What is a more normal rate . Years. O motowns moving production north of the border. Who is in the drivers seat when it comes to the auto sector . Matt happy new year. I have not seen you since. Let us take a look at futures. We are up across the board. You can see the ftse futures are up about. 5 . We have gained more than a quarter of a percent over in. Aris on the cac and a third of a percent on the dac. Looks like a positive week were equities. Guy i think that could relate to what im about to show you on the gmm. The british pound is down by nearly a full percent. Johnsonferrohe cross rate. The dollar index up by 0. 2 . Keeping a firm i on what is happening with the potential candidates to replace janet yellen. I think that is coming on the a gender as we see a more hawkish stance being taken. We will talk about oil later. Firmly in focus. Here is the bloomberg first word news with juliette saly. Agreede mcdonalds has to sell 80 of its operations in china and hong kong to a Consortium Including citic and carlyle group. The deal includes a 20 year mass franchise rights will value the business at nearly 2. 08 billion. They will jointly take a 52 stake while carlisle will hold 28 . Senior republicans have warned president elect donald trump that he faces a risk a rift with members of his own party if he does not punish russia. Graham said he and senator john mccain plan to introduce legislation for tougher sanctions against russia. He says the measures would hit the country in the financial and Energy Sectors where they are the weakest. No line or as johnson has met with Donald Trumps top advisers. Boris johnson has met with Donald Trumps top advisers. To washingtoned to visit congressional leaders. The trip comes after britain is with theo create ties u. S. The aiib remains open to the u. S. Opening, that is the message from the president. He was speaking exclusively to bloomberg. The door is long open and open and itflung will remain open. I have highlighted on many of thens that regardless membership of the u. S. , we can work very well together. Juliette workers in londons Financial Sector are facing a tougher than usual journey to work this morning as thousands of underground workers are on strike after their Union Rejected a lastminute offer to avert a 24hour walkout. They have warned commuters extra time to travel. Carries asrriers many as 4. 8 million passengers. Global news 24 hours a day powered by our 2600 journalists and analysts in more than 120 countries. This is bloomberg. Juliette, thank you very much. 25 minutes to go until the European Equity markets open. The week will be dominated by politics and it will be an interesting year. The gbs president spoke exclusively to us from shanghai. A bumpy road ahead for markets. Ofthere is a large number political uncertainty. , there is au. S. Risk of u. S. Chinese relationships. Athink what you are seeing is bumpy road and more Political Risk in the Global Economy than we are used to in recent years and that will shape markets and economics more than it has in the past. Potential candidates to suggested theave Monetary Policy could be tighter. Glenn hubbard, john taylor and thealsh are accusing Monetary Policy cannot solve. Joining us is jane. Good morning. When does the market price and the possibility of janet yellen being replaced by someone more hawkish . Shehe said recently that intends to stay until the end of her term. Is inauguratedmp on january the 20th, the market will start to look for signs about what he might do in the months ahead. Foricism of yellen is easy an opposition politician to do but once he is in power and whats to retain the populist vote and he cannot retain the votes of many of the people in the middle of america, he may come around to a more dovish point of view. With very difficult to say certainty that he will definitely want to push her out. Matt nonfarm payrolls now. On friday, numbers came out below estimates that the market seems to think this is going to lead to more rate rises from the fed. How did you read that data . It was not just the headline number that was disappointing. Hours worked were also less than what we would like to see and the increase in average Hourly Earnings was still under 3 . We are certainly not with the market in terms of our fed view this year. Onceink it will only hike this year. From that point of view, it did not do anything to change our viewpoint. What the market is holding onto was better number than last time around. Uptick 2. 3. I would argue that the you wouldnt rate generally expect to see higher Earnings Data above the 3 or even above 4 . We still think there are signs that inflation still remains contained in the u. S. Guy let us discuss that further. I have on the screen the fiveyear they have fallen from 2. 6 down to 2. 4 currently. We have seen the Market Pricing out some of the Inflation Expectations that we had as we started to work our way through what donald trump might deliver. Will that number continue to fall . Will we see the unwinding of the spike that we saw post the november election . I think we have a lot of good news in the dollar and other assets. In the last week, the market is beginning to wonder if that is realistic. Are more pieces of news to give us more direction. We have the Donald Trump Press Conference this week. And the and a eurasia. And after that, the Economic Data to see how much inflation is really in the system that i do think that without a number another piece of bullish news, assets like the dollar will have it covered going from here. Guy should we talk about what is happening with the german data . We have seen a strong current coming through. Strong data being posted by germany. The ecb conversation will not go away. Increasinglyre posting strong numbers. How does the ecb deal with this . Spaine decent data out of but not such great data out of italy. In and weonly a week have seen strong inflation data from germany and the eurozone and the german press is full of talk that the ecb policy is to dovish. Dragu like, the ecb will its foot forward on what it will do. It announced last month that it will have quantitative easing going through to the end of the year. We have a year to debate this but i do think there will be resolution in the next few months whether or not the market will face a steeper tapering in the early months of next year. Matt telegraph had an alarming article over the weekend. An interview with the boss voicing not new concerns but saying that if the ecb is going to try to insulate countriesrperforming out of their debt at the expense of the over performing countries like germany, that will be a problem. Do you see that as a european front a european problem on the front . It has been a bubbling problem all the way. You can draw it back to the concerned that we had during the crisis. It is difficult to run a european union. Those problems have not gone away. The cracks are still there and they will come through in different forms such as this debate. I think this throws us back to the political debate regarding we brexit and whether or not would have a victory which could bring more pressure points onto the emu. Guy it only goes in one direction. Jane, it thank you. Coming up, going it alone. The u. K. Ay signals will leave a Single Market as she displays muddled thinking on the brexit and promises more detail in the coming weeks. Donald trump pressure and the auto pressure. We speak to analysts about the future of the auto sector. Househe u. K. Halifax price is out. We will speak exclusively to the economists that helped compile the data. This is bloomberg. This is the open. We are moments away from the start of trading europe. Guy good morning and welcome back. Theesa may has signaled regaining control of immigration and lawmaking are the brexit priorities even if it means leaving the Single Market. She said we will be able to have control of our borders and laws but we still want the best possible deals are u. K. Companies to be able to trade in and within the eu. Mark, i want to go to the bloomberg and talk about where sterling is this morning. I am looking at the candlesticks on the table rate. We have had these moves. This is the 122 line. We have held that over the last few sessions. We are now trading below it. Do you think that 122 is now broken . What is the next target below it and what will sterling do next . It is looking very negative technically for sterling this morning. When 22 had been a double low in the last few weeks since the recovery after the flash crash. Index isberg pound breaking its upward trend line. And that is more negative. There is a lot of dollar uncertainty. Every cross is looking negative for sterling technically. It is looking quite bad after mays comments. Matt have you heard any news from the big thanks big banks . Are we looking at parity . I have not heard many people say parity. The key thing at the moment is that sterling is still at a very negative real yield. Until they hike rates and with the large current account deficits, sterling will continue to suffer. It is not overly cheap. On purchasing power parity measures as well. Of the reaction function, this is clearly a leg lower in the british pound. More inflationary than it has been. We are are ready seeing evidence and supply chain coming through. How much tolerance has the bank of england got for this . It is going to be inflationary and that will be a factor to think about visavis the mandate. That is the key question. That is when we will see the turn in the pound. At the moment, we are playing the theme of the hard brexit. At some point, the bank of england will be forced to hike rates to do with the inflation pound and that will close the negative real yield and support the currency. Very much indeed. Market is joining us from singapore about the pound and how it was trading overnight. We wont watch how the trading decks areding stacked. Take a look at your bloomberg. Another leg lower for sterling this morning. How much downside room to we have . Sterling will be very volatile. You talked about parity. I think we are going to be buffeted about by political comment. Is going to be a lot of that as we run up to march. Matt what do you think about the euro pound cross. When we talk about parity is that going to go beyond . Not necessarily, no. But it is a difficult call on the individual number. What we will experience is as news breaks, a lot of volatility on the upside and downside. Currencyoing to be a that is going to be driven as much as anything by politics. Investor, a a ftse u. K. Investor, i see this headline this morning, do i just purchased the ftse . Is that the right trade . I think you need to be more selective. You need the overseas earners. I would say you also need to be careful because on the same headline you saw that the australian miners had a very tough day. Talking about lower iron ore prices. You need to be quite selective where you put that. But i think overseas earners. Ill do better as sterling bobs around. And i think people will worry about the domestic economy and the effect that brexit negotiations will have on consumer confidence. Trade is commodities an interesting one. They had a great year. Especially iron ore and coke and coal last year. Will china continue to demand as much . Will the supply constraints hold . What you think about commodities in 2017 . I think they had a great bounce from the bottom. The chinese economy is basing out. A love in china as well. There has been a lot of stockpiling in china as well. I wonder if we will see as big a pickup in demand in 2017 as people anticipated. I think you could see a bit of pressure on metal prices and volatility although the chinese economy is not going to be that disappointing shall we say. I think growth as we go through the next couple of years will be onwer and much more focused growing the domestic economy as opposed to expanding some of the Old Industries particularly cement, steel, etc. Back to sterling. We can see what has been going on as of late. You can see that we continue to move ever higher in terms of expectations. How big an inflation problem is the u. K. Going to have . The debate ranges on. Thead a oneoff hit from Higher Energy prices and the weakness in sterling. It is whether or not we see a push through in wages. Where we often was the pressure coming through on wages. It is not coming through yet but it is something we are keeping a close eye on. That will be a big driver for Inflation Expectations. Julian, we have a lot more to talk about, especially re Inflation Expectations around the world. You will stay with us. We take a look at the movers in todays trading and it is all about autos with news on Fiat Chrysler and volkswagen. Continental earnings are out. We will watch for price moves in those stocks. This is bloomberg. Guy minutes away from the market opened here in europe. I am giving matt a late christmas present. Car newsso much stock around at the more at the moment, we have to focus on that. Investing in the cheap jeep production in the u. S. Those that is the fiat version of the mazda miata which is pretty cool. A little more powerful. A bigger story i think is the volkswagens very. The fbi has arrested in volkswagen executive has arrested a volkswagen executive for defrauding the u. S. They have brought him to michigan. This is the European Market open. Watching bloomberg markets. This is the european open. I am guy johnson in london and t diller is back in berlin and matt miller is back in berlin and has your morning brief. Nope, he does not. I am sensing there may be an alarm going off in berlin. I will take it out. Let us talk about theresa may. Sterling trading at 122 against the dollar. The Prime Minister is signaling immigration will be her issue. Stance, what is a more normal rate . Deliverrump promises to as Fiat Chrysler promises to keep production north of the border. Who in the auto sector is in the driving seat . Let us talk about European Equity markets. We are expecting a positive start. Let us take you to the markets. Let us see how many are at their desks. There is the british currency. Zero. 1 . We expected to rise a little bit more. London beginning to outperform. We are expecting about 0. 4 higher. Other markets expected to be softer. The pound is opening a little bit up this morning. Germany will be interesting. Manus cranny is here. Manus the americas s p made a record. Never quite made 20,000. European equity markets are trading on german day debt and the latest nuances of brexit. Energy down 0. 4 . It will be a moderately better tone to it. The big story is the pound. I have taken it all the way back to the 1980s. This is 1985. Our guest this morning talked about undervalued on a relative races of purchasing power parity. You will have a political overhang for quite some time. Last years drop was the biggest on an annual average basis since 1985. Theresa mays comments yesterday the pointuilt into that we are stiffening into a harder brexit. Three stocks to watch. Including air france. They have guided to the lower end of the market. William hill. Gross margins are up in the last nine weeks. You take on the risk and you got the reward. Gross margins in the last nine weeks have been below expectations. Continental. The margins. Slight increase in the light truck sale. Air france up 1. 7 . In december, they carried 7. 2 million passengers and their Lowcost Airline numbers are out. Ryanair. Ryanair carried 117 million passengers in 2016. Aransylvania has a transvani has a long way to come. I am off to radio. Cranny. Us bloomberg radio, not to be missed. Julian from rathbone. Let us talk about how we are positioned. It is already turning out to be fairly volatile. We are working our way towards the inauguration, 11 days to go. Your 2000 17 does look compared to 26 thing how different does your 2017 look compared to 2016 . Valuations in certain areas looking stretched. You do worry whether or not quite a lot of the optimistic tements we have heard from or the tweets from donald trump around infrastructure and tax cuts all can be delivered quite quickly and it may be an area of disappointment for markets as they anticipate a quick fix to some of these things that do not materialize. Matt i was wondering that same thing. A trillion dollars is a number that is being bandied about for infrastructure spending. Will we see anything close to that even in one or two years . It is difficult to call around an absolute number but i do believe that a number of the havelicans in the house undoubtedly made a pledge to their of electorate that they would doubt boost public spending dramatically and that is a bit that Donald Trumps team has to square in getting this through. I think therefore there will be a lot of negotiation around infrastructure spending, where it goes and how much and that could take some time. Guy let us talk about the numbers. The dow isding just shy of 20,000. Do we make it north of 20,000 on the dow and how much more headroom is there on the s p . Shortterm, ithe suspect sentiment is good enough running up to the inauguration that things will be quite well behaved. I suspect we will break 20,000. That is a big figure in the states. It does not in reality mean that much. I think what people will then wait and see is what the new team in the white house actually can put in place and how quickly they can put it in place. To of the easiest things achieve will be some form of Corporation Tax cut and how long that will take to deliver. But probably not this side of june. We talked about commodities. What do you think about gold . People have used it historically as a hedge against inflation. We see more inflation coming to the u. S. But on the other hand treasuries will start to pay more interest if the rates continue to hike. Unfortunately, i am the wrong person to talk about gold. I came into the market in the 1980s and, early the first 20 years of my life owning gold was something that you definitely did not want to do. So i am slight