2018 . I have a commodity for my chart of the morning. It is not oil or copper. I also wanted to highlight gold because gold is near 1300 an ounce. It has been a stealthy rally into the end of the year. David youve got to admit it. I was doing golden 2008. David lets get headlines outside the business world. Worst doingemma its york cits fire in more than a quarter century. It went through a bronx killing 12uilding, people. The fire began on the first floor and spread it to the building within minutes. 170 firefighters were called to the scene. Is withoutgedy question historic and its magnitude. Our hearts go out to every family that lost a loved one here. Emma because the fire is under investigation. In india, at least 14 people were killed in a fire. The bamboo ceiling in the restaurant burned quickly and collapsed with people trying to escape. The police of fired case of culpable homicide against the restaurant owner. Transferea will hold a to a north korean vessel. That would amount to a violation of you and sanctions revelation came after donald trump criticized china on twitter over boards of similar infractions. Trump tweeted, caught redhanded. News 24 hours a day. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. David it is time now for our first take come were we talk about the top three stories. We are watching that flattening yield curve in the weakening dollar. Companies of figuring out how they may need to change the way they do is this under tax laws, with netflix getting more in salary. Apple has issued a rare apology, backed up by some discounts on older iphone models. We welcome laura keller and joe wiesenthal. We have a chart we are going to pull up here. It shows what happened with the yield curve, the white line. When you look at this, it looks like they are tracking one another. That has not always been the case. Is this a vote by the markets on where they think the u. S. Is headed . Joe its mixed signals. You can interpret the dollar andoff as about optimism people thinking there are so many great Investment Opportunities in the world right now, whether its bonds or emerging markets, why bother holding dollars . It has been characterized as something of a bit of a caution sign or reason to think growth and inflation wont be that robust and robust. They see the flattening yield curve, the warning sign. They dont see anything else the data that would back it up. Laura if you know if you keep hiking its going to get flatter, how do you square those two things . Joe thats going to be one of the pickles they find themselves in. If inflation picks up and the rates pickup, it will make their lives easier. Higher, if grinds the velocity is not there, thats the good question. David this is a vote of how the rest of the world is doing. We dont operate in a vacuum. We are doing ok, but the world is doing better . Laura they take into account how the other central bankers think about things as well. Its not just the u. S. We you see these changes, you thinkingentral bankers about what going on in the world. The netflix news over the last 12 hours, its a response to the tax will. This is nothing nobody picked up on. They will pay their executives more in cash rather than bonus. For the main reason, anything can be written off in terms of a stock confrontation. David if you paid salary, you can only deduct 1 million. The new tax bill says i dont care if its salary or bonus. You cant deduct it over 1 million. Alix i find this interesting. We talked about the repercussions. Its a bad thing for netflix. They have to pay their execs. Joe it makes you wonder if companies are going to try and pay their employees what they think they are worth. If they thought the employees were 5 million, they will try to pay that. You have to wonder the extent to which the tax treatment changes corporate behavior, if more reseller is guaranteed and you take fewer risks. It will be the kind of thing we dont see impact on right away. There could be some ramifications. David its fine and good to Say Corporation pays you what you are worth it they will have to pay more than they did before. In aftertax dollars, if you dont let them deduct it, it will bring down some income inequality. Point,moore to joes executives are aligned with were the company is going. Andpay the more in cash thats not something you are able to push on to corporations anymore. They will not be aligned in this longterm structure. Alix Goldman Sachs will take a hit this year. Can you walk me through that . Laura its mainly because of these earnings and deferred tax assets. Bank of america and citigroup said similar things. They decided on the last day to do it. There are some complications around bonuses. Some places were trying to take these compensation payments and pay them forward earlier if employees wanted to do that. There is some question about if this is related to this. There is a big component. The banks have been accounting where they are using it for another year. The tax structure is going to change. They are not worth as much. Alix you were right. They are writing it off this year. Worth the election is more this year than next year. There are a lot of unintended consequences. Apple, this time they are apologizing or what some had already suspected, that Software Changes compromise the performance of older iphone versions. They denied this was a chance get people to up grade. They said they would never do anything to shorten the life of any product or degrade the User Experience. The goal has been to create products that our customers love and making iphones last one is possible is an important part of that. This is an unfortunate time for them. There are questions about how gettingonexs are shipped. Joe i am skeptical. Remember the Nintendo Games . They did not pick up and receptions. Remember the that iphone saying it in which people kept them in their pockets. That happened to me. These things happen from time to time. It doesnt seem like anything matters. How may times of heard stories about some supplier out of asia saying shipments are looking good. Maybe im jaded and this is the worst thing to have happened. I dont think it really matters. Laura when you have Samsung Galaxy fun on the explosions and you have the smaller players in china and they have cheaper phones, they do have real competition. It seems difficult to make those inroads in china and thats a broader issue. David this is related to the goldman story. Lets get all of the stuff out the door when nobody is paying attention at the of the year. Laura you never want to divorce yourself from a product. In some ways you have to think about it. I probably would not have switched when this product first of happening. I would not have gotten a new phone if i didnt have to. It was because it was slower. I may have to join in on one of those lawsuits. Success were the ones. David the personal connection, the cotton bowl in texas. Plane the usc trojans ohio state. I am on your side. Big cotton bowl tonight. Laura they have a lot of problems last couple of years with all of the sanctions. It will be nice to be able to return to glory at some point in jonathan i noticed you are wearing your texas burn orange tie. In recent years when ut is a good. David we have a cotton ball with note 7 teams and it. Dido southern teams and it and it. Alix the yield curve has record lows. We will talk about this coming up. This is bloomberg. Among mover shareholders are selling a sizable stake to softbank. According to a person familiar, the transaction is a 40 billion valuation for the company. They will invest in it over at a higher valuation. The will change hands in deal. Activist investor carl icon is preventing them from purchasing bonanza creek. He owns 13. 5 . He filed a proxy urging them to ,ote against the takeover lasting the deal is overpriced. For claimsill pay that a brokerage unit harmed detail retail customers. Ratingsal markets had like buying set of sell for five years and supervisors worked off errant data. That is your Bloomberg Business flash. Alix the chart of the year, the yield curve. This is the chart on the terminal you want to be watching. What is next . Joining us is ian from london. Its good to see you. Your call for the yield curve in 2018 western mark in its going to be flat. We are getting toward the end of the cycle. That yield curve flattens. Youve got a situation where either Interest Rates go up or growth expectations start to get squeezed down here and see those rates going up. Stillhough inflation is relatively subdued. Alix what about the fed not buying his many treasuries and Foreign Investors not buying other assets as the Central Banks turn. That is the case for the steepener. Of 229have done a survey asset allocators. What people expect is the low end yield is going to go higher. You might start to see a bit of a rise in those 10 year yields. The danger is how far can they go with or you start to see bonds look attractive compared to equities. When you look it equities compared to bonds, watch out. Even at these levels, the bonds are starting to look attractive. Its hard to get those treasury yields up above 270. Expected to see the twoyear yields rising as the fed will raise rates four times. David the other phenomenon we saw was the weakening of the u. S. Dollar. We will go to a chart here. As you go forward, what do you expect from the dollar . Is it going to firm up . Young we think you are going to see some Dollar Strength in the first part of 2018. We see the rate rises. We expect them to come through much faster. We have seen eurozone activity surprises disappointing relative to the u. S. People have got to wake up to the idea that the u. S. A stronger and the eurozone is starting to this point. We see activity expectations coming down and surprises starting to decelerate in the eurozone. One of the key drivers or will be those earnings expectations for his as well. Equities as well. The strength of the euro is going to be part of the undoing of expectations. They are not going to be growing at 10 . They could be close to zero in the year ahead. Thats going to be a big change in perception on eurozone assets. Alix you are very contrarian to all of this. I want to highlight that in eurodollar. 2003. The best year since this is a function, it shows the divergent between the median forecast and the highend. The low end is 100 tend. 110. Walk me through what you forecast for eurodollar. Think the key thing to the eurozone and the eurodollar is that chart you have in front of pathrobably tells you the over the next three years. Which is going to hit first . We think youre more likely to see the euro come back down toward 150 or even 110 in the next six months as people get surprised by the slowdown in Economic Activity potentially and the inability to raise rates as rapidly as the United States, even though we get more inflation in the eurozone. As we go into the second half of 2018, we believe we will see longerterm the dollar a weaker currency. If america wants to have america first, the best way to do that is to evaluate against the rest of the world. 130 is a reasonable target. David ian harnett, thank you so much. He will be staying with us as we talk about stocks around the world. How much better can it get and where . We will talk about that next. This is bloomberg. David equities had a very good year as you can see in this chart. You can see the white up there is the and sci. The purple is europe and the yellow is the s p and the blue is russell. Still with us is ian harnett. I want to talk to about where we are going next. How much of this is currently . Dollar had a week year. In i think the currency lays a key role. We believe that in a time where you do get the dollar going up, that tends to support u. S. Equities relative to the rest of the world. I think that is one of the key things. When the dollar goes up, it drags down liquidity and that takes some froth out of the market. When we do our survey of investors, what we find is they are expecting equities to go higher and the vix to go higher. There is some really consistency there. Watch out. 2017 ishave seen in probably about as good as it gets and you will see tougher comparisons ahead for the equity markets. Watch out for the vix rising. Alix what is the strategy for that. Is it value versus growth . Is it regional . Ian some of the disruptors are still going to win. The Business Model is winning. We want to stick with things like quality. Bond yields are not going to rise that much to get value growth, you meet stronger Economic Activity and stronger yield curves. You need to see the 10 year yield break 3 . That growth, you meet environment shows value versus growth. If it doesnt break 3 , youre not going to see value stage anything more than a rally. That means small caps will fall it find it hard. David we will put up a chart that is on my terminal. The yellow line shows smallcap growth. The higher it goes, the better the smallcap grows. How do you see smallcap versus largecap in 2018 . Lets focus on the economics. The yield curve gives you a stronger guide. It that yield curve. If you believe its going to strengthen, that favors smallcap stocks worried if its deepens, you want to be in the smaller players. If you dont think the economy will sustain this rate of growth and the yields will peak, stick with the large caps. Alix good stuff. He will be sticking with us. Commodities are crushing it this year. Will it continue . This is bloomberg. Cannot live without it. So if you cant live without it. Why arent you using this guy . It makes your wifi awesomely fast. No. Still nope. Now were talking it gets you wifi here, here, and here. It even lets you take a time out. No no yes yes, indeed. Amazing speed, coverage and control. All with an xfi gateway. Find your awesome, and change the way you wifi. Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Cash open. Dow jones futures are up and the rally is underway as we head into the new year. European stocks are flack flat. In the currency market, you got a talk about the dollar index down. 3 , having a terrible year. Eurodollar is having its best year since 2003, sitting around a three month high. The 10 year yield goes nowhere. We had options this week. Crude is up over 60 a barrel. Its a big move again into the end of the year. David lets get an update on lets making headlines. Parliament africas failed to hold the president campbell for misusing public funds. Spent 17nd to have million to upgrade his home. He apologized and pay back some of the money. Parliament unlawfully shielded him from liability. They must draft rules governing the circumstances. Officials have been concerned that theresa may will meet macron next month as the u. K. Has trade talks with the european union. They may discuss for control between the two countries. More details will be provided closer to the time it. In pennsylvania, snowfall has enveloped the city and ice. Arctic air falls across the United States. Single digit temperatures good to stick around for another week. Three sharks were found on the shore in new england, their gills frozen. Onsident trump is weighed in twitter. Aboutexpressed skepticism Climate Change. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries, this is bloomberg. Alix thank you so much. Sharks. David it turns out their gills are very sensitive. Alix why werent they migrating sooner . David i dont know. Alix that is a fascinating stat. One investors sitting pretty is carl icahn. Copper and gold have been on a tear. He owns a stake. This shows when he bought the stock. It was trading around your team dollars. Then he sold some of the state in 2016. He still owns a 5 stake in that. When he got in it, i thought that was confusing. Activist investors in National Resources stock, i didnt think that would work out. David they traditionally have not gone into commodities. Alix not 70 that pushes for change. There was lucky wound up doing. They announced they might cut reduction or the cash they were spending. It was a big shift. David its working out in the end. Alix 2017 has left some commodities in the dust. The index is almost flat on the year. Copper is not. Take a look at what copper have done over the last year. Eight straight quarterly gains. Thats the best in almost 30 years. Traders are optimistic about greater demand. Oil has a very similar thing, retreating after the 60 level. Interesting. Joining us is the bloomberg metals reporter. Lets start with copper. How much of the rally is supply versus demand . Joe it does seem to be more on the demand side. We had so many bad years and what we are seeing us the globe is demand coming back. Its kind of a good barometer, caterpillar a few months ago in an interview said we see demand come back in brazil. That coupled with the unexpected boom they saw in china this year, you see that with machinery and connect that to construction, its a huge metal used in construction, the demand is not just the United States. Its coming from europe. You see it in brazil. A different with supply situation of which they are coming back, there is a discussion of lower or great. Grades. David thats what i was going to ask about. China shut down there biggest producer because of pollution concerns. Joe the way it could be perceived right now is copper, which had not been affected by controls, we had seen it in aluminum and steel, maybe this is just going to be one industry or another, they will get around to everybody. Youve got to hold production for at least a week. Alix you have a more pessimistic view of equities. How do you square that with the copper rally . Its not just the supply side, but the demand. We believe the rise we have seen is linked into that chinese demand stimulus. That is across the world. Into worried that as we go 2018, we will see china activity slowing back toward 6 . That is going to take the edge off copper and gold as well. Bit, the dollar weakness you spoke about earlier reverses and that kills commodities. Alix if you look at the tct chart, once the producer pays a smelter, they are falling. That signals a tighter supp