Anna good morning, everyone. We need to talk about what has been going on in the markets overnight. We have pulled upbeat msci 0. . Acific, up by about the nasdaq going over 7000 for the first time. Really we start with the same questions as we ended last year around synchronized Global Growth and corporate profit. To a extent can that outweigh concerns . We will talk more about the inflation conversation as we go forward. The inflation conversation is very relevant with the dollar. The dollar had a bad year. Inwas down by 0. 5 yesterdays session. Another Asset Classes picking up in 2018 where it left off in 2018. Legislation mifid coming through. We could see low volumes and stocks and bonds. Well talk more about that as a goat to the program. London,t is wendy in but it is cold in the u. S. Boston is still sub 20 degrees. It is freezing, cold. Americas gas market faces a litmus test. This takes us through some of the records that we set in 2014. The polar vortex smothered the eastern seaboard. It means that it is very cold, with a lot of snow. Americans consumed 143 alien cubic feet of gas. The Commodity Index is rising. You mentioned the oil market and the drop in the dollar. There is this storm and you have this normal dollar that is driving the bloomberg Commodity Index, up for 13 straight days. We hit the highest level in a month. Stockpiles are dropping. The fiveyear averages down. Donald trump will possibly make et out of this, because the u. S. Is exporting more gas than ever. Those are your markets. Energy is going to be front and center of our debate. Lets get your first word news. Juliette saly is in singapore. The deadly protests in ironic have intensified talks and the Trump Administration about imposing fresh sanctions against the islamic republic. His pence and members of National Security team will discuss protests amid deliberations that are already underway about three imposing sanctions or adding new ones. Bravery forgreat to use the people power of their voice against their government, especially when their government has a long herstory history of murdering its own to use the power of their voice against their people. The parts of the u. S. Seeing record low temperatures may now see a snow bomb. Boston may see as many as 11 inches, brooklyn and queens could get four inches. The United Kingdom is battling a with some think went up to 80 Miles Per Hour. ,2 billion in Compliance Costs two years of preparation, and one false start, the biggest regulation of the financial industry in a decade is finally here. Trading volumes slumped ahead of mifid ii coming into today. U. S. Senator of utah says he will not seek a term in 2018. He is the longestserving u. S. Senator. The decision may open the way to a senate bid by mitt romney. Romney is viewed as a republican elder statesmen who could challenge donald trump, who he has called a fraud. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. The equity rally momentum continues here in asia. The msci asiapacific Index Holding and building onto those record highs. Japan it is still out of the picture. We are seeing some strong gains to me through in the hong kong and china markets. Still some momentum coming through in the korean market. It is really these apple supplies, the tech story dozing on the rally today. You can see tencent and hong kong is one of the best performers. The best performer when you look at index points on the mrr function. We see continued momentum of chinas Economy Holding fairly strong. Conductor company in china. 1997 highs after hitting the daily limit of a 10 gain. Thank you very much. Donald trump has responded to kim jonguns latest threats, saying that the u. S. Has a much bigger and more powerful nuclear button. Manus the protests in iran have intensified. Talks have intensified about imposing sanctions against the islamic republic. Officials raised rates for the third time last year. The market had to deal with this as a come into 2018. Manus there is all talk and there a few answers from the fomc. Lets try to make sense of the politics and the markets. Welcome, happy new year. Here we go. It is one of Janet Yellens final swan songs, in terms of information that we get from her. It is about why we have justified three rate hikes. The market wants reassurance. I think that is right. I think the real question for the markets is around inflation. The marketsround this year, the three focuses will be liquidity, inflation, and the macroeconomic earnings momentum. If we take the inflation outlook, the question is, how can they justify three rate hikes this year at a time when inflation is consistently undershot . This is not just a problem for the fed. It is a problem for the other major Central Banks. Of course in the, we are very unlucky in bit u. K. , we are very unlucky. This is where we are. That i think is the conundrum. Share some like to inflation. That is not possible. Crossing the line, bond markets starting to price in inflation. This is u. S. 10 year breakeven rate. Towards the end of left a, it started to shift a little bit in the bond market. Whether that was to do with tax or something else, is that going to influence . Clearly the fed watches that. I think it does. It is a little bit of the market chasing its tail. You go around in a circle. I think we have to abstract back from that. To lookly what we need at if we are looking at inflation and the longerterm growthes and weekly wage in the u. S. It has been quietly creeping higher. It is definitely going higher. I think that is the key. People focus too much on the average hourly earnings, which is very volatile. The Weekly Earnings are less volatile. That is where the inflation will come from this year. Manus if that is where the inflation comes from this year, we talked about a global story. You have china giving their manufacture numbers yesterday. Take a look at this. This is the Global Growth and global inflation outlook. Where has inflation gone . Inpeak inflation mentioned november. Manus they talked about it but it never really arrived. Is 2018 the year that you take this chart and at the same time begin to consider that inflation reasserts itself globally . I think it becomes more of an issue. We have been able to ignore inflation for the last 10 years. Becomes a light subject for the first time. We are overdue a recession already. Manus if we extend the growth in 2018, that is the second gest growth and 1960 1969. Since 1960 there is a point at which inflation does make itself up. Weve talked about wages. Maybe we should also talk about commodity prices. Oil has been creeping higher. We will not front run our conversation in the next part. Lets pick up on what you said there. Inflation might be something that the market focuses on. Where does that leave equities . Where does that leave your strategy . Failing tontiment match bonds and equities. Of investorasure confidence. Not a, how do you feel . Confidence. I think people are increasingly nervous, particularly when it comes to the u. S. I cannot remember the last time somebody measured the u. S. Equity market without mentioning ghight valuation hi valuation. We are at high violation. Rock, they at black say we are going to end the year , profits are going to rise, Economic Growth is going to hit 4 . He called the markets fairly well last year. What do you think . I think for the markets it might be quite cathartic to have a drawdown. I think so. I think it would be good for the market to remind investors that there is some downside. I do not see why at the turn of the year, the strong momentum should suddenly magically stop. There is no reason for that. We know that the First Quarter is traditionally very strong for equities. European equities always have their best quarter in the First Quarter. Economic momentum is fantastic. Earnings momentum i think well pick up any europe, just as it has done already in the u. S. And japan. What is the story . I think the story here is that we continue to see upside at the moment, particularly at a time when maybe bonds do not look great. People are thinking, if i am to allocation,t of what do we do . I think there will be the temptation to move more into equities. We not fall into that trap, seamlessly transitioning from 2017 into 2018. Manus if you are traveling to work, tune in to the radio. We are live on the air on digital radio. Net is a conversation on iran with our reporter on the grounds. Coming up on the show, commodities record run. The bloomberg Commodity Index is at its highest level since february. It endure . Re can we will discuss next. This is bloomberg. London. Ive shot of it is 6 18. That is the millennium bridge. You are seeing sterling completely unfazed. Nowhere near the days of one 40s, one 50s. Sterling is reasserting itself. Ii. mifid it comes into effect today. We could see low volumes and other exchange assets. Manus french president holds a Cabinet Meeting and then hold his news conference. I presume that he will focus on the Franco German alliance. Anna we have heard about that Franco GermanAlliance Since the start of the new year. The fed meeting is at 70 car p. M. 7 00 p. M. Juilette bitcoin has bounced back from its new your decline new year decline. The san franciscobased firm has been purchasing small amounts of years. In recent the holdings are announced to be worth several hundred million dollars. Euros moved 15. 9 billion in 2016, saving the company billions of dollars in taxes. Structures to showed the majority of its shield the majority of its profits. Hasabas financial declined a money grab. Chinese takeovers of American Companies have prompted warnings from lawmakers about risks to National Security. Mayeth griffins hedge fund expand as it closes in on a deal. According to a person with knowledge of the matter, citadel has been in talks to higher e severaleople hir people. That is your Bloomberg Business flash. Anna thank you. Bloomberg Commodity Index is at its highest level since february. Freezing temperatures in the United States have seen Natural Gas Prices jump. Some Agricultural Products have push the index higher. Manus we are looking at this chart. These were record long positions. We have the global head of strategy at bnp paribas. You would say some of that is fine . It is the commercial operators that you think are beginning to heels of a this rally. Of course. Who is the other side of the trade . The other side of the trade are Oil Companies themselves, particularly the shale companies. They have been taking advantage of the higher prices to lock in the higher prices by selling futures at those levels. That tells me something. They are saying that we are not confident that these prices will remain, so we will lock in our Business Model here at this level now so we can fund our investments, and not have a cash flow problem. Weve got a lot of very cold weather at the moment. There have been some temporary shortages. So it is these is these sort of things that maybe we have had a lot of good for oil. Everything good comes to an end. I wonder if we have hit the peak of this particular many cycle. Anna we have seen other commodities rallied as well. The shaley, story driven by opec and shale. What is it that is driving the commodities . I think in the short term, we have extraordinarily strong and coordinated Global Growth. When you think of domestic metals, clearly the backdrop to the higher demand is that growth. We are exceeding expectations. We expect to produce more of the chart next, more cars, and therefore we need more of these industrial metals. We have really just come out of beare what is a sixyear market for commodities. So this is catch up . I think this is the beginning for catchup. You could argue that commodities could still go a lot further to the upside from here. Manus anna mentioned china. Atbrings to mind the speech the 19th congress, where he talked about pollution. Palladium has seen the biggest drawdown in years. Squeeze, in real terms of there are other stories at play, in terms of the pollution story, driver less cars. This is going to try things like palladium shortages and keep in key markets. It thator less intimate they are going to skip a generation. The bigger story might not be china, but india. People do not drive cars at the moment. It will be like mobile phones. Who needs a landline . You just go straight to mobile. Maybe for them it is the same story, but with a electric vehicles. They can go straight to electric vehicles. Then they do not have the cost of gas stations. They can go for the electric charge right away. Inflation is city surprise index. We talked about things that could be driving inflation a little bit higher, i suppose, and 2018 in 2018. It continues to surprise on the downside. I think you need to be careful when you look at this chart. Any surprise index like this is by nature reverting. It comess down a lot, the to zero indians in end. Manus the global head of equity derivatives strategy at bnp paribas stays with us. Anna mifid ii goes into effect. How will the industry cope . This is bloomberg. Manus in tokyo, the emperors palace. It is 3 30 in the afternoon. Lets see what the fed has to say later this evening. Is nejra cehic. Nejra you talked about debt as a duck. Asia index alive and kicking. Asian equities gaining to a fresh record. China higher, hong kong higher, australia higher. Japanese markets closed. The dollar, five days of weakness. What we are seeing in the dollar it is finding some support. It looks like it is seeking a shortterm low, snapping five days of decline. The dollar gaining. We sell the 10 year treasury yield rise. Trading inseeing treasuries in japan because those markets are closed. This is the 10 year breakeven rate. It has gone above the feds target for the First Time Since march. Pmis, showing some supply thetraints, perhaps meaning prices may have to rise. Finally, taking a look at the gold. Gold has had a nine date rally. It is snapping that today. Seeing the relative strength index above 17, the highest level since september. The last time it was at this decline for gold four straight weeks. It is holding above 1300 an ounce. Anna nejra cehic with the latest on the markets. We go to mifid now. The biggest shakeup of European Regulation in a decade is finally here, mifid ii takes effect today. Asset managers spent years preparing. Are they ready . Joining us is a senior policy analyst. Well. With us as tell us about what is going on behind the scenes. How will the rules be enforced from today . Mifid ii is one of the largest pieces of regulation passed. It has taken seven years to get this far. In my view, i dont think many companies, perhaps the Larger Companies in europe are likely to be 100 mifid ii compliant today. Nine of the 28 eu countries have not yet integrated mifid ii into their own local law. Today, you cannot legally apply to those countries. Yesterday, polish authorities takemifid ii will not effect in poland today, because they have to finalize local measures. Manus we had a chat about this yesterday, which is companies that say they are doing their best, they are going to be given d of time to get their house in order. Is this a turning point for markets . This is about overthecounter market. Better transparency for everybody in markets. They were quite easy to manipulate, were they . Intofid ii does come effect after a long time in the making. A journey, not an event. It will take companies more time to become compliant. Regulators here in the u k has said they will not take enforcement action immediately against companies that are not fully compliant. Theyng as they can show had tried. If it is clear they have made no effort to comply with the rule, then there will be enforcement action. If we are talking about penalties, were talking about 5 million euros. There are a lot of rules to read. Ive seen the charts comparing the size to other legislation. From a market perspective, not directly talking about what is happening in the near term with mifid ii. Does this change investor behavior . Investor appetites for certain products over other products . What is relevant for you . Boosts theo think it market for listed product. For us, i think that is one clear move. Within that, there will be a continued push. Is on a consistent growth path anyway. Mifid will be another following wind for etfs because they are easy to track. There are very little complications. Forget, wallnot street increased transparency for clients and brings down prices. I have my doubts if it will achieve those names. I would argue etfs will be the beneficiaries of mifid ii Going Forward in europe. Edmund, thank you, global head, bnp paribas. In the interest of full disclosure bloomberg lp competes to provide a range of services for those compliant with mifid ii rules. Within 10 months the British Government moving on to another subject they are aiming to have an agreement on their divorce bill. At least the outline of trading relationship postbrexit. There is a piece out on bloomberg today looking at several scenarios that might come about in 2018, including upsets and walkouts. It is a fascinating piece. It shows you the base case. , global head, bnp this,s, when you look at and some of the outlines in are other things that could happen politically in the u. K. That make it more complicated. Edmund, what are your thoughts on that . Edmund i think we have a developing value story. If we look at equities, gilts are a little more complicated, but even there you would expect inflation rate in the u. K. To slow down