will punish the market if financial repression finally over and is that -- that such a bad thing? for ropping the bid actelion. a fascinating deal. we will explore that. we will take a look at where futures are trading. it looks like a weaker start for stocks. you can see that the ftse is indicated down .3 of 1% as is .he cap -- cac there is a lot of earnings and equities. it will be an interesting day to see what happens at the open. guy: maybe a slight negative start. maybe the reason is we had a solid day yesterday. spain am a the, main european markets trading higher. of jewsst a little bit coming out of that trade. the dollar is weak or going into the fed. index down by .1 of 1%. on's generally better. the yields coming down the little bit. we will keep an eye on that and the other thing to watch out for his oil. giving back a bit of ground. trading down by 1.1% right now. we're seeing a little bit of dollar related trade going into that oil story. maybe some of the exuberance coming out of it. plus the non-opec transitions we -- transactions we have seen. here is the bloomberg first word news. hsbc's chairman has said he does not expect president-elect donald trump to dismantle the regulatory since theput in place financial crisis. speaking exclusively to bloomberg, douglas flint cautioned that returning to an "light touch approach was quote could spell disaster for the banking industry. >> you do not want to bash a part of the world where people are able to do things with much less capital that is economically advisable. we are all exposed to each other. one touch regulation of the lowered standard is bad banking i do not will happen. juliette: we will bring you more of our exclusive interview with chairman douglas flint throughout the day. goldman sachs plans to appoint harvey schwartz and david silliman. the bank to leaving take a job in the trumpet -- trump administration. goldman is likely to name zechnology chief martin chave to replace shorts. interest rates may climb to 3% on 10 year treasuries by next year as deficits and inflation rise under a donald trump presidency. the move that would hurt markets. the chief investment officer who called the president elect's policies bond unfriendly said the effect could be felt across the u.s. economy. benchmark treasuries are closing at two point 5%. confidence among japan's large manufacturers improved the first time since june last year. the week improved prospects for company earnings. sentiment rose to 10 from 63 months ago. with the outlook up to eight from six. if 5.5% increase in plan to business investment for the current year was below estimates. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. bloomberg. has been 12 months since the federal reserve began its liftoff. since then there has been a lot of talk but no action and while the fed stresses it's due to dependency, releases have been topping estimates at the fastest rate in two years. various measures of inflation arcola sing around 2%, the target while employment figures are trending higher. unemployment well below 5% all year. alan greenspan said the unemployment rate cannot fall much further. greenspan: the labor force is running out of extra workers. the on employment rate now is under 5%. -- unemployment rate is under 5%. you cannot go much lower than the 152 200,000 increase in payrolls a month. it will not continue on because we are running out of people. lou have special coverage of the fed starting at 6 p.m. london time. the press conference something you want to watch out for. the projections something you want to watch out for. what will those dots deliver for us this time around. what are you looking for tonight? are all most certain there would be a rate hike. guy: what are we expecting? guest: we will get a couple of hikes next year but the commentary will remain dovish because we are going through this time of uncertainty. that may need to change in the next year now that oil is doing well. the headline will be in creasing. i think at this stage we are erring on the side of caution. guy: you have been onset talking about carrier the way to make money. is that still work? guest: carrier is difficult. trump has -- trump's election has put a spanner in the works. it makes my job easier and is quite a lot of change to analyze and interpret and incorporate into investment strategies. it is not really the best environment for holding positions. we have always got a mix of positions. there are positions that are less valuable than others and we have new ones that we're coming on because they offer a premium. but there is a variety of strategies the have done poorly. we can keep those on, things like australian duration which has rebounded very hard. rebounding from low levels much like that in the u.s.. that is a position that is likely to perform well because the us trillion reserve bank will find it difficult to raise rates even if the rest of the world is. what do you expect to hear from the fed today or what would surprise you, what are you looking for? best: if the fed were to less dovish than the market expects and really say that they do want to be ahead of the curve on keeping inflation under control, then that would be a shock to markets, quite a hawkish shock and feeds into one of the concerns i have got with the trump optimism that is coming through in a lot of acid market prices and that is the circularity. we're not entirely sure which of his policies will affect asset classes before other asset classes and the fed is critical because of the come out with a slightly more hawkish tone i would expect it to be more bullish for the dollar than anything else. we have seen in the last 18 months consequences of an excessively strong dollar. what is going to be good for asset prices and good for the market stability in the short to medium term is the fed managing to get its hike on to suggest that there will be a moderate hiking cycle, but doing it in such a way that they do not cause excessive dollar appreciation which really upsets the global financial stability, basically. att: which would because, more hawkish tone in one sense? do you expect them to indicate in some way trump's policies are causing an upward risk, upward bias? just: yeah. they might talk about the one side of trump's policies that are inflationary that might caution against the pace at which inflation has been increasing or could increase. i think all of these things are relatively unlikely given that things are still trundling along. ee have not had a blowout in th participation rate. it could improve. some of his policies are designed to allow women to stay and reenter the workforce more easily. there is some room for the fed , it is aght wait-and-see approach. the airport -- administration has not been inaugurated yet. there is still a lot of people to be confirmed in their positions. i would be surprised if they are on the hawkish side. there is the possibility step away from the optimal control thesis that yellen has been pushing and take a more cautious tone. guy: the labor market is tightening. the philips curve is going to work and we have seen evidence for that. levers, early earnings and the trajectory is undoubtedly up in the united states. the fed has fulfilled its 's picking many, pce up toward target. the idea you could run a hot economy, we are in that phase right now. guest: the unemployment rate is low but so is the participation rate. you read the research that the fed has written themselves and it looks like maybe three quarters of that is demographic and you want to get this people back in the workforce but there is still a quarter that is not. perhaps more cyclical and can come back into the workforce. we have been talking about the outward gap in the u.s. that would close material in the last couple of years and inflationary pressures should be tilting. we have been talking about it for 18 months. guy: it is one of those things that you will know when you see it. by then it is a must too late. guest: you come to the end of the road and you are getting help from inflation from oil at the headline level which and creases inflation expectations which has a self fulfilling action to it. there are elements that are putting upward pressure on inflation but i think that when you have had inflation running low and with such negative pressures, a lot of those negative pressures still exist, to which debt, demographics still apply by a lot of pressure to inflation and dictations. it is quite possible to let things run just much like the bank of england did post crisis and probably will in the next two years because it may be assisting in permanently changing expectations. guy: jerry fowler joining us this morning. coming up we will bring our interview with the chairman of hsbc. find out what he thinks about bank elevation -- consolidation in europe. u.s. rate hike a foregone conclusion and are there still trades to be done? all that still to come. we are 18 minutes from the market open. this is bloomberg. ♪ matt: welcome back to the european market open. 15 minutes to go before we see equity markets start to trade. looks like they may move to the downside this morning after a pretty decent day yesterday. let's get the bloomberg business flash. is in talkstelion with another party after johnson & johnson and it talks for a deal. it was worth over $27 billion for the drugmaker. it is now in talks with sanofi. clothingorld's biggest retailer is reporting higher revenue. consortium including kkr and morgan stanley has offered 5.5 billion u.s. dollars. the move sets up a potential bidding war with tatts corp holding. failed for the explantime this year to to regulate or's that he could unwind its business without wreaking havoc on the broader financial system. the lender is banned from buying non-bank companies are setting of international. if wells fargo does not, with an acceptable so-called living will by april, assets and its broker-dealer and non-bank units will be capped. that is your bloomberg business flash. guy and matt. guy: thank you. the hsbc chairman douglas flint has told lumber got there are too many banks in europe. he spoke exclusively to francine lacqua. at itynt: yes, looking from mars, why do have some a banks and the business model has --ome less often because profitable because of lower rates and lower margins which is has -- it has. assuming you're not going into risky places, then you need to tie up the cost space. either much more technology which is happening or consolidation. consolidation is difficult because cross-border consolidation has not been particularly successful. jerry fowler still with us. in terms of the risk reward and as you look around the world and work out how different investment stack up, where do european banks said? got veryropean banks cheap and are rapidly raising some of that cheapness. those reasonable rooms make money out of european banks in a variety of ways. if you are tactical you could treat them. that is not our style. we have much more strategic views. on a strategic time from there is opportunity to sell up the downside and you could receive premium given that the banks in europe are very volatile and well protected by the political and financial system in europe to some extent. what i worry about in terms of the long-term out -- outlook is you are getting a deregulatory push that is more specific to u.s. banks which includes the dollar repatriation. if dollars are taken out of the market, the cost of dollar lending goes up in optional markets and that is a risk to any bank that needs access to the dollars in that system. to provide to their corporate clients and trade. you think european banks need to fund the working capital of multinational corporate's which are priced in dollars, the axis that historically had free levels, at 50 basis points in the cross currency basis web and there is a reasonable chance that has just -- settle at a higher level if you take trapped dollars out of the optional market and put them back in the u.s. it is one of a series of competitive risks that impacted non-u.s. banks rather than u.s. banks. do european banks have the right business model? erry: it is a good question and that they are still enter me -- intermediate in business. it will allow corporate's to issue bonds. in europe the lending is direct to the bank. direct from a bank rather than securitized. there is a element that banks could be facilitating of transactions. it is hard to say they have a poor business model when they have negative rates to contend with and that is one of the headwinds, the negative rate environment is not likely to change anytime soon whereas u.s. banks should all must immediately benefit from an expanding deposit versus lending rates. at least give them some stability from contraction. while european banks are doing right well and my -- there are questions round the business model and concerned about capital, it is hard for them to perform with a little bit of a steepening curve area -- curve. matt: does that have to do with the european culture? not sure.m real specialist in european banks and i have a conversation about what we should do for our macro perspective. it is usually a fairly short conversation. our conclusion is european ranks require stockpicking. there are good banks and bad banks and there is a lot of dispersion between the two. we prefer not to put our typical multiyear strategic trade in european banks at the moment and to actually leave that to the stock pickers because there is quite a lot of differentiation in the european markets. we do have a macro position in area thereu.s. banks is a yield curve in dollar traded at the long and but rising rates trade and the do regulation trade and that trade has made one and 50% in the second half of this year and the managers [inaudible] did a good job of waiting through a fairly turbulent first quarter to access that quite superior return on trump's election that made it a very useful macro strategy. in europe, it is hard to trade from a macro perspective and you do need to go into a lot more stockpicking. you have to look into this banks from the bottom up. next, we take a look at the movers in today's trading area including actelion. the rug company wants to say independent -- drug company wants to stay independent or maybe they have another better. we are nine minutes away from the open. this is bloomberg. ♪ matt: it is five minutes until the open. it 50 5 a.m. in berlin. some 50 5 a.m. in london. i am matt miller alongside guy johnson. let's look at the stocks that are on the move. an interesting swiss biotech that a lot of people have been trying to take over for years. johnson & johnson went in with a bid of more than $250 per share. more than 27 billion and the main shareholders said no, that is too low. it is possible that they have drugmakers, other have been circling around this country for a long time. you could see them trying to take it out again. notfounder says they do need the money. guy: it will be fascinating to fi canther -- if sano change their mind and what price they need to deliver. there is a long way to go on this one. johnson & johnson walks away. we will light -- wait and watch. it will be interesting story for the pharma sector. that is the story for the market open. tes away frominu the open. ♪ guy: good morning. welcome, you are watching "bloomberg markets: european open." i am guy johnson. matt miller is in berlin. we are away from the start of european trading and matt have your morning brief. matt: going to be interesting today. int will the flm see deliver 2017? alanivering greenspan and jean-claude trichet. plus, presidential pain? treasuries topping 3% would punish the markets. is financial repression finally over and is that such a bad thing? j&j one play. we have been talking about this deal. is the way clear? guy: we will watch that stock very carefully. it has cooled down sharply. let us take a look at the european open. the ftse is opening unchanged. we are anticipating the market is going to be a little bit more skeptical and cautious. 6962 is where we are. c eur on the back foot. i'm watching antillean, waiting for it to open. the boj unexpectedly increasing its super long bond purchases has put downward pressure on yields globally. 10 year yield down on treasuries and german bonds. nejra: it looks i be same is happening in the gilt market. down three or four basis points. very much following the trend of what is happening in global debt market. moving over to have a look at what is happening on the stock gets hundred and the sector breakdown. down 36 of a percent. stoxx 600 and the sector breakdown. 0.6%. really, pretty much every industry group here is in the red. i want to bring your attention to this chart, looking at european sector rotation. great story on the bloomberg today. i encourage you to take a look at it, talking about how cyclical companies among the beenst gainers, have downgraded, where defensive shares have been upgraded, causing those recommendations to converge. this rotation is what he is looking at in that story and what this chart is showing. atthree stocks i'm looking today, big moves expected in the pharmaceutical sector after johnson and johnson said it ended discussion for a potential deal with activity in, narrowing -- actilion. according to the wall street nofi is ina talks with actelion. that stock pretty much unchanged at the open. 8% ast is down by nearly we speak. we will come back and do analysis on that story. it's out of the going to be able to do that -- is fantasy going to be -- a is too early to declare lasting rebound in wall street's trading revenue. >> i think there is a bit of over two brits about how well people are doing. if you look at the underlying flows, yes, they picked up particularly since the election, is onlyoverall -- marginally up on the year. we are getting an increased share of that fixed income, but i don't think this is a significant pickup inactivity versus last quarter. guy: -- us takel right, so let a look at where u.s. stocks are, and what they are doing. if you take a look at the dow, we are pretty close to getting all-new hats printed up. here, you can see the dow trading at 19,000, 911. 10 cap -- 19,911. 10,000, i was a student in college. guy: you said you were going to get jackets done as well as hats. matt: icy. it is a bigger move that hot this time. -- hat trade. guy: this is not a hat trade. this is a jacket trade. matt: do you just throw it away term or is this worth printing a jacket for? will we continue to rise? >> we spent a lot of time thinking about this because this is a much more macro driven cycle. what u.s. equities do will be very largely dependent on what happens in yields in the u.s. and also the dollar. and it also creates quite a lot of significant amount of diversion between small cats and large caps. if you're there backing up, a mayfurther, then large-cap struggle more than all caps. that, there has been a huge amount of globalization. they are really big companies. if there is anything trump has said is that he really does not like multinational companies arbitrizing. downsizehe risks -- the upside is limited because of some of the other policies in place. that is less of the case for small caps, which are much more specifically exposed to the positive policies and outcomes that could come through in the u.s. and was exposed to the international d globalization efforts. globalization efforts. matt: you are not getting tattoos, is what you're saying? >> i do think u.s. equities continue to do very well, it is just that there will be quite a lot of dispersion. just because there will be headwinds to that equity advance from relatively lost evaluations already, but those get further compressed by rising yields and a stronger dollar which make it harder for u.s. equities to perform as meaningfully as you would expect without going into what would be relatively transparent. guy: let me give you a sequencing of the headwinds. is it u.s. valuations are topping and cannot go higher? is it the valuation from the bond market? market? what is the biggest headwind u.s. equities now face? >> the dollar from a large-cap equities. it is still very questionable as to whether u.s. economic growth even should come through. we are getting a cyclical recovery now and expecting tax cuts and fiscal stimulus to drive that further through 2018. is that enough for the u.s. to pull the rest of the world with it? if so, the dollar will not be so strong because you get other cheap currencies around the world, those economies being dragged along. if the u.s. cannot pull the rest of the world along with it, then the dollar might just get very strong very quickly. to some extent, it would be self-defeating because not only will they have earnings headwinds, but you might cause growth contraction in global markets. guy: let me make an argument for big caps. when we saw the homeland repent creation act we saw money -- repatriation act, we saw money flowing back in. intomoney largely went vivax. it also favored a cap's over small-- big caps over caps. is there a short-term argument that said they cap will -- big caps will outperform small caps? that we'll see this by back story carrying on? >> it truncates the downside risk because of this vast amount of foreign cash, a lot of it is concentrated in a very small number of names. it does not necessarily drag the whole market with it. you might get buybacks from a few large companies. a lot of that money coming back might be used to fuel m&a. guy: history in the way dictates it. very little of it went into m&a. and the majority -- u.s. government did a study on this -- the vast majority of it went in to buy back. >> it could again. a lot of these companies, where the money is offshore and they are doing that issue it -- debt issuances, i think you are right that there could be more support for vivax been expected, -- for buybacks them have than expected. all right, so a lot of second and third derivative moves there, possible from these trump policies. you are going to stick with us and we will continue to discuss this. j&j ended talks with actelion. what is next for that $22 billion with drugmaker. it said no thanks. more of our exclusive interview representative and his yuan brexit and wall street regulations. interesting also in this trump transition. then we will turn to banking in europe. from's changes its outlook stable to negative. his take on the industry. stay with us. this is bloomberg. ♪ 12 minutes into the equity session. let us talk about what is going on. one of the big stock stories we are watching at a telly and. down -- actelion. j&j johnson & johnson walking away from a potential deal with europe's biggest buyer. it has engaged in discussions with another party. for more, let us bring in manuel. let us deal with what happened with j&j. why didn't this work? >> a pretty fascinating story. we have been following this for weeks, the negotiations by j&j. there has been a few offers on the table and finally, as of last night, they decided to walk away. the main reason being price. guy: what do we think they were offering? >> certainly not $250 a share. whoever comes in next will have to pay up. in your story, we see that the founders and the biggest shareholders say, it is not a question of money. we have enough money. so what is it going to take to get this company sold if they do not care about cash? manuel: that is a great point. there has been a lot of talk about the ceo and founder. at the end of the day, it comes down to price. wasthey offer from j&j pretty much already. so, it is now going down the path with another potential bidder. we reported sanofi was leading the talks, but we should not rule out others jumping into the fray. it remains to see what the outcome may be, but what is true is that the price is going to be very high for these to get done. guy: a couple of quick questions. if they are not worried about money, why are they even talking to anybody? i guess there is one answer to that question. clearly, there is a transaction to be done here. the question, why is this such a hot property? remind us why everyone wants to buy this business. manuel: actelion has been one of the most successful drugmaker stories in europe in the last 15 years or so. it was founded -- it is very rare. it is becoming difficult to find a sizable revenue generating biotech companies, not just in europe of course, but also globally, so the big drugmakers who are struggling to keep up growth, i mean, they are just struggling to buy those opportunities out there, so that is one or some of the reasons why actelion is such a hot company. bear in mind that it has been one of those perennial targets that haseing -- -- - been talked about for years. interest sending off from other rivals. as actelion faces product slips, it will be challenging to keep up revenue growth. they are more open to explore a sale of the business, but that of course means the price for such competitive assets is going to be very high. 194.10.kets trading thank you very much indeed. the story on actelion. let us broaden it out generally. we were talking about by that's a moment ago. you believe m&a is preferable to investing in organic growth. we'll see more of it, yeah? >> it is less that it is profitable and more that the ceo , in the u.s., will really buy into the incentives the government are going to create for them. even if trump wants to get fiscal stimulus on the way, he doesn't want to pay for it. he wants to do it through partnerships. that requires someone to take up the tax credits. if the ceo's are so uncertain about investing, not sure that receiving a tax credit to do something will encourage them in what i would consider to be a more uncertain world with the pace of change is coming through. if there is to be animal spirit to come into corporate behavior, i'm not sure it would be investment in organic. it could well be acquisitions, global acquisitions, so i think m&a might be an area that benefit quite a lot from some of the progression toward a more animal spirit type environment of corporate. ceo'sspeaking of certainty, let us talk about hsbc chairman doug flynt for a moment again. he has told bloomberg television that the banking sector needs some clarity on the pathway for britain leaving the e.u.. he spoke excessively with france -- exclusively with our own francine. there is some clarity and direction of travel in what the ambition is, where do we get to means you can sort of discard some of the options and get on with prosecuting the other wants to make sure that for our clients and our staff that are impacted, that they can begin to prime their affairs and it can be business as usual. the sooner we can get to some element of clarity -- >> what kind of clarity? mark carney has been working on making a transitional agreement. without be the most helpful -- would that be the most helpful thing for banks? >> we think it needs to be. when you think of the regulatory reforms, when the reforms are usually a there is two-year period of implementation so people can collect the information, presented in the way being required and so on. it is difficult to think of something as significant as changing the relationship with europe that you can sort of say on day zero, we are moving from that system and on day one, you can accommodate everything. i think that has to be some period of transition and again, in terms of the planning, if there is not a belief that there will be some periods of transition, you have to acknowledge there might be known. >> you have not gone any assurances that is the case that they have a transition or a phase they are putting for? >> nobody has clarified that but at the same time, everyone recognizes the importance of making sure the arrangements on both sides of what the equation are, as smooth for customers as possible. it is not about the finance a system per se. we are a reflection of what is happening to our customers. if our customers find things awkward and ugly, that will affect economic activity. that is not good for the economy. it is it everyone's interest -- in everyone's interests to make its move. matt: jerry fowler still with us, director at standard life investments. is this the end of the run for the big u.k. banks? are they going to have to find some place else to live? interview,in that very good points were made. if you spend the last few years to immediatelyen sort of aggressively move towards this is some where you might have three different regulatory regimes, that are all markedly different as opposed to perhaps sorting out inconsistencies which is the current situation, it is quite disruptive and i think it is likely therefore that that will not occur. there will be some element of financial stability agreed between the three parties, i'm sure, to this period of political change. you'rell right, going to stay with us. you can catch more of that exclusive hsbc interview, by the , friday atoug flint 8:00 p.m. london time and throughout the weekend, i'm sure you can find it on our website at bloomberg.com. this is the european market open. ♪ guy: 23 minutes past the hour. welcome back, you are watching the open here in europe. european equities, waiting and watching and seeing. regulations once again. -- theyablished after are unlikely to be pulled back by president-elect donald trump despite what he says according to the hsbc chairman, doug flint. touchs a return to "light regulation" could spell disaster for banks. >> you do not want a part of the world where people are doing to -- going to be able to do things with less capital. touch regulation and competing who has the lowest standards is about form of banking. guy: those comments are supported by morgan stanley's president. the thrust of the reforms have been very good, and he believed there will be little regulatory relief. >> i don't expect much initially. first of all, i don't expect a significant rollback in dodd-frank. if you remember some of the republican alternatives were in many ways just as unpleasant as a prank. you will want a tuning of it consultation. guy: geritol are still with us. it does not have to -- jerry fowler still with us. you change the marginal little bit to give the advantage once again to those that operate in the united states. >> i think you have got to try to understand the rationale of why might they be talking about deregulating banks anyway? it is probably just stopping the progression of regulation which is ongoing for a few years in terms of increased requirements. you are considered systemically important at a certain threshold. what trump wants to do is make mortgages available to more people because at the moment, the credit score you need to get a mortgage is actually very high and has been coming down slowly through the crisis. really know't whether this is a demand or supply problem, if it is a supply problem, then allowing to starter banks having to increase at the pace they have been, it might allow them to lend to people who demand that credit. can the smaller banks in the u.s. start to do quite well and improve their lending if some of those constraints, those capital constraints are used? -- are eased? the goal is to allow more people to access credit in the u.s.. have bad consequences if left unchecked for too long. given that credit has been improving but is still though, that could be a good thing for u.s. growth. guy: thank you for sharing so much of your time with us. fowler,ristmas, gerry asset strategist. we will talk about the 10 year treasury and that 3% mine in the sand. this is bloomberg. -- line in the sand. this is bloomberg. ♪ >> we have a bond market bubble which is in the process of deflating. it has got a way to go and it is going to affect the outlook quite significantly. so this is different, and we have had so few stagflations that we don't have enough models to go on to see what they are doing. guy: welcome back. you are watching the european market open. speakingalan greenspan to bloomberg. we will continue the bond conversation, next. intoou know what, we are the equity market session. cash has been open and everyone is watching to see exactly what the fed does a little bit later on. yes, we know they will be a rate hike, but what happens after that? back, let us talk about what we're looking at here. matt: there is not any irrational exuberance in european equity trading today. down 0.2%. stoxx 600 stocks are down across the board in europe. not you would, obviously. people are in "wait and see" mode. we do see the dollar down. we do see government bonds up. it will be interesting to go into the other asset classes as that decision goes out. let us stick with equities and get our top stock stories. nejra: interesting moves an individual stocks. metrorman retailer forecast a modest uplift in sales. expectibas analysts profit derived by 2%. shares up. this earnings report comes ahead of analyst presentation in tomorrow. it also gives an insight into why metro plans to split its electronics stores into food outlets. i'm looking at dixons car phone. sales up 4%. the stock initially gained by then erased those gains as the company said it does see supply price rises. have seen the stock fall as much as 5%. the worst performer on the stoxx 600, dragging down the health care edge market is actually an health care j&j pulledis after out of the talks. it was going to offer $27 billion. actelion falling as much as 9%, the biggest drop. it is now in discussions with sanofi. guy: actually -- matt: i will pick it up. interesting to see killian the biggest percentage loser on stoxx 600. those you really leading the losses. janet yellen to deliver the rate rise. it seems to be a foregone conclusion. to fit-2017, but not until the june meeting will they kickoff. fiscal policy remains a big issue. douglas spoke with flint and got his view on the impacted stimulus in the u.s.. that woulde those argue that insulation would be a good thing, so theoretically, it should stoke inflation and again, that should not mean the interest rate will rise, and again, there are many that think it is time interest rates rose know, near zero rates are very difficult from a policy perspective because there is not so much flexibility. you begin to get more of a risk curve again and the savers begin to see some reward for their savings. douglas: you could argue both sides and economists do. matt: later this morning, we will be getting the views of blackrock. will be talking with us at 10:00 on the continent. at 11:30, ceo jean-claude trichet joins us from paris. let us bring in our guest, mark nash. he received $36 billion of assets under management. meeting, aheadd of, i guess boe meeting tomorrow, do you tend to see much less action or do people want to try to get positioned in the morning before the statement comes out? >> i think something that was very interesting that has changed in the markets is that it is no longer just about central banks. a monetary policy is no longer the key and the only driver of bond markets. it is definitely -- it has definitely moved away from this deal grab situation more towards the political side. the markets look more towards it comesl stimulus and out of the trunk camp. going into tonight's fed decision, i think they will hike rates and play pretty safe from there because they don't know extent of the exact the fiscal and supply-side policies that we are going to see coming out of the actual trump administration when it started we can probably look for afterction from the fed january, after the inauguration speech of donald trump, but tonight, i think they will try meatmain pretty calm and market expectations. they might address the fact and the fact and be a little bit more positive about employment because that has improved somewhat. they might talk a little bit about being positive about the market, expecting higher inflation, but apart from that, there forecast, i expect them to remain pretty calm and the bond market to have quite an easy day. is he right to be concerned about treasuries going over 3%? got fairelieve he has points. i think the market sometimes does not appreciate how much the environment has changed. in know, we have had this little growth, though inflation, easy monetary policy environment, and now, we have launched into something which is pretty big. you know, the fiscal spending and the protectionism. it is not just the fact we are getting the fiscal stimulus, it is the timing of it. the u.s. economy is recovering some of the asset gap is closing, it was that it has near full employment. it will have a bigger impact on growth and inflation going down the line. what we have seen and bond markets so far is the reaction. i don't believe it is enough of a reaction. people talk about inflation rates having moved up to around 2%. this is not a lot. this is essentially the target of the federal reserve. i don't believe that any point that this is too high, at this current moment in time. if you look at the other components of yield away from the inflation component, real this is nothing. we have a vigorous, high-growth environment going on. guy: that is turned to this chart, this long-term chart for the u.s. 10 year. we have seen a spike over here and we are seeing yields rising. that is the spike we are talking about here. nevertheless, that is the long-term trajectory. how much higher will that have to go to convince you that we are actually breaking out? he talks about 3%. it doesn't need to be 4%? , and itler on that still goes down. mark: i believe the market can keep going until there is a reaction from the real economy. until financial conditions actually get remotely tight, i believe the bond market can continue to sell off because the positive impetus we are getting -- guy: we are having the conversation this time next year. where are the yields? mark: this time next year, yields sort of peak out. once we get the reality of the spending plan coming through, then we get the fed's reaction as well and as i said before, if this is going to push up u.s. inflation where the fed has to react, they will have to come in to cool the entir economy. they will then took the economy over and start the car and yields will peak out and there will be a buy it again. matt: why do you think we see the dollar down today? if the fed is getting ready to move up and has a statement to the press conference afterward, do you expect them to remain extremely dovish? to remainpect them pretty balanced. they realize they have a lot of work to do in the first half of next year. they have got to react to the new news that it will come out of the new administration. at this point in time, they don't have enough information to make those predictions. now, the fed in my mind has not had a great year. down the stocks continuously. expectations for the u.s. economy has revised lower throughout the course of the year. this moment in time, they are not going to move or react. they are going to wait and try and get all the information they can get that the new administration is set to do and make their decisions off the back of that. matt: if you look at the last year, are they in the right position considering the data we have seen? mark: i think the data now, you know, is very backward looking. it is out of date. not only do we have these new policies coming in, but we also, you know, since the u.s. election, had this huge first in business and consumer confidence, so not only do they not have enough information to make their decisions right now, i have got to wait and see how this confidence pick up we are out.g actually does pan one thing that is important to note is that people tend to forget is the u.s. economy was recovering reasonably well and the global economy as well was recovering going into the november election, so the reflation trade was already there, but when the new administration came in, when the trump plans were known to the extent you can know them, this sent the reflation trade into overdrive. .t propelled yields higher guy: germany, u.s. trading. we will get mark's take on that. bloomberg of course has extensive coverage of these special events coming up a little bit later on. the fed decides six 1 p.m. london time is when you can kick in to that. liv is probably the best function. minute by minute, second by second. up next, europe is "a sad place," so says the president of morgan stanley. the context of that statement. this is bloomberg. guy: welcome back to the european market open. matt: i'm taking a quick look at what is going on with the bloomberg screen, a function that is an old favorite of mine, the hs function. dollaring the bloomberg index here and fill in the euro index if i take it down to one day trade, you can see the spread is really blowing out. pretty interesting what we are seeing. i want to talk more about this, guy, and mark, so we'll get to what is going on with the drop in the euro in the last few minutes and the big jump in the dollar, but this illustrates it, i think, quite well. right now, let us get the bloomberg business flash. sebastian salek. actelionlly and -- talking with johnson & johnson. they offered $27 billion for the drugmaker as the wall street journal says italian is now in talks with sin off the. actelion is now in talks with senate sea -- w ith sanofi. kkr andtium including morgan stanley has offered as much as 5.5 billion u.s. dollars for australian betting group. shares soared in sydney trading after the bid opened the field to other potential suitors. that is your bloomberg business flash. guy, matt. the rating agency says at this reflects the view that losses will depress the sector's profitability and a road capital -- erode capital. a negative outlook on europe. place, lows in a sad growth, broken banking system. the essential point about continental europe is that 80% of lending in continental europe is a complete inverse of the u.s.. what i have picked up is that there is some real sense of resolve, particularly in italy, to solve the banking issues. what is us talk about happening in europe and whether it is a sad place for a fixed income point of view. mark nash, anything in europe that is attractive right now? we have seen the spread buying out across the atlantic. we are seeing pretty much everything else blowing out as well on the periphery. what is the right trade to make in europe? mark: i think you have to be resembling negative to bonds in europe. europe, just like the u.s., either a fiscal stimulus, and that is not going to happen, so what the european central bank has done essentially is they know their recovery is weak. they have we rose, core inflation is incredibly low. instead, they have done a boj innocence. support --rates to the boj in a sense. if fixed rates. hopefully they can benefit off the positive growth coming out of the u.s.. what they have done is they have looked to steepen the yield curve as well. gone are the days where central bankers actions pushed down yields and everyone might that. to support the banking system, you need the steeper yield curve. that is what they have done. without the fiscal stimulus, they are passengers waiting for the u.s. and potentially china to lift the world and support them as well. for the bond market itself, i can imagine you get stability in the front and where yields are essentially fixed. if you believe in the reflation trade, you can believe it europe will look better than it did. then you saw the long end. that is where reflation will start to bite. you sell bonds. in terms of reforms as well, there is a lot of political risk this year. you have the ecb doing it's very small sort of tapering mission bonds andcal risk, italy and france, these should underperform and selloff versus their german counterparts. i continue to see weakness in the peripheral bond markets as well. one final point, one of the reasons i think treasuries have not risen higher already given the information we have is because you have foreign investors of low yields in their domestic markets in japan, in europe, and then in buying treasuries, in a cross market trade, in order to get those yields. what happens when you start to see weakness in the domestic bond market? year jgb yields rise. in germany, and they have options at home. guy: so let us talk about the start here. 211 at the moment. do you think the numbers too high? mark: it is not just the u.s. story. because we are seeing this reflation drive in commodity prices, of manufacturing recovery across the world, this will slowly start to eek into the prospects for the eurozone as well. the ecb set out their stool and saying we are not going to buy more. we are going to see a tapering and underperformance of the german market relative to the u.s.. i like to see u.s. yields continuing to rise and a convergence with a german and the rest of the eurozone yields rise and also to japanese yields to rise to meet treasury yields a little bit closer. matt: fixed income, sovereign debt, across the board, is do you think, overpriced? what about corporate fixed income, mark? mark: i think it is very unlikely that this sort of fallout in markets, you know, is just isolated to the government bond market. because what you will see is eventually, yields start to rise, treasuries and the rest of the government bond market looks more attractive, versus corporate bonds. so you start to see, although you have a positive growth environment, the corporate bond treasuries, sorry, the corporate sector, also start to begin. it has existed for many years. the cash has been taken down into negative. this fed into bond yields and government on guild that rallied and also into corporate bond yields that rallied. it is natural, they start to unravel the corporate bond trade as well. the mutual bond and etf fund sector. what we have seen over the last six years with this trade is a doubling, for example, in mutual funds. they look like, essentially, horrified bank accounts. when you could not earn yield in the cash market, will have gone down the curve to buy more risky assets. government bond yields rise, we start to get money coming out of some of those. corporate bond spreads also start to widen. i see a fallout into of asset markets as well and it is not going to be placed into government bonds. you very-- guy: thank much indeed. mark nash, head of global bonds at mutual global investors. up next, could carney run it hot? the boe could hold off tightening for some time to come. we will discuss that next despite the inflation outlook. is carney going to sit on his hands? this is bloomberg. ♪ matt: welcome back to the european market open a most one-hour integrity equity trading. we have red arrows across the the fed decision coming out later today, and the bank of england policy decision tomorrow, so the question is, could carney when it hot? talking about -- run it hot? talking about the u.k. economy. that is see exactly what the boe governor is going to do when he comes out and makes his decision. he is our bloomberg daybreak market strategist. mark, let me ask you what you think carney is going to do. sayad a couple of guests carney may end up cutting sometime in 2017, that is obviously not consensus. >> i said there is no chance of a cut next year. i think one of the main things carney is dealing with is a complete lack of clarity. we don't even know whether it will be soft brexit, hard brexit. and the economy continues to look more positive than people expected only even a few months ago. depths of pessimism around july, but all of these surveys have risen in positivity since then. guy: so what is he doing? how do you do about one? tothe brexit czar starts change, maybe the pound starts to rise. that is self-correcting, isn't it? mark: absolutely. it is a deflationary impulse so let their reason to worry about rising inflation. part of the pound is rising is because the expectation there will be a hike on a positive growth outlook. carney had to keep his options open and be adaptable. that is the message he will communicate that we are flexible. guy: think you're a much. stay with us. up next, the black rock vice-chairman. we will be talking to jean-claude trichet later on. we have a busy morning. up next is surveillance. i'm going to join the radio team . remember, you can listen to bloomberg on the radio. there are the details. this is bloomberg. ♪ francine: making america-again. , withmc meets anticipation for its first rate hike of the year. oil declines as investors await the fed decision. is its banking industry own biggest risk, says the hsbc chairman. we bring you that exclusive interview. this is "bloomberg surveillance." i am francine lacqua in london. as the fed finally hikes -- or so the market expects, fully priced in -- we have