Welcome to daybreak europe. Started the year risk on. That has taken ahead after reports u. S. Airstrikes have killed the top iranian commander. You are seeing red on the screen for the msci asia asiapacific index, excluding japan. Japanese equity markets still closed for the holiday. Yesterday we saw the essence 500, nasdaq, and the dow hit records led by mega caps. Futures taking a big hit as well. S p futures down 0. 8 . Money moving into treasury futures as well. Japan closed the 10 year yield flipping yesterday dropping back below 190. The yen hitting a two month high. Gold at a fourmonth high. Oil rallied strongly as well. Brent and wti approaching 17 a barrel, hitting its highest since the attacks on saudi arabia and infrastructure in september. Our top story, irans Supreme Leader has about super severe retaliation after the United States killed one of the islamic republics most powerful generals. Great to have you with us. What do we know so far . What we know is the strike and the hours ago pentagon came out shortly after and said it was at the order of president trump. General be killed. They said it was a defensive posture. They had been concerned after an attack on the baghdad embassy, the u. S. Embassy in baghdad. There could be attacks on u. S. Personnel and service people. This was a coordinated attack done by the u. S. , a direct hit. This was a general who is revered in his country. There been a top official perhaps second only to the ayatollah in terms of importance. He was an iraniraq war veteran persons against the islamic state. He has been a foe of the u. S. For a long while as well. Initial reaction in the u. S. Has been mixed. We have heard from president ial candidates joe biden and elizabeth warren, mostly Democratic Congress people saying that while this general no one in the u. S. Is going to mourn his loss, they are concerned about the potential escalation this could represent and also that congress was not informed. That is the big concern we are seeing in World Markets today, oil and other markets, about what is next. Tehran saying it will retaliate. The be revenge. There will be revenge. We have heard from individuals including the ayatollah and there is concern this could countriesthe other and be a serious escalation in the region. Bloombergs Senior International editor in hong kong. The senior currency strategist great to have you on the show. As jody was pointing to, the key risk for markets is the threat of escalation and the fact we have had comments from the u. S. Defense secretary talking about, be prepared to exercise selfdefense, be prepared to deter bad behavior. We have the yen at a two month high. How much more could we see money flow into safe havens of the markets perceive a threat of escalation. Your ultimate safe haven currency. Also because of its large net foreign asset position. The yen tends to outperform even the u. S. Dollar when you have intensification of geopolitical front. If things get ugly between the their respective militias, their allies, we can see the end the yen higher against the u. S. Dollar. Tradenteresting currency could also pan out from geopolitical tension. The Canadian Dollar outperforming other commoditycentric currencies like the Australian Dollar and the new Zealand Dollar because of crude oil exposure. The yen, we go back to we are seeing a move in dollaryen up 0. 4 . A muted move at the moment. What does that say to you . Is there so much certainty investors cannot work our this is going yet . How much more of a pronounced move might we see if the concerns increase . We will see the undue much better against the other currencies. Especially in the commodity sensitive currencies like the aussie and the kiwi. This is where you will see the most volatility in the japanese currency against the dollar. Expect the yen to do well, but not outperform as much against the euro, for instance, or other g10 currencies. Nejra a way to trade this could be euroyen or aussieyen. Oil jump to the highest since we got the attacks on the saudi facilities in september. How much more of a pronounced move could be see in oil . Is that something thats going to drive your fx strategy . Not really. That is a good point. In terms of oil we see oil around 60 a barrel. Unless you have a significant pickup in Global Economic activity, it is unlikely you will see a sustained upward cyclical trend in crude oil prices. Of crude oilrtive prices aside from the fact Downside Risks, Global Economic activity have lessened, is also backact we have had opec in december extending the crude oil output for output production cuts until q1 of this year. All of this is supportive for crude oil prices. It is not enough to lead to sustained cyclical upswing in crude prices. As long as the Global Growth remains relatively we kind of started off 2020 with risk on and it would help to some extent by the rrr cut, even though that was flagged. Do you see 2020 as being a risk on year generally in markets . Policy settings are loose. Fiscal policy settings are also going to remain loose. Leading indicators that have bottomed out, it looks as though the contraction in Manufacturing Activity has bottomed out. , look at all this and for me it is a relatively constructive outlook going into 2020. Clearly, you add the fact that the u. S. And china are on the way to an initial trade deal, the risk of hard brexit has diminished, 2020 looks relatively constructive in my view. Nejra elias haddad stays with us. Now lets get to the first word news. Sent minority leader Chuck Schumer is insisting the impeachment trial of President Donald Trump include new documents and testimony. That follows the revelation of administration emails showing officials question the legality of delaying aid to ukraine. It extends a stalemate with Senate Majority leader mitch mcconnell, which resists the call for a longer trial. Spain is finally set to get a new government. Persuaded the catalan separatist party to help him take office for a second term. That means another socialist coalition and the first proper government since last march. A final vote is expected on january 7. Boris johnson top advisors in the driveisfits to reform the u. K. Government. A wider restructuring of the service, he says there are profound problems at the core of how the British State makes decisions. Bybal news powered journalists and analysts in 120 countries. This is bloomberg. Nejra thank you so much. Coming up, a couple of big interviews on the docket. Charles evans joins our u. S. Colleagues at 4 00 p. M. London time. And the cleveland fed president joins bloomberg tv at 6 00 p. M. London time. We get fed minutes. Nejra this is bloomberg daybreak europe. The Federal Reserve may drop a hint for plans for the repo market in minutes from its december meeting today. Nine states economies are expected to slide into contraction within six months. The most since the financial crisis ended. That is according to financial projections from the philly fed. The dollar had a bad december and things may get worse according to Fund Managers and strategists including those at abm. Not everyone is convinced the greenback will keep weakening. Citibank saying it will strengthen against the Canadian Dollar. Elias haddad of cba europe is still with us. Looking ahead to the fed, the key phrase that came out of that december meeting was a material reassessment of the outlook. Is that what you are going to be looking for in the min there is that. We will be looking to see, how high is the bar for the fed to raise rates again . Rate hikest implied for 2021 and 2022. The postmeeting press conference, jay powell saying it would take a significant and persistent increase or overshoot in inflation the fed to start raising Interest Rates. Core deflator the is at 1. 7 , still below the 2 threshold. Inflation expectations are drifting lower. You dont have the overshoot the fed is talking about to justify their dot plot or their fund rate projection. Interestinge other developments in the u. S. Thats just me actually the risk is the fed cuts Interest Rates in 2020 or even 2021. Outside the fact Inflation Expectations are drifting lower, you have capital goods or Business Investment that is about to turn negative judging from the capital good shipment. We have a fiscal policy in the u. S. That is not going to be as stimulative as 2019. It is going to be neutral from a fiscal stance. On the consumer front you have this cyclical headwind because the consumer in the u. S. Are deleveraging. Disposable incomes are dripping lower. Saving rates as a percentage of disposable income is drifting higher. You have this deleveraging situation that will be a big headwind to consumer spending. Thats why i think there is probably the risk of if the fed cuts Interest Rates in 2020. Look at the u. S. Curve. It is roughly discounting a 50 chance of a 25 basis point cut in the next 12 months. Those things outweigh for you the fact that you think the Global Manufacturing cycle is bottoming out. We are of course looking at u. S. Manufacturing as well. Locationterms of the for the dollar when you put this together, that suggests we should seen a u. S. Dollar starting to weaken in the second half of this year. That is basically our forecast. The u. S. Dollar is a countercyclical currency. It does relatively poorly when the Global Economy is on an upswing. Im not expecting a big upswing in Global Economic activity, but certainly the Downside Risks of Global Growth have lessened. One of the big reasons we are seeing this is the contraction in Manufacturing Activity globally has started to bottom out. The latest gold manufacturing pmi that was released is still above 50 now. So Global Manufacturing starting to bottom out and you have concerns about the u. S. That makes you a little bit bearish on the dollar, but against which currencies primarily . A lot of people who argue against dollar weakness say, look, what is going to strengthen against it . Elias in this type of environment, i like the commodity sector currencies. The Canadian Dollar, the new Zealand Dollar. Currencies that should do relatively well if we have this pickup in Manufacturing Activity. Going into 2020. I like the euro to a certain extent. A lot of the leading indicators of the euro zone. 2 a greater euro zone growth outlook. Policy is going to remain relatively stimulative, not as much as 2019. Still supportive of economic activity. Have green stimulus in the euro zone. All of this is going to be supportive of euro zone economic activity. Less Interest Rate expectation and a former euro against the u. S. Dollar. Do you see the yield differential playing an Important Role . Of the the front end twoyear. Elias matt that is right. If we look at the differential between the u. S. And the rest of the g10, what we are already seeing this yield differential for the u. S. Dollar, this is a trend that is going to continue into 2020. With elias haddad stays us. Now lets get the Bloomberg Business flash. Carlos ghosn is distancing his son from his escape from japan. The auto giant says his wife carol and other family members played no part in the escape to lebanon. The statement is the first comment he has made since fleeing tokyo earlier this week. He says hes ready to communicate with the media freely as soon as next week. Tesla has cut the price of its chinabuilt model three sedan. It will now start at 46,500. That is after the carmakers set up efforts in the worlds biggest electric market. Apple has fired the former head of hired the former head of hbo. Company will make original programs exclusively. He joins a list of notable names working with apple including oprah winfrey, steven spielberg, jennifer aniston, and reese witherspoon. That is your Bloomberg Business flash. You so much. Coming up, we will stick with apple. The tech giant shares top 300 for the first time. This is bloomberg. Nejra apple shares have surpassed the 300 mark for the first time on optimism around the holiday order. Annmarie hordern has the details. The rally is continuing for apple. To watch out for. They appear to be overextended and overbought. Analysts expected really strong holiday performance. What apple is doing is leveraging their consumers through the products outside the iphone like the air pods, like the apple watch, things like that. Things people put into their your member 2019. Nejra apple went on to outperform other mega cap tech stocks with a gain of 86 . We will see if 20 20 brings something similar. The u. K. Is on guard following as borission to johnson ponders his decision on whether to adopt Huawei Technology for the u. K. 5g network. The Prime Minister seeks to strengthen ties with china ahead of brexit. The pound started 2020 on the back foot halting a winning streak. It caps its most successful quarter in a decade. Elias haddad is still with us. We are seeing the pound weaker today. Cable trading around 1. 31. Is it reality starting to set and after the optimism we saw . Elias first, you have this broad strength in the u. S. Dollar. Uncertainty generated by this postbrexit trade negotiation that is a big headwind for the british currency going into 2020. Our broad view is that the pound will remain roughly within this wide range this year. At thexpect hard brexit end of december 2020. Get towill manage to some kind of basic trade agreements on goods. Nejra you see a trade agreement rather than any kind of extension which the government has ruled out . Elias they have ruled out also day before andt they have reneged on their promises. I still think a basic or barebones trade deal is doable over the next 11 months, but also, if push comes to shove, we will probably see also the u. K. Extend the transition period. It is in nobodys interest really to have the hard brexit at the end of december 2020. We had manufacturing data that was a bit of a concern. Do you see the economy bouncing back meaningfully . The big drive for the u. K. Economy is because of the brexit uncertainty. One of the big supporting factors for the u. K. Economy going into 2020 is the expected fiscal judging by the conservative platform. The conservative platform looking for an extra 0. 4 of gdp and Capital Spending for 2020. It should take a lot of the pressure off the bank of england to deliver more rate hikes, which is what is implied right now by futures in the u. K. I think the bank of england will be quite comfortable, especially if we have support from fiscal policy in the u. K. You think the pressure is off the bank of england to deliver a rate cut. Do you just see it on hold . Should we be pricing more for a hike . Uncertainty is there between now and the end of next year at least in the nerd term the nearterm. That will ensure the bank of england keeps Interest Rates on hold. I dont see the bank of england cutting Interest Rates, which is what the market is currently implying. Nejra is your preferred way to play this in the fx market with cable given that earlier you were saying you are positive on the euro . Perhaps you are seeing less upside in the pound against the euro, but also with the geopolitical risks we have been discussing, you say the yen could benefit. Perhaps sterlingyen is not the best trade. His cable the best way if you want to play the range in the pound between 130 and 135, that would be a good strategy to play the pound rather than to played against others. Nejra you see eurosterling trading in a range as well . Elias i think eurosterling is due for a valley year, especially after the postelection decline. I would say eurosterling also within the range. I would expect the euro to outperform the pound in 2020. Anna nejra that is to do with the bottoming out in the pmis mainly . Or does your forecast for ecb policy have anything to do with that as well . Leaningheres a lot of to a brighter eurozone outlook for 2020. This will lead to an upward revision to euro zone Interest Rates. Expectation in favor of the euro. You also have fiscal policy in the euro zone. All of this in my view, then you have to look at the balance between the euro and the u. K. The euro has a massive currentaccount surplus compared to deficit in the u. K. This will be one of the reasons why the pound will have to continue to trade at a discount. To attract foreigners in the u. K. To refinance this current account deficit, you will have to see the pound continues to trade at a discount relative to its value. Nejra are you trading volatility in sterling right now . Elias i dont trade the volatility. But i think its going to be a wild ride 2020. Speak toming up, we the global cio of one of the Worlds Largest wealth managers. This is bloomberg. Nejra this is bloomberg daybreak europe. These are todays top stories. Oil surges after a u. S. Airstrike in iraq kills one of irans most powerful generals. The Supreme Leader vows retaliation. Risk on sentiment takes a hit. U. S. Futures fall while treasury futures, gold, and the yen rise. Fed minutes are on the docket. First we hear from Charles Evans. Then it is over to cleveland fed president loretta mester. Do