This is all about economics and politics and hockey. Wilsey. To r days is enough its been an interesting year for the markets. People have four days to get their accounts in order. Lets take our look news from vonnie quinn. Iraqi soldiers have recaptured the government complex that had been held by Islamic State since may. They were help u. S. And coalition aircraft. David cameron will visit communities in the northern part of the country that were hid by flooding. People been evacuated. The military has been called in to help. Rain, cameron called the flooding unprecedented. Leastul windows killed at 11 people in texas over the weekend. Over 1500 homes were damaged. Hardest hit was the dallas suburb of garland. The Top Legislature has approved the first antiterrorism law. It gives sweeping definitions to the crime and was chinese army to take part in counterterrorism overseas. The bank of japan says the tokyo limits will boost the japanese economy by 259 billion. There will be an increase in a foreign tourists. Planning has been hurt by cost overruns. Powered by viewers around the world. Michael a few of them are not a work in london today. Its a holiday there and the markets are closed. Lets see whats happening around the rest of the world. Stuck to that in your 5 . Its heading for the worst december since 2002. They are down again today. Year. P is up for the can we finish ahead . It looks like will start down on the day. Bonds are slow to adjust to the fed it to. What is parking . We cant talk about 2015 without talking about crude oil. Look what that has done to the ruble. A new low for the year. Copper is back. Is chuck host lieberman. Commodities have been the story of the year. You look at copper and you look at whats happened. As commoditiesar drag everything down. Growth thand slower expected. Which really driving this is china. Its the Largest Consumer of copper, the Largest Consumer of steel, iron ore, nickel, industrial metals. Over 50 of the conception of cement is china. Of this is the infrastructure they are building. Far lessely done, demand for commodities in general and weak prices. Is that reflective in current prices . Chuck there is still some room to go. The havent seen the bottom yet. Vonnie is there a way to profit from that . We have avoided all the commodity producers. Rages ranges from the minors to the companies that produced equipment. We simply avoid that whole area. Michael how much more of the drag is it on emerging architect and stocks and investments in developed markets that dont rely as much on commodities . Chuck you are actually a beneficiary. And thatess for steel makes autos cheaper. Thats better for consumers. Would have seen the same thing with oil. Michael why do we see that reflected in equity prices. Arewe start going if we overall in better shape . We have entered the world of psychology. We look at the energy space in particular. Upstream companies in producing those companies are directly damaged by the decline in prices. We see that reflected in the stock prices. When you look at some of the downstream companies, they are shipping more product through their pipelines and selling more retail. They are making more money because they earn a spread on what they are selling. They are making a bit more. Their stock prices are down. I think the market hasnt figured this out yet. Erik im looking at a chart here. This shows that even the bestperforming Asset Classes of the past year have poorly eked out again. 500, the the s p , barclays bond index highgrade credit. The green line is highyield. I dont need to tell anybody the yellow line is commodities. When is the last time the bestperforming Asset Classes in the year . Chuck its a good question. 2011 was a very interesting year where the s p was flat. So the less volatile sectors did well. The more cyclical sectors were negative. Average that hid some of the stuff that was going on beneath the surface. There is an element of that. If you look at corporate profits, they are not doing very much this year. If you break it apart and you look at the energy sector, they are down 90 . The nonenergy sector is up 7 to 10 . There is a lot hidden. What point does it turn . How much further does oil fall . When do traders stop looking at oil as a proxy . Chuck i think oil is near its bottom. We have seen a fallback and production in the u. S. 95 millionis down barrels a day. We have seen a reaction already. I dont think will go that much more. I would not be surprised of oil is bouncing toward the dollars by the second half. Vonnie what becomes the metric . Chuck the variable they should care about more than anything is the labor market in the United States. Weve seen the fed hike rates once. They willld everyone only move gradually. But are not they can deliver on that promise depends and how inflation forms. The labor market is getting tighter. Unless the repeal the laws of supply and demand, that flows through to prices. Wishfulthere is some thinking going on with fed policy. Michael we have not talked about the greek yield. It has gone away. They were the story for how many years . It has sort of ball off the radar screen. Were going to talk more about that and whether or not he will have any more greases in the future. Will talk about the black swans around the world. This is bloomberg surveillance. Erik good morning. This is bloomberg surveillance. You are looking at london. Celebrating the boxing day holiday. Vonnie thank you so much. Iran is putting pressure on the price of oil today. They are repeating the goal of boosting exports after sanctions are lifted. They will have the lowest average annual price of 11 years. Saudi arabia may tighten its belt because of something oil prices. They will unveil their first annual budget. It may have expenditures. A deficit of post 20 of gdp this year. Another milestone for the new star wars. It has grossed more than 1 days andorldwide in 12 thats the fastest any movie his reached that mark. In 2000ought star wars 1200 that is our business . We were just talking about it. You cant talk about it in public because nobody wants to be the spoiler. Thing you say is have you seen it . Then you have to talk about Something Else if they havent. You guys have seen it . We can talk about it off here. We wont spoil it for viewers. Vonnie i thought it was amazing. It took been that long. Michael vonnie quinn it would do that, see a movie about finance. Vonnie they have waited six years for the bank of england to raise Interest Rates. Good morning to anyone from listing in. There is no move in all of 2016. It looks like they may have to wait longer. And it seemsyears like the Federal Reserve is doing its work for it. They are buying more time before a rate hike. We be waiting until 2017 . You dont know whats going to happen that could change the picture. Right now with oil prices owing down it, it doesnt look like a lot of pressures in england. The governor of the bank of england was speaking with us, trying to give us a sense of what or what not to expect when it comes to raising in 2016. Have thei rather british people thinking that likely to go up the next year . Behaviorld that his giving the progress the economy is making. Says its more prudent to expect or to plan for a rate rise and a continuation of Interest Rates at rockbottom levels, what message is he trying to send . Chuck he knows. You have to look at the economy. That will determine when they are ready to pull the trigger. If they start seeing sure on , energy isinflation distorting the picture. Its distorting the jerk in the u. S. Market is getting healthier in the u. K. Sooner or later, they will have to move. Extent,to a certain its doing the banks work for it. By keeping the currency weaker, that strengthens the economy. It reinforces the strength of the labor market area thermal fronts. Michael is this the way we want to look at the bank of england . They are a single mandate bank. We were talking about the fed in terms of having scope to react to future downturns. How much of a role to market distortions play in what the tank of england is going to do . Chuck the u. K. Is more open than the u. S. The u. S. Labor market should dominate because imports and exports make a difference, but only at the margins. Theve got more economy in economy and u. K. They have to be over there of the currency. Erik i want to play more about that conversation. It gets to the core of the problem, this lack of inflation and how unpredictable it is for the bank of england. One of the things we said adjusted ourhave horizon over which we would return inflation to target. There is some persistence. We might not be up to get inflation back to target as quickly as we thought. If that were the only factor hitting. Erik why is at the case . He is saying that if we were able to trade oil as a one time event only, we would still find ourselves with this persistent lack of inflation. Chuck i found that remark surprising. U. K. , youe of the have an economy that is more open and more sensitive to the currency. Its domestic activity will respond faster than the u. S. To a change in the currency print the 10th move in our economy will not affect us the way it will the pound. Im surprised by that remark. Michael we have seen the dollar go down after the feds rate increase. We will see what happens to the british pound as we go through the next couple of weeks. We will find out what happens in the next couple of weeks to u. S. This is rates during bloomberg surveillance. Vonnie welcome back. Those are morning shots of new york city. Quinn with Erik Schatzker and Michael Mckee. I have been item by frank lutz. He writes in the Financial Times about donald trump. I am not all that keen on talking about donald trump. We have talked about him for the last several months. This is notable because of the writer, imposter. E says half will follow them out of the Republican Party are in. The other point that he makes in this oped is pump is unlike the ,ther unconventional candidates john mccain for example or sara . Chuck i dont think hes a candidate. I think he will drop out as soon as he starts spending money. He has not spent a dime so far. He has enjoyed this incredible ride. He is a pr maven. I think we actually has to start spending money i think its all for show. Vonnie he is connecting with a good portion of the country. I would like to point out an article that appeared on thursday about people say whatever to pollsters. It may even be true. Thats a next point. Luntz takes that on in this piece. He says he has spent time with 29 hard court from supporters to try to get to the bottom of what it is they believe and why they are so passionate about his candidacy. He thinks it will. He will say whatever they want to pollsters. Street when does wall care . When does it start to reflect in the markets . Chuck it becomes a concern if he really does have a viable candidacy. He will get dragged in as a candidate himself. Suspects hismself own candidacy. If he thinks hes got enough support, maybe he will get sucked in by the laquon party. They are going to face problems around the world. Michael we will talk about some of those issues. Michael this is bloomberg surveillance. Joining me is vonnie quinn and Erik Schatzker. Lets get news from vonnie quinn. Vonnie Government Forces are claiming a victory over the Islamic State. Iraqi troops have recaptured a in ramadi. Complex the government Officials Say 1 was killed and 13 hurt in a suicide bomb attack. It happened near the kabul airport. The taliban claims responsibility. They say the target was a convoy of foreign forces. Japans foreign minister delivered an apology in seoul south korea. There is a fund to compensate victims. Relations with south korea and japan. Tony was killed 11 people in texas. Flooding in the midwest is blamed for at least 13 deaths. The missouri governor has declared a state of emergency. Jim webb may be moving closer to an end run the white house. He attacked Hillary Clinton for her handling of libya. He dropped out of the race in october. I am vonnie quinn. Today, press conference saudi arabia will announce its first annual budget since the king and took power. Oil prices are the lowest in over a decade. Some include cuts in a cap spending. With us now is anders court. Welcome. Anders thank you for having me. Erik i suppose not entirely like china, the government has to walk a fine line between esa and prosperity. What can saudi arabia afford to peace . Still maintain anders i think to bring down some of its expenses, they may cut some services. They may cut some capital expenditures. I dont think you are going to see massive social expenditure decreases. They need to maintain stability. Is crucial, especially in the age of isis. Al qaeda has targeted the kingdom as a place they would like to infiltrate in the future. Michael how much money do saudi arabia have . Pup and is much oil as they can and try to retain market share, the reserves have come down a lot. What they are selling right now cannot cover their expenses. Their budget was at a record last year. Theyve got to bring down their budget to satisfy international investors. We should see some decreases. Its going to be slow. They may increase their borrowing. About what do we know the king and his advisers . Are they cautious . Will they keep their head in the sand for now and wait until things become more dire . Anders i think they are cautious. They are advised very well. They will take slow in moderate changes not to shake the boat up too much. Other gulf nations dont have to worry as much about maintaining stability as much as saudi arabia does. They are affected similarly. How is that going to affect International Financial markets . You see these countries that were flush with petrodollars are investing less. Chuck their wealth funds will have to cut back dramatically. All the middle Eastern Countries are caught between a rock and a hard place. They are lowcost producers. They can pump more if they wish. They can squeeze out others. Volumennot make up with they are losing on the price. The price decline has been so substantial. The only when they can deal with it is as we suggested, cut back on various expenditures. Social spending would be an area. That is more problematic politically. They can reduce the subsidies on gasoline consumption. That will help. They can implement all of the stuff systematically overtime. They can avoid a shock to the system. Michael what is saudi arabia going to do in terms of its power relationships in the middle east . The saudis were not happy about the iran deal. What are the saudis go from here . See oil prices drop, you will see the influence of countries like saudi arabia on decreasing. The influence they often by with money will be decreasing. You will see some improvement in for the United States and china. Michael we see problems in some of these gulf states. The saudis are dealing with yemen and iran. Is this an area of the world that we need to worry about . Anders absolutely. Its chaos now. Inre is a proxy war going on at leastsyria between the ideologies in that area. Iran is supporting the military in iraq and syria. Saudi arabia possibly, but they deny it, they are supporting the sunnis. Erik 20 people need to worry about . In the past, investors would look to a moral intention in the middle east and look for it to look at oil prices. Anders part of that is the shale revolution. They cannot threaten us as much. They are trying to maintain market share. Market share decreased because of supply. Shale producers would step in. Vonnie if the budget shows something unusual today. Thee are no cutbacks, with oil market respond to that . Anders i think it will respond. You have seen 2 off some of the stock index in saudi arabia. It might respond more if there were something surprising. I dont expect that. I dont think saudi arabia will bend over backwards not to be surprising today. Michael we will bring you that news as soon as the saudis release it. We will continue our conversations. Up, the outlook for fixed income markets area its 6 00 in new york. Youre watching bloomberg surveillance. Erik we are live here in new york city. That is hong kong. I am Erik Schatzker with vonnie quinn and Michael Mckee. We begin in china. There are concerns that the end of the sixmonth ban on selling by large shareholders in place during the summer will unleash a wave of selling in china. Thats not an unreasonable fear. You can see the shanghai,. Comp. This is the law of unintended consequences. Market,to stabilize the but when the restrictions and it, the chickens come home to roost. Michael you wonder what the political implications are Going Forward area. Anders you can tell them not to sell their assets. As soon as they can sell, they are gone. The political implications are the news coming out of china. Its constantly surprising to me. You see the ceos of major especially ones connected to the inner circle, picking arrested. Being arrested. You wonder whats going on in the meetings. What happened . Its a confusing. Its a bit unnerving. Vonnie in the context of what weve seen this year, its not that dramatic area the financials are doing worse in china. Are you investing in china at all . Chuck we have minimized our exposure to china. Only the Big Companies that we feel comfortable with. We try to stay away it were not comfortable. Renewedts see how a decline in the price is affecting dutch shale. The oil majors are supposed to be well insulated from price declines. There is nothing they can do. They can run for cover. Chuck you have a company like shell. They get hurt on the upstream part of the business. Its the same with exxon and the other integrated companies. On the midstream and downstream sectors. That is when the companies will benefit. They should experience rising cash flows. Erik the refiners certainly have. Chuck exactly. The pipelines will be carrying there is more consumption of gasoline and everything else. Those companies represent good opportunities. Right now, the market does not appreciate oil. Michael is it too early . Chuck i think there is a strong reaction to the price of oil. A lot of investors invest through etfs. When they put money out, it affects the entire waterfront. We talk about the i