Anna a very good morning, everybody. This is bloomberg daybreak europe. Lets talk about what is in catalonia and what impact that is happening on the markets. The euro down a little bit. Catalan separatist parties taking back control of the regional parliament. A very bad performance by the peoples party. Night for the local opposition. This doesnt necessarily take us any closer to independence, but the spanish Political Drama into used to unfold. Continues to unfold. We will watch for the yields on catalan bonds. The broader equity picture looks positive. A little bit in the asian session. We had some pretty threatened trading. Friday before christmas, fairly thin trading in the asian market. The 10 year yield is unchanged. Recovery. E treasury a little weakness in the yields. Billion, the strongest demand there since august 2012. Some people in the markets looking to protect their portfolio from inflation and perhaps to dual to do with the tax deal. At bitcoin. Oking it has fallen since mondays Closing Price about 26 . Ive got a chart here. 6798 shows bitcoins underlying price in white. Here, pink and pale blue, you see the futures. Still priced higher than the cash price. The spread continues to be positive. We will see how that asked today and throughout next week as bitcoin takes a dropping. It is only up 1300 yeartodate. Anna only. Must be taken in that context. Lets talk about some him and a. A company that discovers and develops new drugs. Yta. E to buy ign is total transaction value 1. 7 billion. This is unanimously approved by the boards of both companies. Its a fairly friendly offer. The bloomberg first word news update. Senate hashe u. S. Given final approval to a shortterm extension of funding runningthe government for three more weeks while shoving a raft of fights into the new year. The measure moves to donald trump for his signature. It will maintain levels through january 19. Give the additional funding for pentagon expenses. Has given the u. S. Criticism for its choice to recognize jerusalem as the capital of israel. Such as theies u. K. , france, germany, and japan all supported the motion. Said they would remember the day. Approved ainet has record Defense Budget. The nation looks to bolster its abilities amid nuclear north Koreas Nuclear threats. Japans first longrange missiles are on the shopping list. It marks the sixth increase in a row. Saidks Prime Minister has britains Financial Services should be optimistic about brexit talks despite eu chief negotiator ruling out a special deal. Counterpart,olish theresa may said the openness to a deal is encouraging. Some say there should be a tailormade deal for the u. K. Peruvian president has survived an impeachment effort. In the opposition dominated chamber fell just short of the two thirds vote theired to find the man Prime Minister morley incapable. Morally incapable. You can find more stories on the bloomberg at top. Near the end of the trading day here in asia. The nikkei closed up. The hot and same closed up. 3 . Australias market closing slightly higher as well but just off of highs reached earlier in the week. Some of the stocks we have been watching. Despite the positive turn on the nikkei there have been a lot of selling in japanese stocks. A drug company has plunged the most since 1988. Tsingtao, the japanese brewer aside he dumping at stake. They are up almost 7 today. Anna proindependence parties have won back control of catalonia and handed the Prime Minister of historic defeat in yesterdays regional elections. Separatist groups claimed 70 seats in the 135 member assembly. Theas it restores majority they lost previously. Addressed, president supporters from brussels. The catalan republic beat the spanish monarchy. The most important thing now is to start a dialogue because thats the only thing the Prime Minister never tried. If they follow the wishes of the catalan people, we will find a solution. Maria joins us from barcelona. This was meant to reset catalan politics and be able to move things forward. Rajoyuggesting this suggesting is in the higher the crisis. How is this Parliament Going to function . We are back at square one. If you look at the results, the proindependence parties to claim theged most votes and seats. They wanted to keep control of the parliament and they manage to do so. They are probably going to go back to the idea of independence. This is a parliament that is going to struggle to even function. Force in the parliament is going to be against independence and vocal about staying in power. So we are back to square one. Reason this election was called was to reset politics and instead it has created a bigger mess. Matt maria, this is a personal blow to Mariano Rivera a. Know mariano rajoy. Where does this leave him and the pp . Maria this is a disaster night for rajoy. He was criticized for calling the election so early. Many in his parlay thought it was a early election. The proindependence movement carries a lot of momentum. You should do it later on. This choice backfired. The people of catalonia have ejected him and his party. Its a bad night for him and his party. They have been thinks thing wished been extinguished in catalonia people catalonia. People have said they dont want me they dont want to and they dont like you. They have to find a different way to move forward with the same political actors and a relationship that is credibly toxic. This a question about would have been different if we had a Prime Minister in madrid who had been with quite the baggage. The catalonian leader is in a silent brussels and he comes out quite well from this. What now for him . Can he go back to spain . Ria we are talking about a defeaof all a personal t for rajoy. But its a victory for push them mont. Puidge a great night for him. Yesterday, he pulled a spectacular result. He overtook his political rivals on the poor independence front and he is saying he should be back and he is going to want to form a government. The problem is his legal situation. Sedition,igation into rebellion, misuse of public funds is still going on. The minute he gets back into spain, hes going to be arrested. The legal situation still looks difficult but its undeniable that the people in catalonia still like him. Anna maria, thank you very much. Maria taddeo with the analysis in barcelona. Joins uss vamvakidis from bank of America Merrill lynch. We see a little weakness in the currency today. It showed itself to be resilient to political turmoil. Does that remain the case under this kind of pressure . This news from spain should be affecting the euro but as you suggest that it did not have a sustained impact so far. I think this will remain the situation. The situation in catalonia is extremely, wicked. The genie is out of the bottle. But the main issues for the euro has to do with the ecb policies thethe ecb is considering strong euro zone we have this year. Spain remains at ease. We should keep this in mind. If the situation gets worse and effects the debt in spain, this will make things much more complicated as the ecb support is weakening down the road. But for now its ok. Anna ill bring up the bond markets. We have catalan on deals here. Biking durings the challenge to madrid in october. Then it came down. Putting into one side, is there a risk the market has been too complacent around the story . Any input nations and the implications it could have . Thiss the market believes will be contained. Logic will prevail. Is still is, the ecb buying a substantial amount of spanish bonds and also, globally, there is a strong surge. This continues supporting spanish paper. This trend is much stronger but also one could argue it forces market complacency. The thing that is worth following down the road, given there are no easy solutions. If i look at the comparative valuations for stocks around the world, european stocks really are lagging. Here you see the ftse is lacking. This is a concern about the politics . The decentralization and population populism trend around europe . Thanos you could argue this is a case. Positioning about a year ago was short in eurozone equities. After an extent, having to do with the fact that the market has starting seeing the end of qe and hikes, everything contribution. Also there is not a government in germany. There are still lots of questions about whether the eurozone is going to introduce some of the key reforms that are needed consistent with the macron agenda. The risks in the eurozone as a whole should be considered after the alkyl the french elections. , head ofnos vamvakidis strategy at bank of America Merrill lynch will stay with us. A gift with the u. S. Government extending federal funds. Its a stopgap measure but another deadline is coming soon. What happens next with the u. S. Government shutdown . Plus the bitcoin. Goldman sachs is said to be starting of a trading desk for Digital Currencies. With j. P. Morgan follow suit . We will have a conversation later. This is bloomberg. Its 6 19 in london, 7 19 in berlin. We are looking at singapore where it is later on in the afternoon. Lets get the business flash from juliet. Juliette thank you, matt. In a deal valued at 2. 2 billion, the acquisition of you pp austria is subject to action. Ry it allows the giant to come limit its Wireless Network in the neighboring country. One firm is becoming more couple of cryptocurrencies. Up aan sachs is setting trading desk to market Digital Currencies such as bitcoin. They aim to get the business running by the end of june if not earlier but they are continuing to try to work out Security Issues. Says erichairman schmidt is stepping down. Alphabet says schmidt will become a Technical Advisor while continuing to serve on the board. A colleague said he has offered business expertise and a clear vision for the future. Boeing is monitoring a potential embraer. Th it will stop short of a full takeover. The controversial founder of papa johns will step down as ceo. He will hand the reins to the chief operating officer. The move comes less than two months after he inflamed and over nfl players kneeling during national anthem. The company is a sponsor of the leak and he said that their theests were mishandled by league and hurt sales. The Company Later apologized. Anna thank you, juliette. Been. S. Government has given a reprieve with the senate approving a shortterm extension of federal funding, allowing it to run for three more weeks. Current levels of spending can be maintained until january 19. This is the latest twist and turn in the budget story. Kicking the can down the road. Thanos vamvakidis is still with us. To one side at the moment, as we often do with these funding debacles in the u. S. , they seem to be kicked down the road. We wait to see when the taxi will be signed. What does this mean for inflation . This is chart 3696. This a fiveyear tip. They did well. How strong will inflation get and should we make a link to the tax deal . Thanos even without tax reform we would be very likely to see high inflation in the u. S. Next year. U. S. Dollar has been very strong in this late stage of the economy and inflation has been choices. By a number of if you look at the fiscal stimulus, this would push inflation even higher. Fed hasnt been hiking despite low inflation. This is all price in the markets. I know you been having some client conversations. Of what the dow has been doing. Another day, another achievement. Its own closing record 69 times. The here and money, essentially. How much higher do we go on u. S. Equities . How much is already priced in price then . Equities have loved to tax reform but fixed income markets have ignored it. Stretched sois not i think there is more potential. However, what is really surprising is the fixed income market. Responding asy the tax reform has been approved. We believe tax reform is a big deal and will lead to stronger dollars because of more fed hikes. And also because of repatriation flows which are likely to be substantial. Not only next year, but looking forward. Companies from now on will not , they will taxes have to they will be repatriated more. The curve flattening has been interesting to follow. It shows that we are looking at a five 10 spread wider thats been since the financial crisis. Are you concerned about this . In regard to the u. S. Economy . We believe the herbal steepen this year. The fed has been fighting the market but this is the first year that policy has been right in the market has been wrong. The market is pricing only to hikes. Expect more. We expect us to force the curve to steepen. We are going to have more supply next year which also contribute this direction. What you expect from the dollar in 2018 . Thanos we expect the dollar will strengthen. We see eurodollar going all the way down to 110 and dollar yen to 122. We expect three or four hikes. Expect that the market will start expecting a patch ration flows. Back in 2005 we had the homeland investment act, the Dollar Strengthened substantially and that will happen this year as well. Matt Thanos Vamvakidis didier duret Thanos Vamvakidis of bank of America Merrill lynch will stick with us. Moynihansr brian views on bitcoin. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Is bloomberg daybreak europe. Light trading volumes in the asian equity session. Thats typical of today, the friday before the holidays. Its been a busy week for brexit news despite the proximity to christmas. It began with the u. K. Prime minister outline her plan. Barnier outlined his hardline position. The 300 year old argument between spain and britain over gibraltar could derail talks. Theresa may encourage the city of london to be more optimistic despite the eu really out a special deal for Financial Services. Johnson is in russia as britain attempt to win more friends outside the eu. Or at least to talk frankly, perhaps, to the russians about what they are are are not doing in the political realm of the rest of the west. Thanos vamvakidis is still here to talk about the week in brexit. Where do you stand on the pound right now . Lots of news has happened. Some of that has been pound positive. We are bullish. We were bullish for this year. There is a lot of noise, and this is not going to be smooth, but what we have seen is that logic prevails. This is what we expect to happen next year. Next year, the driving forces the transition deal. We are expecting it early in the year. This is important because it will kick the can down the road. It means brexit will take place three years from now. We can discuss about the final outcome, but a lot of things can change. This will be bullish for sterling. It has been good so far. At least compared to what many people have expected. Anna will we see a wobble . Thanos the u. K. Economy has been doing much better than expected. You can go up to 140 or 145. Anna wow. Back to the future. In between here and 145, how much is the pound traded on the daily brexit news . It seems like every couple of hours we get something new, positive or negative. How much money can you make trading the pound all day long on brexit headlines . The best approach has been to buy dips. When they Start Talking about trade, its going to be messy. Its going to be difficult. Think, if there is a you will have a lot of time for this negotiation. Time, i thinke the euro zone and the u. K. Are willing to compromise. They will probably be willing to compromise down the road as well. We have taken a positive view so far. We believe this will continue being the case for next year. Anna he suggested that the bank of england will hike through that. Given what you have described, given the volatility, the bank will put that to onesided hike anyway . Thanos given that the economy well,ovided performed the policies are very accommodative. The most accommodated in the data group. You cannot find this day because of all the certainty uncertainty but if you make a transition deal and by time, there is no reason to keep rates so low. In this case, the bank of england will continue hiking. Anna if we get to 140i might consider taking holidays in the United States again. In thisback with you shortly. With us on the program. If you are a bloomberg customer, you can watch the show using tv and that means you get your hands on all the charts. You can use the charts and functions we show. Thecan influence conversation by clicking on the ask the guest a question button. About the slump in bitcoin. It has fallen today as much as 15 in asian trading, extending his losses to more than 30 days more than 30 . As one of wall streets biggest firms seems to be getting on board with the cryptocurrencies. Goldman sachs is setting up a trading desk to make markets in digital currency, such as bitcoin. To get the business running by the end of june if not earlier. Ceowhile, bank of America Brian moynihan spoke to bloomberg about bitcoin as a currency. Take a listen. When you talked about Digital Movement of money, one half of the money move by consumers of bank of america today, one half. To anonymous currency, thats a different question. Thats a policy question of if we want an anonymous currency of size and scale and so and scope. You think we do . Dont think we do. I think the reason why the 100 bills the largest foundation of bills to make money harder to move. Thats a lesson a lot of economies have learned as they brought the denominations down to improve the transparency of the economy. Find, andy to track, see the money move. You find all kinds of interesting things. Thats important for Law Enforcement and other types of things. The speculation, i will let other people are flecked on it. The idea of digitizing money is not new. The