Andrew wilson from Goldman Sachs asset management, we get his call for the coming year. Fx head of global strategy. First things first, we are getting a little data from Euro Area Services pmi falling 53. 1. A little less than analysts forecast. Manufacturing rising more than expected. This is the picture of euro markets. Vix. W you fix because a lot of people saying we dont know much. Brought up the bloomberg dollar index. Eurodollar one. 1. 05. Here iss sebastian. The japanese president hopes for a breakthrough over a seven decade territorial dispute. The soviet Union Invaded the islands at the end of world war ii, expected to top the agenda at the meeting in southwest japan. The meeting will head to tokyo for talks on Economic Cooperation. New york may be the winner from any brexitdriven activity from the Financial Services of london. The house of Lords Eu Committee reports unless negotiations on both sides are pragmatic, jobs could go to wall street rather than paris and frankfurt, it far behind london and new york. Australias economy recorded its biggest jobs game this year in november. It added more than 39,000 jobs, double the estimates. The Central Banks forecast that hiring would improve in the coming months, it suggests policy makers would increase their Interest Rate spots. The last parliament really hurdle as Prime Minister. He won a vote of confidence in the senate. Global news, 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, i am sebastian salek. This is bloomberg. Francine three hikes in 2017, Federal Reserve raised basis points by 25. The central bank surprised with a more hawkish tone. Will janet yellen she outlined the coming. Confidence ine of the economy. Changes in fiscal policy or other economic policies could potentially affect the economic outlook. Of course, it is far too early to know how these policies will unfold. Moreover, changes in fiscal policy are only one of the many factors that can influence the outlook and the appropriate course of Monetary Policy. I would say at this point that obviouslyicy is not needed to provide stimulus to help us get back to full employment. We are operating under a cloud of uncertainty at the moment and we have time to wait to see what changes occur and factor those into our decisionmaking as we deem gain greater clarity. As the Federal Reserve embarks on its tightening cycle, we are likely to see Monetary Policy divergence reach new extremes. Says my new guest. Andrew, always great to have you. Thank you for coming in. I made a chart i didnt. The queen of charts did. What the dots are telling us in 2016. That is the blue impaired what they are telling us this year. At 1. 3 at theo be end of next year is to mark or is that too much . We have been saying the market should be paying closer attention to what the fed is saying and we think in 2017, 3 hikes as possible. As janet yellen said in the clip, the hard part to know is how much this fiscal expansion donald trump has talked about will materialize. It was interesting to look at the summoning summary of. Conomic projection it doesnt seem the fed has builtin a lot of fiscal stimulus despite moving the dots 25 basis points. The story of further upward moves in rates and the move of 1. 4 or 1. 5 is possible by this time next year. Francine what happens if Dollar Strengthens significantly . It does a lot of the feds job. Mark it depends on how much the fed moves. A financialates on conditions framework and if you have a tighter dollar, the announcement of president elect so the dollar has strengthened already. If it moves at this pace, yes, we want to revisit that rick rate forecast. It is financial conditions versus growth projection. 2. 1 percent next year. If anything, on the light side. We see growth being stronger than that. Francine possible trade wars . Mark it is uncertain to know. We will see how much these protectionist policies that were discussed are actually implemented and to what extent they really detract growth. Strength ishe line, with the u. S. Consumer. If you have job growth, increase in wages. Both boost spending power and it is possible the whiskey economy continues to move ahead, even if the trade side is hostile. Francine we talk about emerging markets, what does this mean for chinas policy . The markets have ignored china for the past 10 months. Will it be back in 2017 . Mark china continues to slow down in our view for next year. Absent any trade disputes that may or may not occur, we still think china is on a slowing growth trend. We would have chinese growth more like 6. 25 china does continue to slow. Some lock on impact to other asian economies. We will have to see how the trade situation develops. China will be softer next year. Francine but stable . , youoks are continuing have the reserves. Mark those are key indicators. What is growth doing . What pressure does that cause for capital outflows and how to chinese authorities react . Those are critical elements in 2017. Francine the fed tightening three times, if they can manage, does it make Mario Draghis life easier . Mark maybe if we see the euro soften. If it softens, it makes Mario Draghis job easier. Detergents continues to play out detergents continues to play out in 2017. We have seen them announce quantitative easing, it is clear the ecb wants to keep rates low for a long time and the fed has got rates increasing. That divergence will play out in 2017 and maybe 2018. Francine the main been officials of divergence are japan and the u. S. Mark there is the question of how far those rates can deviate. We are a pretty historically wide levels. It is possible we get wider from where we are now. Francine what does it mean for markets . Mark higher u. S. Rates, there is a point at which japanese and european investors look at what they are getting domestically and across the atlantic, thinking we have good yields there. If we have above 3 at some stage next year, that may create a flow of funds into the u. S. And could mitigate how far rates rise and how strong the dollar is going to be. Francine thank you so much. We will get plenty more from andrew will smith wilson at Goldman Sachs. I also want to ask him what his biggest risks are. Will 2017 be the year to derisk. We will be back with andrew and his outlook on the coming year. Europe and populism, we focus on what 12 months of unpredictable elections could mean for investors and as the dollar rallies to a 10 month high against the yen, we break down how high the dollar could rise and what it means for the rest of the world. This is bloomberg. Welcome back to bloomberg surveillance. Markets in the wake of the fed decision. Mark martin has your terminal. Mark volatility, battle of the charts. Wonderful charts showing how western european markets have reacted to the fed decision last night. Mixed performance the equities. Look at currencies slumping against the dollar. Bloomberg dollar index at a record high today. Look at bond yields rising. Of by 11 basis points. Herlands and sweeting sweden all rising. Gold down by 2 today because of sovereign cds, gmm fomc. Anyway, to the charts. Queen of charts. Her favorite chart today. Hikesout the three rate next year. The median for cap forecast from participants. This chart shows you the blue were projected 2017. 6 and much higher than now, a real reversal. The first ever since the dots were introduced. The spread between the two year in the u k and the u. S. Is at a 25 year high as we approach the boe meeting. Expect nothing from the bank of england today. It shows you the dynamics in the bond market, the bottom chart is the pound against the dollar. Sterling declining today. Something the boe has to think about. Inflation expectations here are at a twoyear high. Prices for marmite increase. If that becomes entrenched, you ,ight see a rise in wages impact on the bank of england going forward. Is the next move a rate hike rather than a rate cut . The economists we surveyed said it is. Francine tell me im wrong. I read that lego hiked prices in the u. K. Mike martin, thank you. The rise of populism, the return those arepolicy and some of the key things to watch out in 2017. With me this morning, Andrew Wilson, ceo at Goldman Sachs asset management. What is one thing that worries you the most about 2017 . A lot of what we heard is priced in, reflate in the u. S. Economy. We dont deliver on some of those promises . Or something ugly is brewing . Mark we are pretty optimistic about the u. S. Growth story and should cheer the fact that Interest Rates are likely to move up next year. It tells you we are getting back to a normal growth story, a normal operating environment with the fed raising Interest Rates and growth expectations pick up. The thing that worries is the most that year is this notion we are moving from globalization to a more populism. We saw that play out with brexit and the election of donald trump. Well return to europe and the elections taking place there next year, primarily the french president ial election, again, i think that provides a high degree of uncertainty. We will see how that plays out. Francine but markets dont care. Mark they havent yet focused on it. So far. With the scottish referendum, we saw with the brexit vote. It just takes a while. In our of that in best of all time horizon, there is a lot to happen before may. How much does donald trump his first 100 days, what does he do, what are his reflationary policies . It wont be long before markets start to think, how are the french president ial elections playing out and could we get another political surprise come from there . It could derail this relatively positive story we are talking about if some Political Uncertainty across europe. Francine basically we are saying they are doing policy in the dark. They dont know what kind of brexit negotiations will look like. Inflation is higher. A catch22 for them. Mark theyre in a tough spot. Inflation picking up. Risk of a slowdown of Economic Activity as that inflation picks up. It reduces real incomes and for consumers who have actually been relatively resilient so far, could be much softer next year. The bank of england could be in a difficult spot where they see growth slowing. The employment numbers this week, if you have a slower consumer but also rising inflation, the bank is going to have to juggle those things. On balance, they are unlikely to move next year. If anything, a modest reduction in Interest Rates. Not our central case, but we err on the side of softer rather than stronger. Francine so it is right to look through this inflation . Yes, unless sterling keeps weakening and they have to take notice. But these numbers have bounced in the course of a couple weeks. They will walk through that and say, we need to make sure the investment has a result of the uncertainty we are facing the next few years, we might need to be more accommodating. Francine one thing i looked in your report was the divergence in Financial Sector regulation. This goes back to what donald trump has promised to do for wall street. How does it play out on the market . Mark hes talked about rolling back regulation in health care, energy, all of those things could unleash animal spirits. We shouldnt underestimate the ability of that sentiment to drive markets. Clearly front and center in the u. S. It is not on the agenda in the u. K. Or in europe. Francine do we lose automatically . Mark who are the winners and losers out of that . The u. S. Financial sector, if we get the rebate deregulation we talked about, stocks have reacted pretty positively. There may be more that to come if the european regulations remain relatively tight. Good relative value opportunities there, whether in Financial Sector, Interest Rate markets, particularly u. S. Government bonds even at these higher levels. Something we havent touched on if theatriation tax code changes to make it more favorable to take back some of that money, that could also increase the credit cycle. Favorable for u. S. Corporate. Francine thank you so much. Goldman sachs asset management, stays with us and we talk more about what we touched on in politics and populism. To 2017 good 2017 bring worse . This is bloomberg. Francine bloomberg surveillance. Francine lacqua in london area more on how populism will change the agenda in europe and the United States, lets bring in Goldman Sachs asset manager Andrew Wilson. I am confused. We talk about populism and then we see donald trump elect who he elects to the administration seen Business Leaders take big posts. He was certainly elected on a populist mandate. Some policies still could be helpful. Particularlyation, the cap tax cuts, infrastructure spending. Overink that takes place 20172019. It takes time to get those in place. It wont be straightforward to get them approved. That remains uncertain. But yes, ultimately we need jobs in the u. S. That was the pledge. We will see if you can deliver on that pledge. Francine if you look at spreads between italian bonds and german bonds this is a chart we brought in 2011, fairly bunched on the referendum. Renzi was kicked out. France is similar lines. You dont really price risk. Risk andou see that you say, there is a chance that populism causes some uncertainty, causes fragility in markets, pricing of risk. But that happens sometime in the future. In the meantime, ecb is conducting Quantitative Easing Program and buying bonds each week. You have to get that timing right. It is remarkable, we saw the italian referendum what came out is not what markets were expecting. A brief sell up selloff but it came back quickly. Withll see a similar thing the dutch elections, french president ial election, maybe the german elections in the year. Markets will become concerned as we get close and we will see to what extent the ecb can offset some of that uncertainty through it is fine operation. Francine lets see Marine Le Pen becomes leader of france. Andrew that was one of her pledges. She cant make that decision. We will have to understand the process. In the same way that donald trump has stepped back from some of his more extreme promises. It is unclear with whether Marine Le Pen would follow through on those. Is it through a referendum or some other way of negotiation . Frenche friend find less palatable. That uncertainty will remain there. It is hard to model that. You look at possible market moves, but it is hard to model. Francine thank you so much, Andrew Wilson from Goldman Sachs asset management. We talked dollar parity. Generosity is its own form of power. You can handle being a mom for half an hour. Im in all the way. Is that understood . I dont know what shes up to, but its not good. Cant the world be my noodles and butter . Get your mind out of the gutter. Mornings are for coffee and contemplation. That was a really profound observation. You got a mean case of the detox blues. Dont start a war you know youre going to lose. Finally you can now find all of netflix in the same place as all your other entertainment. On xfinity x1. This is bloomberg surveillance. I am Francine Lacqua in london. Its get the first word news. Vladimir putin in japan today has the Prime Minister heads for a breakthrough over a second kid dispute. The meeting is in southwest japan. The leaders will head to tokyo to talk on Economic Cooperation from Nuclear Energy to agriculture. New york may be the winner for many brexitdriven Financial Services from london. Lawmaker s u. K. Lawmakers reports that unless negotiations on both sides are pragmatic, jobs could go to wall street rather than paris and frankfurt, which are behind london and new york. Parliamentary hurdle as he won a vote of confidence in the senate. Resignation from his predecessor matteo renzi. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more , im120 countries sebastian sarlacc in this is bloomberg. Francine lets turn to the story driving the markets. The Federal Reserves raise Interest Rates by 25 basis points. First move of 2016. The surprise was in the hawkish tone on the rate pass, the snb predicted three hikes. What some of our guests said about the outlook. I would doubt the ability of a central bank to raise interest for theree times a year next several years because the Global Economy and even u. S. Economy is relatively highly housing will begin to reflect that. The risks of the central saidast 23 and the fed three interestrate hikes is on the upside. If there is mores fiscal stimulus, more growth, were written more inflation we think, the fed will be more in group aggressive. Here is where politics comes in. Back to be a drag on the economy. It is going to be very important to see what happens after the inauguration in january. They need to be careful. The trump proposals, if they get momentum and if you see some movement on the tax cut or Infrastructure Program, greater than expected, they are going to need to be very attuned to what that might imply for inflation pressures going forward. There is a clear indication that the fed is less willing to keep Interest Rates artificially low at the markets are reacting. Host reaction has been on the interestrate front and on the currency f