, consumer Balance Sheets are not perfect but they are in much better shape. We have a tight jobs market. There is no evidence i see that the jobs market is doing anything but getting tighter. Changes thating causes the employment picture to change, the consumer is going to be solid for next year. They are not mean going to spain. They have the capacity to spend. Other side of the policy coin is inflation. Jay powell said he would have to see persistently rising inflation to get on board with the rate hike. What is your position . We have been in a situation where we have been able to run a tight labor force, without inflation taking off. We have had muted inflation. What is great about the fomc, we have a different take on this. I will be looking at what potential growth does. I will look at what the trends are in the labor market. In addition, i will be looking at where we are versus our target. I will look at a range of factors and stability issues in weighing whether action is appropriate. That was Robert Kaplan, speaking to Kathleen Hays on december 17. He is a Voting Member of the fomc. Federal reserve projections show no changes for next year. The rotation among voters could influence policy as incoming members include an outspoken dove and two hawks. He joins alongside Robert Kaplan. Mike gallagher is still with us. You are expecting 50 basis points of cuts by 2021, from the fed. That make she bullish on treasuries. Makes you bullish on treasuries. We areprime reason that looking for that is we see the slowdown that we have seen this year, going through to the u. S. Consumer. We are not looking for the u. S. Consumer to hit the brakes dramatically. We think there will be some slowing of Consumption Trends that have been evident. That is enough to spread out to a wider economy. You are not going to get a big boost to exports and Business Investments in the u. S. China trade deal. You will get a little bit of help. You are not talking wholesale reversal of previous tariffs. What youre talking about is a modest reversal. That will stabilize the sentiment. With consumers slowing down, that will prompt a relatively disappointing outlook for the u. S. Economy by the end of 2020. Nejra you see the tre 10 year treasury yield at 1. 55. Do you expect further spread tightening or do you see a blowout . It is difficult to see tightening atde this juncture, with the slowing economy and with Government Bond yields. You would normally see a little bit of a whining and we think that will be the case widening and we think that will be the case. The european yields are more attractive. There are lots of low yields. I think you will see some attraction, in the first half toward u. S. High yields. In the second half of the year, the story that we have will counterbalance that. About will get worried what is going to happen in 2021 and 2022. Nejra no worry is evident in terms of the u. S. Stock market rally. It is very rare that recessions happen after years with rallies this large. Will we see the same sort of gains in 2020, in u. S. Equity markets, if you continue to see yields fall as you predict . I dont think we will this time around. The trick in 2019 was that the scale of the bond yield was substantive. It will not be on the same scale. You have a situation where the u. S. Equity market was relatively cheap. 2018 was about earnings expanding and the market going nowhere. Last year was about earnings not going far in the market expanding. And the market expanding. We think it will be difficult to rally from here. Nejra mike stays with us. Up next, tesla reaches a major milestone, delivering china built cars. This is bloomberg. I am nara cherish. Tom keene and Francine Lacqua are off. Tesla handed over the first 15 model three sedans assembled at its multibilliondollar factory in shanghai. Joining us is benedict, bloombergs Global Business editor. Talk to us about the significance of this. The significance is how quickly they managed to get this out. That was one year ago, elon musk, standing in a muddy field. And nothing else. Less than one year on, you will see cars roll off the production line. It shows what kind of punch is into the quest, both from the Chinese Government but also elon musk. He wants to be in the Chinese Market and wants to be local. The chinese want to have the biggest name attract the biggest name in the industry to a local factory. Nejra what does what happened in shanghai tell us about the prospect of tesla going global . We know that they want to build a factory in germany. On the outskirts of berlin. Will that factory go up in the same time, i would say not. Normally, things in germany take time. There bureaucracy is, located. It shows the is complicated. That elonhe ambition musk has. They want to be in the most relevant market. They are in the u. S. , and california. They are now in china. Going into the heartland of the combustion engine, which is germany. He said we want to kill the combustion engine. This is where he will take the company in the next few years. Nejra thank you so much. Mike alec are still with us. Gallagher is still with us. We dont have a lot of time prayed what is the most significant aspect of this story to you. . Oryou dont have valuable from majorvalue cars manufacturers yet. Car sales were down because people decided they should stop buying diesel because of the climate. That is good news. The bad news is there are not enough electric vehicles to be purchased. Mike gallagher will stay with us. Coming up, turning bullish on the euro. We will get your call on the new wave of investor optimism for the currency. This is bloomberg. Matt tom keene and Francine Lacqua are off today on new years eve. Lets get to the bloomberg first word news. President is facing criticism for outing the alleged whistleblower whose complaint alleges impeachment. A retweet identified a person it says is the whistleblower. Critics say that is against the law and john kennedy suggests the president tweet a little less. John lewis has been diagnosed with stage 4 pancreatic cancer. He says he has never faced a fight like the one now. Beaten bye was Alabama Police and suffered a fracture during a civil rights march. A suspect is being held for multiple stabbings during a hanukkah celebration. Andrew cuomo calls it an act to best dictate terrorism. Domestic terrorism. Fires have been fueled by a heat wave and strong wind. It is the latest development in a crisis that ripped australia. Global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. I am Karina Mitchell. That. Thanks for after two years of setbacks, the euro is enjoying a wave of investor optimism as 2019 draws to a close. Ory bring in em annemarie for more. Annemarie 20 20 20 is where the euro is set to shine, expected to outperform all major peers. They expect eurodollar to jump 4 . Fourth quarter 2020 eurodollar 1. 15. Bettingtanley, ubs, all on this because we see the improvement potentially the improvement for the political economy. The trade war, which has really taken a bite out of european manufacturing. Ont Annmarie Hordern there what really is one of the calls of the day. Joining us is paul dobson, bloomberg managing editor and Mike Gallagher for the continuing economics. This i wonder how much of do you think is less weakness in the euro and how much of it is more euro in the dollar . Are definitely two sides to the story. This month already, we have seen a weakening in the dollar falling against its peers as the phase one trade deal moves closer. Part of what people are thinking about for next year is whether that continues to feed into a weakening of the dollar while Everything Else reflates. The strength of the dollar has been a roadblock for Global Markets in some ways and that could help the rest of the world to rebalance slightly. If you think about the relative Monetary Policy setting, the fed has told us explicitly it does not see itself going anyway anywhere. The ecb still easing, but may be toward the end of next year, we will come to a situation where the euro area is recovering more slowly. That would give the euro an extra tailwind in the second half of 2020. Matt what do you expect from the euro in 2020 . For 1. 15 by the end of 2020 and 1. 20 by the end of 2021. We think the dollar is overvalued. It has been for a couple years and if you dig beneath the surface, you see the balance of payments have been supported by u. S. Companies repatriating funds. That will start to taper off in 2020 and the underlying picture will be a more difficult current account financing in the u. S. And that will produce a situation that, for us, is a softer dollar more generally. Matt in the case of the dollar, what do you think leads to that . We have mored certainty in terms of the u. S. China trade war, but what do you think the fed does to the dollar in 2020 . The first half, centralbank policies are not going to impact the dollar that much. I think all the Central Banks are on hold. Aresecond half of 2020, we god could set this nonconsensus. That will help the weaker dollar story along. Theink it is just enough dollar is at a very elevated onel and we have this phase trade deal, that is enough to have already started the ball rolling for a weaker dollar and the first half of 2020 will see that continuing. Guest aspoke with a couple hours ago who expects the ecb to ease further and in fact, what are you hearing about the effect of ecb i thinke market a while to understaat the inarde wants to take the ecb looks like. We know she wants to push for and may thestimulus ecb is reluctant to do too much more than currently in terms of easing. If there is anything we have itrned from the draghi area, is that policymakers or lawmakers are not all that willing to take advice on board, so have to wait and see whether we generally get more of a flowthrough fiscal before we can understand what the ecb is likely to do in its response and if the trade war picture starts to brighten, maybe that takes a little bit of pressure off the ecb and lawmakers to do that much more if it helps the euro area. Matt for perhaps President Trump brings the trade war to the e. U. And that encourages governments to spend more. Mike, i am curious what you think more fiscal stimulus would provide. When i talk to lawmakers in berlin after they tell me they are spending a lot, they usually say what good would it do any way for the rest of europe . It doesnt matter if germany is spending money on infrastructure. Mike i think there is a difference between cyclical fiscal policy to boost the economy, which i dont think is on the agenda for europe and structural fiscal policy, which is on the agenda. If you look at the european commission, they want to build momentum behind this Climate Change initiative. They are talking about one trillion euros over 10 years. Part of that is public spending. Part of that is bank funding. We could also see some of the european governments chipping in toe directly in trying accelerate the Climate Initiative through the 20 20s. That is something the cdu has to have a heart on given that it could be in coalition with the greens calm the 2020 the election inthe 2020 germany. Matt thanks very much, Mike Gallagher of continuum economics will stay with us. Paul dobson will stay with us. We will continue these conversations. Take a quick look at what is going on in terms of the equity indexes on a day when we do see very light trading. Of course a lot of Market Participants will be at home watching the program from there. Futures rising as we see european stocks fall. This is bloomberg. Karina lets get the Bloomberg Business flash. We work will have to repay for ceos ifillion they are fired or leave for other reasons. Exit package terms were sent to shareholders ahead of a 3 billiondollar offer by softbank. Gold is on the end of year rally. Spot gold prices up 18 this year. Some analysts say it is do we can due to the weakness of the u. S. Dollar. At the dollar is set for its biggest quarterly loss since the start of 2018. Of ate gallagher continuum economics and paul dobson of Bloomberg News still with us. Talking about the weakness of the dollar leading to a rally in gold. Negative real rates around the world, negative nominal rates here and you expect the fed to ease further in 2020. Does this lead to the continuing gain in the price of gold . Ake shortterm, we may see further fall through given the weakness of the dollar is likely to seep into the first half of 2020, but gold has been growing ahead of the dollar if you look at the relationship on a multiyear basis, that is very clear. The gold price has really sort of taken off in 2019 because we have a lot of centralbank buying and that will not be repeated on the same scale in 2020. Holland has been an exceptional 2019, not going to be playing in 2020. China, russia, turkey will be buyers once again. We will see the market has run ahead a little too far on gold. By february, we might have a bit of a hangover. I am curious. Paul, you globally run our bonds and fx coverage. Is there any major economy people expect to see inflation come back . Back in the day, that is what drove rallies in gold. Back,when you say come that is when you need to be it is like thinking about what your expectations are. If you are talking about a burst of inflation far beyond centralbank target rates, and i dont think anyone is pricing that but we are seeing a little bit more optimism in terms of inflation then has been up to the levels we saw in the middle of the year and on a rising trend at the moment. There is little bit of hope inflation might come back. We had a story over the last couple weeks looking at some of the biggest Asset Managers out there, looking for a little bit of value as well. We will see an increase in inflation and they say there are expectations going into 2020. Matt there is no surge in inflation and you think the price of gold has gotten ahead of the dollar. At the other thing that has boosted the value of the precious metal is expectations of a recession, social collapse. Do you expect 2020 to be a rough year for major global economies . Think the big uncertainty out there was u. S. China trade and i think we have the phase one trade deal all the way through the u. S. President ial election and it is hard to put your finger on what that will sort to be a major macro or geopolitical event that triggers uncertainty. I dont think we are going to see interest coming from there in terms of gold and we would concerned and that kind of environment. Matt it doesnt look like there is a lot of support for the price to run much further, much faster. Mike gallagher of continuum economics and paul dobson will stay with us. Surveillance. Plenty coming up including more fuel for the em rally after adding 14 trillion in the past decade, developing nations forecast to outperform their peers. We will discuss that further. I think i called you paul donovan and we all know you are paul dobson, two very different people. We will continue talking to you and not the other at least for today and mike. This is bloomberg. Int i am matt miller berlin. Tom keene and Francine Lacqua are off. We will talk about emerging markets. Apart to embark on another year of Wealth Creation after adding 14 trillion to investor portfolios. Developing nation assets will outperform their peers with asia having the best prospects according to a Bloomberg Survey of 57 global investors, strategistss and traders. Mike gallagher and paul dobson of Bloomberg News are still with us. We were talking about the dollars effect on gold, the dollar touches almost all assets in the Global Financial marketplace. If we see a weakening dollar, what does this mean for emerging markets in 2020 if we continue to see a weakening dollar . Mike generally sort of a weakening dollar does tend to see emergingmarket assets marketorming developed assets. There are two other factors that performance of emergingmarket assets. The u. S. China trade deal at least from a sentiment standpoint will benefit emerging markets more than developed they have been impacted last year by the cloud past over global assets by the u. S. China trade war. Thirdly, i think you have valuations. A lot of the equity market valuations are more attractive in emerging markets. You have better yield pickup japan. The low yield and consequently, i think you will see an asset rotation into emerging markets this year. Tot let me go right now divide quickly and bring in justin carrigan, the executive at her editor for Global Markets. Time to be able glad to be able to get time for you. What is the outlook for emerging markets after we have done the survey . Summed Mike Gallaghers it up neatly. I think outlook, even though we ride is a fairly bumpy looking rather more optimistic. It certainly has been a strong end for the to the year for emerging markets. We are seeing the index in positive territory. Stocks have been doing well and are at term spreads multiple year lows. It is a rosy picture at the moment. In the first, we might see we will see further gains ahead. The risks are dominated by the trade talks backdrop and i think the way the u. S. Election will impinge on that dynamic will be significant and we also have the political protests in some parts of the emergingmarket world, most notably latin america and hong kong. See how that plays out and if that continues to cause investor worries. Largely, netnet, i think the overall picture into 2020 is one of optimism. Most basic level, a weakening of the dollar or major currencies makes emerging markets makes it cheaper for them to pay their debt, but more difficult for them to sell their wares. Is that, justin, and a way, toweighed by some resolution the trade war . Is that how important resolution to this trade war is to emerging markets . Dustin it is certainly one of the factors. The price of commodities, which could end up having a more significant effect on some of the emergingmarket stories in 2020, notably copper and oil. Of course it is with a two edged sword, it is not such a good story for countries like south. Frica india is another one whereas in south africa, it will gain on the metal side of things. That could be another factor. If you go to investors and ask what is their overall hopes, the biggest worry, it it will be trade. Is out of the way, if it starts to wane had a toward the headed toward the election, we will be in a good place. Matt we saw emergingmarket equities were on an absolute tear, certainly the Chinese Market blew up and some other notable examples. On the fixed income side, the bond aside, what do you think investors are hoping for for em . We have seen a succession of Interest Rate cuts, which has given fuel to emergingmarket bonds. I think investors will be looking for more of that going into next year as well. Interestingthink is is looking at views on emerging markets the key quote comes from a japanese investor. You need to ask what they are doing watch what they are doing with their money. They are being directed further away from their course safe fixed income assets to riskier bonds around the world and emerging markets, you see these names popping up in assets that might be unfamiliar and that will give an extra wind and push behind not only the bonds, but the equities and currencies as well. Matt great to get some time with all of you, paul dobson fx coverageonds and globally at Bloomberg News, justin carrigan, our bloomberg executive editor for emerging markets, and Mike Gallagher at continuum economics. Ratesna scraps benchmark for lending in 2020 as the pboc takes another step toward opening up its Financial System. 2019 drawing to a close with every major asset class a winner. We will examine some of the best performers and look ahead to 2020. President trump faces criticism for naming the alleged whistleblower whose complaints led to his impeachment. This is bloomberg surveillance. I am guy johnson. Lets take a look at what is happening with the bloomberg first word news, carry on a mitchell Karina Mitchell in new york. Karina defense secretary mark esper called the attack successful and did not allow further action. Vladimir putin called President Trump to thank him for intelligence that helped prevent terror attacks in russia according to the kremlin. Russia says the leaders discussed cooperation to fight terrorism and other matters. What heun is urging calls positive measures to bolster security. He has vowed to take a new path in Nuclear Talks unless the u. S. Makes further concessions by years end. China is taking another step toward liberalizing the Financial System. The central bank ordered lenders to stop using the old benchmark. Loans will be converted to a new base rate and the move could lower the cost for some loans. Global news, 24 hours a day, on air and at quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Guy thank you. To the markets, to be honest, not much action today. We are seeing light volume already. European equities down by around. 5 . The u. S. Will open flat. We dont have Much Movement when it comes to the bond market, a 4 basis point move. Trading 1. 92. Talking about the fed in a moment and eurodollar above 1. 1 one, nearly at 1. 12. The Federal Reserve projection sows shows no Interest Rate projection. Incoming members include a number of outspoken doves. Two hawks are departing. Calledshkari who has locally for rate cuts is the cleared of amongst the 4 new thers and joins along size red a master from cleveland. Mester from cleveland. It is kind of confusing, i was hoping rates were going to be continuing to go up to their historically normal levels a year ago and we saw over the last year the three main rate cuts for the federal funds rate, current Federal Reserve officials indicate they are going to be sticking with the current rates for 2020. On the other hand, if you look at implied probabilities of markets, it does indicate a in 2020. New rate cut i think most people are expecting rates to either stay the same or perhaps even see a further rate cut, which i think the whole thing is odd. Thatthe market has got rate cut priced toward the back end of 2020 given what is happening politically. It will be interesting if the fed delivered that cut. I take your point, the market is signaling we are going to be sitting on our hands. Why do you think it is odd given the fact inflation remains so difficult to move upwards . Edward we have got a series of record highs in terms of the stock market is going really well, we have record low unemployment rate, vast increases in Labor Participation rates, all economic variables are going well and at the same time, they are now engaging in what historically they would have been calling expansionary Monetary Policy and now they are Monetary Policy. I think it is interesting as they do that, as they push Interest Rates closer to zero, in the long run, it would eliminate even from their own perspective, their ability to further expansionary Monetary Policy if they need it. I think it was a little surprising to a lot of economists i know when they were letting rates raise at the end of last year and all of a sudden reversing course. I think it will eliminate their ability to be even adjusting thanks. And there is this argument you hear it increasingly from jay powell, but also members of the fomc, the objective is to keep the cycle going for longer and the reason they want to do that is they want the outer extremes of the labor markets, those people that normally struggle to find work to be able to benefit from this economic upswing, that everybody in society should benefit, there is this feeling maybe the fed cuts off expansions too early and as a result of which, those at the bottom of the scale do not get to benefit. I am hearing this more and more from jay powell and others. What do you make of that argument . Edward it is true wages are up at all levels. Lower, 25 wages are up even more, the latest statistics up 4 , so it is true in this case that a rising tide has been lifting all boats, that is translated into increases in employment rates and also with wage rates. In terms of the Federal Reserve specifically being able to and differentuals income levels, i think it is way too blunt of a tool they dont really have that precision. I dont really buy into the argument that the Federal Reserve can be targeting different income levels. Guy we are going to carry on the situation, stay with us. Up next, a senior diplomat urging the u. S. To honor the 1 china policy has beijings ambassador to the United States says beijing will honor its commitment as part of the phase 1 deal. We will talk about trade, we will talk about hong kong, that is next. This is bloomberg. Guy i am guy johnson info tom keene and Francine Lacqua both off today. A senior chinese diplomat suggested the u. S. Should honor commitments to the 1 china policy as part of the phase one trade deal. Chinas ambassador to the United States added his nation will always implement what is being promised. Beijing and washington are working on the final details of the interim phase 1 trade deal. Joining us in london, the head of research, which provides and stilllysis with us in new york is Edward Stringham of the american institute. Good morning. How optimistic are you about 2020 and this trade deal being done . A skinny deal delivering economic outcome . I would say cautiously optimistic. If you look at the track record of 18 months, we have had one step forward, two steps back and timearkets jump every there is agreement or talk of an agreement or tweet, if you like, but then it peters out. This phase one trade deal sounds good on paper. Guy we are kind of light on paper on detail at the moment. Kona exactly. All of it has to be implemented and there is the issue about international property, what is being afforded. This is all to be played for and really might not be as easy as people are thinking it will be. Guy how optimistic are you about this trade deal . The markets got very excited, we have rallied into year end, risk assets are looking good, yet we still do not have details on what exactly this exactly. I think this trade war started by the u. S. Government has been tremendously disruptive towards markets. Tariffs are basically taxes on corporations, american corporations buying inputs from abroad. Also taxes on American Consumers as well and that is disrupting Global Supply chains all over the world. The positive news is the government is easing off on vat and saying we are not going to continue ramping up tariffs, we are going to be easing off. From that perspective, the fact that they are not going to be continuing to pursue the trade war as much is tremendous for markets. People think now we can actually focus on doing business again. Did werd part is why even get into it . It is not clear to me what the final outcomes are going to be, so there is still a lot of uncertainty by this whole mess. We have got to get onto the difficult subjects and the president indicated he wants to get going with phase 2. My question is will tariffs continue to be the stick of choice when he does so . If so, we could find yourselves in a situation where tariffs are being reapplied in the market is almost back to square 1. Kona trump has said he loves tariffs and he thinks they work. It to what degree he will be able to be successful is debatable. They have hurt the chinese economy and the u. S. Economy and as he gets closer toward reelection from the november election, he will want to make sure the u. S. Economy sees a boost. He might start using that. He will get to some sort of deal to get u. S. Economic domestic boost. On the other hand, if china has any sort of doubt trump might not get reelected, why would they sign something if they dont know who the next president is going to be . It is not in their interest. Guy you dont think this is a good deal . Done deal . Kona i think phase 1 will happen. The current test is still hurting the economy. That, i dont think is going to disappear overnight. That will take time and it will be played for. If democrats get in, you might get a china hock. If trump stays in, what is trump 2 going to be like . Will he continue to be a tariff fan or will he look at intellectual Property Rights . That is all stuff the congress in as a whole are interested in. Guy what happens to the u. S. Industrial sector over 12 months . The consumer looks fairly okay and the latest set of tariffs are likely to affect the most. The latest durable goods number was not great, people are not investing in equipment and u. S. Factories, we are seeing a similar thing in china. What will it take to get that sector back online . That sector willing to invest . Do you think this trade deal will be enough . Edward any time they let off tariffs, interferences with business and Global Supply chain management, that is going to be tremendous. We have a lot of things going extremely well in the economy, the lowering of Corporate Tax rates from a couple years ago, that is good for corporations. Corporations are investing more, we see american stockmarkets performing well and we see deregulation of the economy leading to a lot of increase in Economic Activity throughout the United States and i would say positive effect in other countries as well. Obviously we dont know what the future will have and we could have a less successful year last next year. By all measures, things are going well in the American Economy right now. Guy we will come back to that subject, Edward Stringham and kona haque staying with us. Deliversric carmaker its first car built in china at a key moment. Tesla trading 430 dollars going into todays session. This is bloomberg. Karina this is bloomberg surveillance. It is a milestone for tesla. The company delivered its first cars built in china. It tesla handed over the first 15 model 3 sedans. The owners are company employees. In hong kong, 6 months of violent protests wrap economy. Gdp is set to contract in the fourth quarter. Retail revenue dropped by about a quarter. The number of mainland chinese visitors plunged by almost half. The french italian eyewear giant says it was the target of a 213 million fraud. The company is trying to recover the lost funds. It diffused an internal power struggle earlier this year. That is the Bloomberg Business flash. Commodities, all trading higher, cotton surging asked her exports soared to a record level and china has been opting for supplies from brazil. The bloomberg commodity spot index hit the highest level since november 2018 as trade tensions ebb a little bit. Still with us, Edward Stringham. Kona haque. Lets talk about what you see next year, this is your bailiwick. Metals need the trade deal to get going. Oil, there is a lot of it. Where am i going to get out performers in 2020 . Kona within the context, i would put my money in the agricultural sector. The sector has been underperforming. Essentially an oversupply, grains, harvest, sugar, coffee, everything. Abundance of sugar, coffee, oilseed, everything. What did not help with the trade war were the two largest exporters and importers have a clash and that has led to a standstill. This phase 1 trade deal provides a lot of shortterm optimism and clearly the markets have rallied quite a bit on the prospects of potential tariffs. I think they got ahead of themselves a little bit because not anything has been agreed fundamentally. I think the markets have basically priced it in. If this were to become a nonissue, the markets would have to stop start back down. I would say lets say we have a phase 1 trade deal, the ones to benefit would be oilseeds and corn because these are the larges where u. S. Has a carryover stocks and they would potentially be able to offload that to china. Markets, chicago would rally. Sugar and coffee and cocoa and palm oil, these fundamentally were supported because the market will move into deficit, so there will be a supply shortfall. Irrespective of a chinese trade deal, that could have good support on the back of fundamentals. Then you have the hard commodities, metal. I would say supplies are not terrible, pretty well supplied. If you look at the ones that have performed well in 2019, it was well and nickel. Hat was on supplyside issues so much depends on chinas economy and if a trade war resolution happens, the economy is kick started, trade resumes, import demand resumes, that will help base metals. Guy where do you see the dollar going . Your view is the fed should take a more hawkish line. Do you anticipate we see a reasonably strong dollar in 2020 . Edward we always have to be guessing and as we know, there are so many variables and we have to figure out what the Federal Reserve is doing. I was interested in the fact their Balance Sheet was decreasing over the last couple years and now, unfortunately, from my perspective, we see a reversal. They are not calling it quantitative easing at this point, but they are basically doing the equivalent of printing more dollars and what is that going to do to the value of the dollar . In the past 10 years, they have sterilized a lot of the supply,s in the money so it actually has not been circulating in the economy and causing the inflation many people would have predicted. Sometimes this can show up. Inflation has long and variable lags. Something they might have implemented five years ago might show up a year later, even five years later and the fact they are printing more money could see a weakening of the dollar. A will leave us, thank you for coming in to cs, kona haque. Edward will stick around, Edward Stringham. We will talk about the president and we will talk about impeachment, this is bloomberg. Guy good morning. I am guy johnson. Tom keene and Francine Lacqua off today. President trump is facing criticism for outing the alleged whistleblower. Critics say that is against the law and republican senator john kennedy suggests the president tweet a little bit less. A suspect is being held during multiple stabbings during a hanukkah celebration. A man burst into a rabbis house. The near governor because of domestic terrorism. Wildfires in australia have a forced thousands of travelers to flee a popular tourist spot. It is a crisis that has ripped australia since fires broke out last month. Global news, 24 hours a day, onair and tictoc on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am trina mitchell. This is bloomberg Karina Mitchell. This is bloomberg. Guy lets get back to the president tweet and the president s tweet in the whistleblower and whether or not this changes anything happening with impeachment and the election. Drpm group and former advisor to president george bush. You. E start with the big picture here is, as an investor, can i continue to largely ignore impeachment as a risk to my portfolio . The pretty much it still of view that while there is an impeachment process in the house, the senate is largely going to cancel it out. Pippa that is correct. Even if it were to occur, what would it change . We are coming into an American Election anyway. We have uncertainty anyway about who the next president is going to be. Although right now, it is looking a little likely that it may still be the same president. The bottom line is, as long as even if he is impeached, there is still a conviction process that has to occur. That is a different thing. You can be impeached and not convicted. Guy absolutely. Thea i think markets more important thing is what happens in the longer run, and is there really up probability of a president arriving that is going to profoundly change the economic land scheme of the country . Right now, that doesnt look as likely. Guy edward, what is your take . At the moment, the Financial Markets are ignoring u. S. Politics. It is going to be something the market has to Pay Attention to. Yet. E not there we are kind of watching the impeachment story, but it does seem as if we have a house that is willing to impeach, but a senate that is not willing to convict. Where . Kind of affecting where do you sit on this . Dward not only our markets ignoring american politics, americans are ignoring american politics. It is increasingly clear that this is just a big political stunt. Probabilityod, the that the senate is actually on any chargest are just extremely low. Bettingook at election odds, the probability of various things, including the president serving his full term, it is well over 90 at this point. The highest and his presidency. In his presidency. I think it is just a big political charade. People are all up in arms about it, but as a practical matter, i think most Market Participants are saying it is not going to happen. Why even Pay Attention to it . Ay lets come at this from different perspective and try to think about ways in which u. S. Politics could affect the things markets care about. Edward that can definitely. We have got the potentials for impeachment. People are basically ignoring that and saying it is not going to happen. On the other hand, there was a lot that politics does affect markets on. That is things like taxes, things like deregulation. If a new politician were to come and fundamentally change society, tax the rich, tax billionaires, tax corporations, that would be tremendously disruptive towards stock markets on wall street, specifically. Here, too, i think that a lot of americans are not having an appetite for some of these more extreme policies. A lot of these people are falling in the election betting odds. I think people tend to be happy with business as usual with the economy, as usual. I really dont see too much of this crazy potential disruption that a lot of people are talking about, calling for. Guy lets get your assessment on this. How does u. S. Politics affect the fed this year . Does the fed is sit on the sidelines because as the political narrative gathers momentum, it becomes harder to do anything with rates . Lets assume this phase one trade deal gets done, is not enough to give the president the kind of economic boost he is looking for us we had toward november . Pippa a deal would be great for the president as he goes into november. Guy good enough, though . Pippa oh yeah. The markets take the slightest hint of a deal and throw the stock market prices into the air. He doesnt even have to have a conclusive arrangement, just Something Better than we had before. As for the fed, in a sense, the fed on the president are already aligned. Fed doesnt want to be they have already said they are effectively printing money. That is what the president wants, too. We fundamentally have policymakers in the United States that are willing to take more risk with inflation. I am talking to the biggest investors in the world, and they are all saying, you know what . We have a little inflation. That means i cannot be in debt. That means i cannot be in debt. They are looking for hard assets, real estate. We are at the beginning of a buying. Because policymakers buying period because policymakers are taking risk with inflation mode. Guy if you take a look at the fiveyear forwards, the market is not pricing our great deal of inflation. Pippa it doesnt have to be a great deal. Four pension fund, the move we have already had from 1 to say 2 two. 5 is massive. 2 2. 5 . Another. 5 to that, this is an unbelievable shift. Guy you are saying the savings classes going to drive equities higher . What . Guess the trillions of dollars we put in is still there. All of that money that has been sitting on the sidelines is going, i have to be somewhere. Many of the big investment banks are reporting that 100 of their clients are prepared for a recession, which means people are not prepared for a melt up, which is what we have been experiencing. Guy stick around. Edward stringham is going to stick around. He is from the american institute. Pippa malmgren of drpm is going to stick around. Coming up, the yearend melt up. Cellll talk to pippa about signals. There is the chart, this is bloomberg. You have all of the ingredients here for a classic melt. Melt up scenario in the first half of the year capitalized are the u. K. Election results. Liquidity. There are still risks out there. If we dont start to see an earnings turnaround. Can these stocks actually deliver the Earnings Growth expected of them. Alexa in your disruptions. Election year disruptions. Investor sentiment, bullish. Cant be too bullish or bearish at this point. It is hard not to see room for potential overshoot. Up. You are going to hear a lot about that over the next few weeks. The question is, is the market to optimistic right now . Pippa doesnt think so. The market is not positioned for a melt up. Pippa exactly, which is kind of a good starting point. I think it is funny. How long has this been going on . I have been coming to see you the past six years it has been like this. Every year. The markets waiting for this catastrophe that doesnt happen. Guy it kind of happened this time last year . Pippa but look how fast we have recovered. That the resilience level is so much higher than people realize, but i also think we are underestimating the massive impact of technology. As a manufacturer of Autonomous Vehicles on drones, every company i work with, i watch their margins increased. They literally improve their efficiency. Guy that is not a big enough sector to get the market moving around. Barclays Says it is a tenfold increase in five years. That is maybe not big enough to move the whole equity market, but that is an unbelievable increase for one little part of technology, not all of it. Lets face it, what it affects is every sector. Im now working with mining, public safety, infrastructure, oil and gas. All of these sectors are touched by what is happening in automation and Autonomous Vehicles, as just one small example. The innovation happening across all of the sciences is extraordinary to the point that people cant keep up. Mania. This word atom that is this overwhelming feeling that you cant keep up with how fast things are moving. Guy at the moment, if you look at the american numbers, numbers, capex American Companies are not spending. What will it take to get u. S. Industrial Companies Spending in 2020 . Edward i think economic fundamentals are strong. We see small improvements every single day, every single year, actually. There are always going to be fluctuations. At the bottom, capitalism is moving forward. People are confident. The fact that there is an easing away from trade tensions. That gives more stability to american corporations. They can actually start investing in the future. I like the tax decreases a couple of years ago. I was actually thinking at the time, i wish they were larger. Thatnk the results are in letting people and corporations keep their money leads to more investment in the American Economy. I would say if it was good then, we should do it again. Lets have even more tax cuts, lowering of Capital Gains to encourage more investment in the United States, in markets around the world. Guy but the uncertainty of the moment of what is happening, trade is a big feature of this, is meaning that American Companies it is happening here in europe, believe you me, germany they are not investing money. Edward we dont know still what the final outcomes of these trade deals are going to be. I think the whole thing has been tremendously disruptive for supply chain management. Certain industries have just gotten decimated. American soybean industry cannot sell products to china. A lot of individual american brims are no longer popular in china because there is a soul tension where the Chinese People are like, we were just trying to help American Consumers, and now the American Government is all angry at us, and we see a decrease in demand for certain american products. There is this tremendous amount of disruption, shifting supply chains from china to vietnam. There is still a lot of uncertainty, but the more that the government can get out of messing with American Business with Global Business, i think the better off the economy will be. Guy pippa, why is that going to happen . One of the phrases that comes out of 20 for me is the we are talking about china and the United States being on very different pages. Pippa in that sense, we are watching the relocalization of production. It is very much in the United States as well, britain, in addition. You have production happening in china and production now happening locally everywhere else. Guy is it when it comes back good . What i hear is that companies are reassuring companies that are automated. More, they do automate it but china is automating even faster, so it is not like it is different in china. Keep in mind, as somebody who is in manufacturing, you dont have to move goods across borders the way you use to. You can build a drone on the other side of the world something by sending an email with a design. We are in the world of 3d centering. D laser i dont think all of the investors have really clocked that there are all measures of what is going on in the world dont apply. We look at the shipping industries. I dont have to ship anything. I have to email something. I literally send instructions. That is a totally different world where many of these disruptions you are describing simply become irrelevant. This of the arent important anymore. Guy someone was telling me the biggest threat to the car sector was vr. You dont have to go anywhere. Pippa i agree. Guy edward, thank you so much for joining us today. Edward stringham. Pippa is going to stay with us. Coming up, golden parachute. We are going to look at the potential cost of the highlevel exodus from we work. That is next. This is bloomberg. Karina this is bloomberg surveillance. Gold is on an endoftheyear rally. Prices are up 18 this year. Some analysts essay the rally is due largely to the weakness of the u. S. Dollar. The dollar is set for its largest quarterly loss since the end of 2018. A short seller has had mixed results in 2018, but is ending the year on a high note. Sincealth has fallen 33 the company is said to be understating its cash. That is the Bloomberg Business flash. Guy thank you very much, indeed. Here is a story you need to know about today. Wework will have to pay millions to its cochief executives if they are fired or leave, this according to a report in the Financial Times. Annemarie is here with more details. How much could wework be on the hook for here . 17 million. Executives, iff they are fired or leave the company. A bit more than 8 million each under the exit package. This comes from a report from the Financial Times. Why this is so important is because the report says that wework may continue to experience a significant amounts of Senior Management turnover. This could be a lot of cash leaving the door or a golden parachute. Guy thank you very much, indeed. Bloombergs annmarie on the wework story. Pippa malmgren is still with us. Not a big year for ipos. Pippa thats right. Im not sure we are going to have great times in the near future for ipos because there has been so much access. There has been such excess. There has been such a ridiculous our member talking to tom keene at the beginning of last year saying the new public is private. It is private capital where all the action is. We needed a reality check. Pippa some, not all. A lot of private capital is very oldfashioned and cares about cash flow. There are some investors who will say to you, that means you lack imagination. Let them play with the we works of the world. Most capital is not so willing to bet on that kind of future picture. I dont know that wework is representative of the whole private capital picture. Guy so there has been this risk that there is so much money in the private markets, there is a huge need to allocate that you are betting on a series of businesses and trying to scale them quickly and throwing too much money. As a result, valuations get out of kilter. Pippa but some are working beautifully. Look at beyond meet. They did extremely well. Investors have made a lot of money and i think they will continue to. What is wrong is to say that just because one or two or three fail means that the whole idea doesnt work. The model works, but there are times that we have had excessive investment in some things based on some hypothetical outcome that nobody sees as being achievable in rality. Reality. Is it a bad thing that we all have this discipline imposed to us again. Guy what does that mean for Public Markets . Pippa it means fewer ipos, more sensible ipos. Guy what does it mean big picture for Public Markets if more and more money is tracking out of them and heading into private markets . What is wrong with Public Markets that needs to be fixed . Pippa what you are talking about is people transitioning from public to private. Guy im talking about Public Markets in their entirety. Why is private the new public . What is wrong with the public model . Pippa i think the other issue is size. Public companies tend to be very big. Big companies tend to not be very nimble. Smaller companies tend to be noble and have the capacity for exponential growth. More and more investors are looking for that kind of homerun. Mix. E end, it is always a big Institutional Investors never put all of their eggs in one basket. But definitely, they have been leaning in recent years toward more in the private markets looking for the next google, the next apple, the next amazon. Will they find some . Yes, they will. Has there been an over allocation to some of these institutions . Yes. In tech, for example, we talked about there is a tech wreck. The Big Companies may see less investment coming in, but the smaller tech firms are seeing the money coming in. Guy thank you very much, indeed for coming to see us. Pippa malmgren. Surveillance continues on radio. The foreignexchange report is coming up as well. Plenty of great stuff. This is bloomberg. The First Assembly line off shanghai with plans to wrap up, fast. So much for secrecy, President Trump identifies the alleged whistleblower, did his retweet break the law. Equities take a breath. Bonds sell off. The yield curve steepens. Welcome to bloomberg daybreak on monday, december 30, im david westin in for alix steel today. Get you caught up on the markets. Start with equities. Going to the end of the year. Are we going to break the records . S p up slightly. Thats come off where it was. Nasdaq is in the red a little, flirting with the red. Meantime, take a look at europe stocks the stocks sold off over in europe. The u. S. 10 year has been selling off. The yield curve is going up. The dollar is weaker once again. The british pound is leading in the charge. But its down against all the