the president-elect renegotiates. peter navarro will head the national trade council. matt: that will be interesting indeed. a lot to talk about today as far as politics. we will take a look at what the equities markets have in store for us. features here show a lower open across the board for european markets after u.s. stocks failed to rally yesterday. that 20,000 market on the dow seems elusive. as is my jacket which i am looking forward to. matt will make jackets for those who have not tuned in the week. let's talk about what is going on in the markets. this was franc is up and some european markets are doing better. the euro app against -- is up against the u.s. dollar. are seeing a lot of turbulence in these markets, a lot of speculative money coming in and out. 4.2%.nal down by we will talk a little bit about this market later on as we head toward the end of the program. let's get caught up on what we need to know. juliette: thank you. japan has approved a record 825 billion dollar budget for the next fiscal year. with incentive for companies that fall two line with economic policies. businesses that make objectives such as raising wages and making child in elderly care more available will be rewarded. at the same time, shinzo abe's cabinet should approve the biggest ever defense budget in the face of north korea's nuclear and missile threats and the territorial row with china. expectation is growing that monte dei paschi may be bailed out. lurell probably fail to sufficient demand. the debt swap with half coming from investors. they got the green light for a 20 billion euro bank rescue fund. new zealand's economy expanded faster than forecast last quarter as construction boomed and consumer spending increased. .hird quarter gpd -- gdp rose the economy expanded less than forecast from a year earlier coming in at 3.5%. the kiwi dollar traded at a near six-month low following the data. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. is bloomberg. guy: another day passes and we have tripled trump action this time. first up president-elect summoned the two largest u.s. defense contractors to his resort in florida. he's looked to the ceos of boeing and lockheed martin about cutting costs for both fighter jets and the new air force one. this is the f-35 and the new air force one. >> we will get it done for less than that and we are committed to working together to make sure that happens. able to get the president elect my personal commitment on behalf of the boeing company. this is a business that is important to us. are trying to get the costs down. the program is very expensive. icahntrump has named carl as a special advisor to help him overhaul and rolled back federal regulations to promote business growth and finally, the president-elect appointed economist and china critic peter navarro to lead a national trade council. the university of california irvine professor is the author up such books as "death by china," a hawkish account of how destructive of force trend has been on the u.s. economy over the past 15 years. our guest is the global head of strategy and solutions at socgen. let me ask you what you think this donald trump rally that we have seen. aside from the news we get from him today, we have had an incredible resurgence in stocks, incredible resurgence in yields. is it too much, too fast? the market has clearly priced a lot of the infrastructure spending that the trump president elect -- president-elect trump has promised. it is clearly going to a level where a lot is priced in and the question is whether the congress and senate will increase the debt ceiling because the $1 trillion of infrastructure spending is a lot of money and it will require more borrowing. the -- he is putting carl icahn in do with regulation. one of the problems is secular stagnation. they seem to be moving away from shat had been ait traditional growth rate. in doputting carl icahn you think to do with the productivity story we have got in the united states, is regulation do you think where he will focus his attention to raise that potential growth rate? guest: this is a good point. if you look at unemployment, it is close to full employment and it decreasedwhich is very close. ultimately, if the u.s. economy is able to essentially create growth, we could see a much better path for corporate, profits, etc. the argument might not be relevant at this juncture if the fiscal multiplier are able to generate nominal gdp growth that is higher than what is expected. with david westin spoke brian moynihan exclusively about what donald trump means for the u.s. economy. let's listen in to what he had to save. -- say. riskier,sinesses are they're more active, they are talking harder. you are seeing that go on. you're seeing the other thing, is good and gas prices, for capital expenditures, that ought to help next year. our clientselief of we talked to about regulatory burden is it will come down and that will help them do things more quickly. so all that they believe is good. of thehat do you think comments there? i think he has a good argument and the point of having more managers who have businesses has -- is a new strategy to challenge the new status quo and i guess this is an opportunity to look at running government differently and ultimately, there is a lot to be seen as to whether that strategy can really create nominal gdp growth as opposed to just more borrowing and consumers not spending that extra crash -- cash the are given and winged back into savings. we have had the problem for a few years. guy: if we get aggressive fiscal spending and the economic cycle which is long in the two's, will we get rampant inflation? we'll get more inflation than we have got now. that is what people are trying to figure out. oe: the path is to increase the pace at which is raising interest rates. if you had to look at the rest of the world, there is still a lot of deflationary pressure out there and a lot of that pressure out ofs being exported emerging markets and asia to western economies. it will be interesting to see whether the investment budget is approved by congress because it requires more debt and leverage and number two, the fiscal multiplier, whether that investment does create into more job creation, more spending by etc. and there is a lot to be seen, it is not a given situation. guy: thank you. talk through what is turning out to been interesting week. the full monti. an anchor investor remains elusive. we will get the latest ahead of that looming deadline. the equity story tomorrow. and loyalty pay. offeringe carrots. and gray is the new black. they still pose a significant risk to the market. find out why 2017 could be the year of the grace juan -- gray swan shop. the opening minutes away. ♪ matt: welcome back. 16 european market open minutes ago. you're looking at a live shot at the brandenburg eight and apparently a crane building some sort crane building some sort of christmas bleacher said, i believe, for a concert maybe, of sorts. let's get to the bloomberg business flash with juliette saly. juliette: actelion has announced new exclusive talks with johnson & johnson about a possible takeover. johnson & johnson said it ended negotiations with the swiss was said tod sanofi be in advanced takeover talks. finland-based company has filed complaints in germany and texas but apple says nokia is theirng to license patents on a fair basis and is using the tactics of a pay got a troll to attempt to extort money from apple. shares have fallen yet again despite record run for super mario. the new mobile game plus download rate is the fastest in app store history with 40 million downloads. it is available on apple devices and is initially free in 140 countries. the $10 fee to unlock new levels twisty and some reviews have been less than going. alibaba has in labeled a haven for knockoffs. four years after getting its name removed from the list. the u.s. office of the [indiscernible] had a high level of counterfeiting and piracy. it suggested the decision could -- inee influence by influenced by politics. guy: thank you. lure sufficient demand for the capital raising plan. they said in a statement yesterday that so far, no anchor investor has shown interest in the recapitalization plan. still with us, our guest from socgen. italy, the banking sector, and its politics all very closely intertwined at this point. investor, is a state bailout of monte dei movei anything that should the dial? does it speak to something more significant that is going on in that part of the eurozone? guest: this is a crucial point. if you look at the italian banking system, we're looking at 310 billion of nonperforming loans. it has been documented over the past few months and years and the issue with italy was not a massive bubble, it was low growth for too long and a lot of these good loans ended up being bad loans. it -- you do get the situation [indiscernible] is where ifs. this they are bailed in and not protected, that could create more populism and negative reaction to the eurozone concept and create more political instability. an agreement between the eu and the government to make sure it does not become an italian cavettsituation and ray with the rest of the european banking system is required. there will be a level below which some of these retail investors are protected and 100,000 euros might be the level of savings. that could be essentially safe above which you will take losses. we are looking at is a symptom of a low growth economy that is moving in the wrong direction. and the gap between what is happening in germany and italy is getting wider and wider. it is a legislation issue as much as the recovery of bad debt is an incredibly slow process, close to a decade in order to get through. you're left with these problems that means you cannot understand and that of the book is what is putting investors off at the moment. the italian banking sector, the economy is a black box people do not understand. they do not understand what the bank oaks look like. it is hard place to invest money therefore. guest: a lot of it is discounted and this is one of the reasons that the referendum was the last opportunity for matteo rented to reform this bicameral system where you have the senate and the house that killed the decision process of moving forward. if you look at the variations in terms of multiples, they do tread a distressed level. they have to be in the price and going forward, what is happening in my mind is the darwinian process of evolution by natural selection of re's. the sector should heal itself overtime and we could be in a much better situation in a few years' time. what about the rest of european banks? is italy just a massively different situation, is monte dei paschi a different situation than the rest of the banks in europe? guest: absolutely. if you look at the scandinavian banks they might -- they have a much fairer return on equity. recapitalizedve balance sheets a lot quicker. you could make the case that you will have dispersion within the sector over the next two years. this is reflected in some of the price-performance but going forward it is important to make the case that multiple is a function of return on equity and the costs. the volatility of earnings is still priced to be too high by market. we could see a re-rating of a riskyriven by a lot less banking system given the amount of recapitalization that has taken place in the sector over the past two years. we are minutes from the european equity market open up. we will look at today's potential movers. when you should pay attention to. and johnson & johnson back in talks. the open nine minutes away. this is bloomberg. ♪ matt: we are minutes away, six and a half from the european open. let's get your stocks to watch starting with actelion. it has been a rocky week for their romantic situation. it was linked to johnson & johnson and then they broke up and sanofi was the new suitor. is back in talks with johnson & johnson. does this leave sanofi out in the cold, will we see a complete purchase, will this be sensitive partnership -- some sort of partnership? for investors they do not believe the real purchase will come at the 275 or more level. guy: it is amazing but you can understand why the market was skeptical. thiswere saying -- seeing unstable situation that we do not understand who will be ending up with home. fascinating story. matt: the major shareholders. he does not want the money. why would you think a deal would get done? we will talk about that. guy: it depends what you think your product cycle is going. are you peaking out, maybe that is the time to exit. will be theschi story. it is the credit story from just about every angle but it looks as if according to the italian papers that we are very close to some sort of bailout. the debt swap closes, the equity story is tomorrow. they are not getting close to that. we will watch this one. that is the one your number. we're down by 86.5 on a one-year basis. you go back further, this is a stock that back in 2005, 2006 was trading up there. that is where we are now. it will come back and talk paschi and italian banks and what is happening with actelion. certainly tong out be a lovely one -- lively one. is four minutes away here on a slightly misty morning in london. this is bloomberg. ♪ guy: good morning. welcome, you are watching "bloomberg markets: european open. " i am guy johnson. we are moments away from start of european trading. matt has your morning brief. the: deadline day for world's oldest bank, and reports from italy suggest italian government members will confirm today that they are going to bail out monte dei paschi. how will the news reshape italy's politics? sanofi sidelined. and his exclusive talks with johnson & johnson. triple trump. the president elect renegotiate government contracts, and peter navarro, the outspoken china hawk will have the national trade council. guy. guy: matt. many people not out there desks this week. we are going to be dropping in terms of the volume. the markets on the equity front are calm right now. not much of a movement when it comes to european equities. ftse 100 north of 7000. down by 0.1%. similar story for the cac and the dax. seeing aess, we are mild weakening as we await the end of the year. most books closed by this stage. the devil is in the details. here is manus. manus: in the united states, they did not want to touch 20,000. that has got psychological reverberations. equity markets though. financials down by 0.2%. are we underpricing? the potential contagion from banca monte dei paschi. dying and birds of 2016, people are away and the propensity for real vitriol the reaction in the markets is lessened. equities are lower. 20,000 has not been touched in the u.s.. they may have a bailout to deal with. hong kong is in a correction territory. oil, one optimist out there. 2018spent $1 million on calls with an expiry at $100, so that is a nice sort of speculative position and is not rock the open interest. volumes in the energy market are lowest in almost a month. $70 could be on the way. how do you take the bulk of the cante dei paschi -- the ban monte dei paschi? blackrock in with me this morning. he will see france go from 45 to 75 on political risk. you may see italy moved by a similar matter. indeed, if there is some kind of movement. i'm off to global radio. >> good morning. here areom radio and some of the stories we were focusing on. actelionan and j&j -- and j&j at the negotiating table. receipts jumped 11%. we are up 6.5% at the european open. 229, just about, swiss francs. sanofi gaining as well. we saw sanofi gain u.s. shares as well. it was in advanced talks with j&j came backe and. investors saw it was offering a little too much, not just with the $275 a share, but also with contingent value right. i wanted to see how monte dei paschi opened as well. the big question is, are we going to see that state rescue ies,italian treasur taking a 50% stake in monte dei paschi? investor has shown interest so far although people with knowledge of the matter saying the bank is probably going to fail to raise that 5 billion euros. guy. guy: actelion and johnson & the negotiating table just a week after ending earlier talks during previous negotiations. j&j made an offer to around $260 a share. is according to people familiar with the situation. serafino joins us now. why have surprise and they come back and made a deal? is a big surprise. you almost never see this where these companies announced a week or so ago they were not able to come to a deal and talks were over and sanofi jumped in and that process seemed like it was pretty far along, and yesterday, out of the blue, after the european stock market closed, you have the announcement that they are back in talks with j&j. was theof actelion cofounder of the company and he has never been eager to sell it. he has been approached and has not been interesting in selling, so he seems to be driving a hard bargain, and apparently, sanofi was not willing to pay the price or agree to the structure he wanted. we don't really know for sure, but that seems to be the case, sanofifi and actelion -- and actelion ended their talks. matt: are you expecting an outright sale of actelion? is that the kind of arrangement we are all looking for or could some other strategic partnership be worked out? phil: you know, there has been talk about that. clearly, investors in actelion want an outright sale of the company. they are worried they will try to work out some structure where there is less than a full takeover of the company. it is unclear what jerry j is willing -- j&j is willing to agree to. one positive the -- one possibility is j&j buys actelion's approved drugs. products in the pipeline yet to be approved. unclear. clearly, the market would hope for a full takeover of actelion. on 5% ofand his wife ?he shares phil: right. they do not have -- yeah, they do not have a blocking stake in the company by any means, but he clearly has a lot of sway on the board of has nots and the board aggressively pursued a takeover approach in the past. there was a lot of criticism of zel by elliott, the big hedge fund because they thought he was taking away prospective buyers. guy: on trying to understand the mechanics of a breakup, effectively, which is what you are talking about, the idea that maybe we see the approved part of the business being sold to j&j and the more speculative part being home on to. how do you value that? phil: i think the approved drugs, you can put a value on pretty easily because they have sales and there is a robust set of analyst estimates for what those can be. any bank or would be able to put a valuation on those products and the two sides could reach a deal, and what is left, sort of the stub of the company, the rmb, continues as a publicly traded corporations are shareholders, they would prefer a premium for their shares where j&j buys a whole company, it seems. guy: i'm wondering how you value it, if that is what people are trying to figure out at the moment, which is why we have got to get a 220 share price. thank you very much indeed. thank you for your time this morning. joining us for the actelion, j&j, sanofi saga. joining us now, -- one of the things we are talking about donald trump is the possibility we see money being retired created. that money has potentially -- has been used in the past, held offshore for m&a. are we going to see a reduction in m&a if we see a homeland investment scenario in the united states? >> i don't think so. if you look at the way u.s. corporate have been financing their balance sheet, it was never really a problem because they managed to raise our short debt. guy: are they buying foreign companies? >> absolutely. i think there is roughly -- a lot of the m&a between the u.s. corporate's and european companies taking advantage of the currency, i do not think this will change the dynamic because these companies don't have a borrowing issue given the level of interest rates. matt: do you see a lot of that money flowing back to the u.s. after a trump presidency begins? there is aink possibility to see that money flowing back in the u.s. depending on the terms, but what i believe is more interesting is whether that money will be used for and investments or will be for orr share buyback -- capex or will be used for share buybacks. investment as opposed to financial engineering. matt: do you expect a big stimulus package in the u.s.? that is what a lot of the beds have been on. do you think the top administration will be able to follow through quickly? kokou: i think there will be a question about timing, but i think it is sending direct messages, but one way to take advantage of that dynamic is to go along small caps, which are exposed to the method gdp against large caps, which are more exposed to global close and the dollar in particular. the strength of the dollar would be a problem. the small cap versus large-cap is an interesting trade in that respect, and you also have to remember that one of the things that is most likely to occur is the tax cuts because this is something the republican congress can't, and the president can agree on, and this will be enough to create fiscal stimulus and multiplier from a standing perspective. do you sell the u.s. market through europe and japan? kokou: yes, through options. that cause on the s&p. japan has this great yield curve control dynamic that is massively bearish for the yen and ultimately bullish for japanese equities and on the flipside, when it comes to europe, the valuation is just too low in a world when we could get a lot higher gdp and real growth in the u.s., so corporate in europe and japan should benefit. guy: thank you very much indeed for coming to see us. have a great christmas. kokou agbo-bloua. a senior government official says the kingdom will unveil a road back to a balanced budget -- roadmap to a balanced budget. details on this story, next. more for our exclusive interview with bank of america. ceo brian. later, it is the market year-end quiz. matt and i will be battling out for a title. stay tuned, this is bloomberg. ♪ guy: welcome back. 40 minutes into the equity market session. you are watching the european open. let us figure out how these markets are doing this morning. something of a selloff underway. his jacket yet. european markets in many way largely -- taking a look at the volatility metrics and you can see volatility crushed over the last few weeks. the markets seem pretty confident. today, just marking time. i suspect, many desks are not that will staffed this week -- well staffed this week. matt: i'm thinking of making hoodies. we: i prefer a hoodie, if are being brutally honest here. i know you like the jacket but -- matt: i know he wears a hoodie and is off time. in his all-time. two countries with very different economies but both facing huge challenges. saudi arabia try to pick it away from oil reliance, to is desperately seeking a growth strategy. our bloomberg team across most stories. shery ahn in tokyo and get him body -- and another reporter in dubai. japan has approved a record budget for the next fiscal year. warning companies to march to the beat of abe's drum. what were the main takeaways here? 825 billion dollars earmarked for fiscal 2017, but what is interesting about this budget is where the government plans to spend it. they are going to boost companies that actually helped in their policy objectives. companies that raise wages also raise wages according to performance, not seniority, as is common, in japan, not to mention they are more supportive not only of childcare, but of elder care here in japan, so those funds going to subsidies for those companies. curbovernment plans to government issuance to a nine-year low, but some people say that could be challenging. foreign reserves, higher corporate tax income. at to mention that a risk of weaker yen could spur criticism from the u.s. administration, so i have been hearing concerns a lot from people i have talked to here on the ground in tokyo. matt. boostjapan also wants to defense spending significantly. is this a reaction to china, is this a reaction to drop, what are we -- to trump? what are we seeing here? it is a combination of both. the top administration signaling it could cause a vacuum of power region,the asia-pacific so yes, a reaction to more assertive china in the east china sea and they have territorial disputes there, it also more aggressive north korea. the defense budget is a record budget of more than $42.5 billion. they are going to spend it in things such as a new submarine and 35 fighter jets and also more money going to ballistic defense missile capabilities. guy: good night. yousef will be happy about that, i'm sure. i joke. thank you very much indeed, shery ahn. let us move on" what is happening in saudi arabia. it is set to announce it state budget for 2017 according to -- it will approve one of the highest budget deficits in the middle east. the strategy is said to focus on boosting nonoil revenue and cuts to subsidies, a plan tabled this visioner the so-called 2030 plan. joining us to visit all of this is the managing editor. what is the kind of most important aspect of what we are going to learn today? guest: the most important aspect is they are going to have a five-year outlook, how the budget is going to develop over the next five years until 2020, when government officials have told us that they even might see a budget surplus in 2020. the way they want to do that is also going to be part of the announcement. one, they are going to announce them of the fuel subsidy cuts, which they have already started this year. riad: they are going to continue next year and on until 2020 until fuel prices, gasoline prices, are a pretty much unsubsidized at an international level. also they are going to announce a support program, a cash payoff program for saudi citizens for the low to mid income saudi citizens in order to cushion the impact on them from the cut in subsidies. gulf,hen i lived in the filling up your car was a pleasurable experience given the amount of money you actually had to spend to do it. in terms of how this differs from where we are coming from, how much -- is this an incremental step to the budget or a major step forward in terms of what we are going to see? it is a major step forward in terms of the seeingrency as well of exactly how they are going to make these changes. look, they announced change earlier this year and came up with a vision 2030, and have what they call the national transformation plan, so there are some details already. this is the first budget that will go into such detail on exactly what measures are going to be taken to achieve the shift away from a dependence on oil revenue, which is at the moment about just over 70% of saudi government revenue comes from a tax on oil, to a system where nonoil revenue makes up the difference and even pushes the budget into surplus again. great to see you. thank you very much indeed for bringing us this news. we will look forward to that announcement later on. d joiningdity -- rai us. we look at the latest ahead of a looming deadline. this is bloomberg. ♪ guy: welcome back. breaking news out of china. the 10 year sovereign bond, the yield dropping the most since at least 2000 six, also a big price pick. yields rising really quite significantly over the last two sessions. this is the chinese 10 year. you can see this big ramp up in yields, beginning to unwind a little bit right now. a bit of news coming through on the chinese bond market. that is the biggest move, as i of, since 2006 in terms yields dropping, prices rising. matt. matt: you can really see the relativity picking up in the last few days. -- the volatility picking up in the last few days. so a lot more movement in the chinese yields. can show you that. there is a great little chart i have got that i can put up for everybody and show that distribution, because the volatility, and you can see it on the volume spike down here, this is the chinese 10 year. look at the candlesticks. incredibly tightly defined sort of -- and then for the last sort of period, november into december, really widening out into what you can see. that volatility really picking up, as you say, matt. matt: definitely something to pay attention to. big moves and getting even bigger in chinese debt. stock stories now, moving away from -- nejra: very big moves here. we have seen actelion shares hit a record high. surging 7.4% after j&j and the gone backmaker have to the negotiating table in a new exclusive talks about a week after those talks fell apart and actelion was in advanced talks with sanofi. some investors seeing it as a benefit with j&j because a big question for actelion and for the founder and ceo john paul clozel would be able to retain within a deal. these are exclusive discussions. we do not yet have a number for the new price in these negotiations. sanofi is gaining as well. people have said it offered $275 a share for actelion and contingent value rights. some see that as offering a little too much which is why we see the shares gain despite sanofi being left out in the cold again. finally of course, keeping an eye on buncombe monte banca monte dei paschi. oft: up next, the gray areas 2017. the gray swan, i should say. they are easier to spot than blacks bond but pose a risk to the markets. find out why 2017 could be the year of the gray swan shocks. guy. guy: i think you could see a gray swan in london. i think one could fly right by but you would not know it was there. they could be harder to spot than we think they are. shaping up for the markets on this gloomy day before barbara arrives tomorrow in london, this is how european markets are. we are not doing very much at the moment, as you can see, on the downside. matt is warming up to hoodies. do you think that is a good idea? hoodiesor jackets? -- or jackets? this is bloomberg. ♪ matt: welcome back to the european market open. i'm matt miller in berlin. guy johnson alongside be in london. i thought they were building a bleachers here in front of the brandenburg gate to watch a christmas concert. guy: matt, matt. honestly, we don't use that word over here. seating, or something like that. matt: but bleachers, that is like the benches you use to watch some sort of event. guy: i know that. matt: i've just been informed, they are building a menorah there because hanukkah starts, i believe, on saturday, so we have a christmas tree out there and a clearh as well, to buil that up. why are there cranes in front of the brandenburg gate. yeah. guy: full-service. matt: we are reporting the news here. bank of america is sticking to its forecast of 2% growth next year. u.s. bank isrgest seeing signs of economic improvement. the ceo sat down for an exclusive interview with bloomberg david westin. david asked what we are anticipating for the economy under trump. to be first, we have the number one research team in the world for six years in a row now. >> congratulations. >> thank you. >> the u.s. is growing around 2% next year. 1.5 to 1.7 or something like that, somewhere in that range, so that is an increase. a step up.e their fundamental belief of that has not changed a lot since the election, so i think we believe the economy in the u.s. will grow and in the world will grow and it is more on the upswing, felley picked up and it off this year. it is part of the uncertainty that has been handled by the markets and by people predicting outcomes, which is interesting. brexit, the italian referendum, the u.s. election, all of that stuff people thought, if this happens, there is going to be a huge this option. the market disrupted for a few hours, came back, and that, you know what? life goes on. the question is, with trump's election, businesses are more active. they are talking harder. you are seeing that go on. you are seeing the oil and gas is nice starting to invest. that is good for capital expenditures and ought to help next year. the belief is our clients when we talk to them about regulatory burden is that it will come down and help them do things more quickly, and you know, so all of that vaguely is good. there is other serious concerns. labor is stricter than people think. the unemployment rate is very low. getting the right labor at the right place every time yesterday for people right now. great wageot been inflation, but largely it is the right jobs in the macro sense then a lot of wage pressure. we have to do a lot of work to make sure people are trained into it. i think the sole difference that happened, the big difference that happened in the last six weeks is enthusiasm. if that falls through, it will be interesting. we can talk about black swans, unpredictability of events. black swans are the rumsfeld spectrum of unknown unknowns, but there are plenty of known unknowns, plenty of known unknowns, dotting 2017. according to our next guest, grace on -- gray swans are part of the tail of the distribution bell curve. right hand side scenarios, left-hand side scenarios, both can be as tricky to handle. joining us, jordan rochester with his 2017 gray swan shock. good morning. jordan: good morning. guy: we had of whole bunch of gray swans. jordan: a flat crush in the pound. guy: exactly. our grace wants what they used to be -- are gray swans what they used to be? jordan: you can kind of predict what they would mean for markets. but we want to focus on these because if they do happen, make sure these are not our base cases. i am almost sat here with a tinfoil hat. you need to be quick, so he was talking about when donald trump won. it was 4%. i was disappointed. everyone sat there. actually, what does donald trump mean for the dollar. a lot of people have not put economic analysis on top of donald trump presidentcy. actually, he is great for the dollar. it was very quick. the reason why we talk about grey swans is they could happen. they are outside of our base case. you have to be quick to get on the trade. guy: they are not necessarily bad. there is a kind of assumption that these are a bad event. jordan: that is what you mean by left and right wing of the tail. guy: they are outside of the normal the tradition of outcomes, but as we have learned with donald trump, they can produce very positive results. moved pass very quickly. the u.k. economy does not seem to be delivering the armageddon scenario. the irony is, donald trump. donald trump is long s&p, for example. it is only a few specific ones like mexico, where you lost out. matt: you have u.s. productivity are that your first shop, these ordered in -- first shock. are these in order of likelihood that they are going to happen? is it more likely than abe losing power, which is shock number eight? jordan: it is an order of what we want to focus on, too. a are also in regions. we had a few for emerging markets. u.s. productivity is a very interesting one. if you look at it, you have recently, over the last years or so, seen a pronounced the client in u.s. productivity. aer since 2006, it has been slow grind lower. it is anemic now. it is a volatile data set. it picks up and down. the point i would make is in point of going forward, productivity is very volatile, but there could be applied from here. one of them is, ok, so, the formal investment in structures and machinery is that russia should marry levels, -- recessionary levels. it is actually pretty healthy. in the spoke about second before this, you could have animal spirits come out with a donald trump victory and they could see a lot of investment going into cadogan investments. matt: so that is an example of a grey swan that would be a good thing. obviously, at least it would be a good thing for u.s. workers for sure and the economy. you have the fed muzzled as shock number five. what exactly do you mean here? the possibility that trump sidelines the fed, takes away their power, audits the fed? jordan: the message we gave to clients was sort of the baton being passed on for the next trade in the dollar, but by said muzzled," weed know that donald trump is not a fan of yellen. her turn come to an end in 2018. he will be able to elect the new fed chair. for 2017, there is two spots available. those are up to donald trump to choose and will be approved by congress. he could choose john taylor who has been pushing the taylor rule himself. if you look at the taylor rule, it would imply interest rates in the u.s. should be around 4% not around 1%. guy: there is a fantastic function on your bloomberg. taylor rule, type it in, and it pops it up. jordan: it is not so left field. he is a key witness in the house on the format and the republicans in congress are actually pushing for this offset. guy: yeah, i can bring it up. taylor rule? matt: i have it up on my screen here. interest rate. considering where we are -- matt: i have got it for the u.s.. i have it for the u.s. here on my screen. i would say this is one of the first functions that producer hilary clark showed me when we started working together, making the bloomberg rate again, and it is just an incredible function to work with, i mean, because you can fill in all of these different, your inflation target, what you think the real rate of interest is, so it is pretty, it is a pretty useful function, and i wonder if it would be a good thing or bad thing if the fed fell back on the taylor rule, jordan. jordan: they never ask a have the taylor rule at formal policy. interest rate is following a similar pattern. it has become quite unpredictable. it is quite discretionary for the fed. the point the conservatives and the republican party in congress are trying to make is that monetary policy should be printable and should be less discretionary and this would be -- mean a lot for the markets and if this were to be mentioned, even become a small tale of distribution of probabilities in market pricing, you would see the markets saying this is good for the dollar and interest rates should be higher and we will be pricing much higher in the cycle in 2017 and the beginning of 2018. guy: stay with us, jordan. we need to kick around a few more these. we will continue our grey swan conversation. this is matt versus guy. who is going to be victorious? place your bets. this is bloomberg. ♪ guy: 8:43 in london. this is the open. i think you can see some blue sky today. there is a distinct possibility there will be sunny spells. it is rather gloomy at the moment. a bloomberg business flash now. sebastian salek. has announced exclusive talks with johnson & johnson. it said it ended negotiations sanofi wasllion and to be an advanced takeover talks. the iphone maker in french several mobile patterns, according to the company. license refusing to their patents on a license their patents on a fair basis and is using "the tactics of eight patent troll -- a patent troll." sebastian: alibaba -- the trade representative said the online retailer had an unacceptably high level of reported counterfeiting and piracy. alibaba suggested the position could have been a by politics trump criticized u.s. china's trade agreements. that is your bloomberg business flash. matt. matt: sebastian, thanks very much. still with us is jordan rochester looking at the possible grey swans of 2017. these are events that are not completely on for seen -- u nforeseen, totally unexpected, just unlikely. we want to move to the emerging markets sector. i want to ask you about what you're grey swans are, what are the unlikely event that could still happen with china. riad: it is already ongoing -- jordan: it is already ongoing. it is part of its policy of to do so in the long run, but could could there be a free-floating renminbi in 2017? if you look at the current pace of depreciation in the renminbi versus the dollar, -- if you look at forward pricing, there is 6% deval. on thaters pushing distribution. to make money on this, you have to expect an aggressive devaluation in china. gressive devaluation in china. not just staring at the dollar but also looking at china versus its peers in the euro and yen and that is what the chinese authorities are reminding us to look at, look at the basket, not just against the dollar. if you had free-floating currency, it would be quite a shock to the market and as you know, the fx reserves in china are falling for a reason. part of that is thanks to donald trump, but it was already on the wind because of what is going on in emerging markets overall. if you were to move to a freely floating currency, the payments up to get from that would be nonlinear. the renminbi would depreciate by more than 4%. it is tricky. you can see how aggressively it is sold off. that is the grey swan for next year. matt: is donald trump labeling china a currency manipulator a grey swan or a foregone conclusion? jordan: i'm not much of a bird spotter but i think the grey swan in him labeling china a currency manipulator is not that great, it is white and -- gey, it is white and clear. china features far more. has writtenavarro aggressive books when it comes to china. currency controls. this is the malaysian ringgit. this is the asian financial crisis here. i have been listening to the of 30 talking about the fact that that memory is very clear in their minds because they do not want to go back to currency controls of that kind of period and a lot of emerging markets have built up currency buffers. how likely is it that we see currency controls return? jordan: i think it is a grey swan that could happen. it would be multilateral ties between different emerging x, those so the bri groups saying the imf has endorsed some of those capital controls and we need to embrace the outflows from our markets. huge flows u.s. had to the funds. you are seeing tightening in u.s. monetary policy. therefore, i think the way around it would be multilateral, bilateral ties between the central banks as emerging markets swap lines and you could have further e.m. counter controls in the form of the macro credentials, so saudi is a good example for china as well, the m&a side. guy: talk me through the kind of geography of this. how would it will geographically? what are the an asian story, would it be a latin american story? how do you put the pieces together? jordan: the middle east is a good example. a lot of people looking at saudi and people are thinking maybe it might go. i'm thinking that's quite unlikely if you look at the basket of cpi in saudi, a lot of it is importing food, so you're cap talking about a high inflationary impulse. guy: a basket, the? nate -- though? maybe get the qad route? jordan: asia is the hottest now. inflows,ing of money one of the things we have been thinking about a great deal is negative rates this year and one of the reasons why negative ates have a limit is because some point, it makes sense to buy yourself a safe and put things in it, under the mattress, in a briefcase. youan: depends how brave are. nevertheless, there are limits because of the way we still have paper currency. guy: that is true. offan: are we going can rub -- ken? re: talking paper money? -- are we talking to the money? i did not use any cash. i topped with my plastic card and this is something that could happen where cash becomes irrelevant. you just have access on your apple iwatch and you can pay for anything with your electronics. you would be able to know where things are being spent. this all would happen at some point, but the point we will make is we allow policymakers to go below the lower bound. you would be out to charge interest on having cash in your interest. if you did it on cash, if cash no longer existed, and e-wallet, 5% forld charge you 0.0 annualized basis. that could lead to a lot of disgruntled people at home saying i have worked for this money and it could lead to, i need to save more because i am being charged for it or in an extreme event, it can lead to civil unrest. guy: on that note -- matt: yeah, i think in certain parts of the state, that is very likely. jordan rochester, as it strategies at nomura with his 2017 grey swan fantastic writeup. i have tweeted out the link from my twitter account. next, bloombergs quiz of the year has dropped. how well have you been paying attention in 2016 and how well can you use the terminal because you get all of the answers with the bloomberg. stay with us. it is me versus guy. ♪ matt: welcome back to the european market open. it has been quite a year, and now it is that time because the bloombergs functions for the quiz is out on the terminal. i have tweeted that out as well. you can find it on your bloomberg to see how well you have been paying attention or how fluent you are in terminal. let us take a look at this, guy, because i'm going to test you right now on one of the functions through a question. which asia pacific nation is projected to enjoy the fastest gdp growth in 2017? and if you already know the answer, don't give it before you use the french and you find out. is it india, bangladesh, china? function and go through it. guy: this is a bit like my own level maths, isn't it? you have to show your workings. you can always just hit the help button to make things worse. ecfc. start there. and then i go to my drop-down regional comparison, and then i'm going to change this to asia-pacific. matt: there you go. guy: no, i don't think were quite there. 2017. matt: click on the 2017. guy: there is your answer. my maths teacher would be very happy, showing my workfare, matt. the answer, india. matt: using the bloomberg is cheating. crystal-clearhe about this to which commodity enjoyed the most unusual gain over the last year? rubber. zinc. manganese. matt: if i had to randomly guess, i would guess zinc, but let me use gmm. guy: that was my guest. matt: i will put up the gmm here. instead of change on day, i will go to your on date and the go to commodities and sequence them. manganese? is it manganese? guy: rather unexpected, which is interesting as well. the manganese turned out to be much more. plus 27%, but it was a bit of a mover. the great when i think and people should have a look at this quiz is the russian vodka one, a real standout story for me as well. something to think about. matt: do you know the answer? guy: i think it would be more fun of people went out and found out. it is a number of how much vodka was consumed on a monthly basis. "surveillance" is coming up next. this is bloomberg. ♪ mark: ready for a rescue. set to fall short in raising capital. shares are tumbling. will the italian government step in with a bail out? frisky business. bank of america broin moynihan doesn't expect troump jolt the u.s. economy next year but says business is ready to expand. >> the difference after the election especially has been in the business side, the nthusiasm that you know, the