this is the european close on bloomberg markets. >> we are going to take you from washington to rome. here is what we are watching. a mixed picture for the u.s. jobs report with 170,000 jobs added in november. the blackrock cio of fixed income tells us what it means for the market in the fed this hour. italy's referendum approaches. on the topic of the global economy, a wide-ranging conversation with imf chief christine lagarde.

all right, let's have a look where european equities are trading right now. 30 minutes to the close of equity trading. we are seeing downward pressure on european stocks. broad-based losses. you can see a lot of red in the picture. weakness,en seeing although the ftse men index -- mib indexes on track for its best performance. a little pullback out of the jobs report. the euro pretty much unchanged. in the fixed income space, you are seeing yields coming down both in the core and the periphery. germany's 10 year yield down 8 basis points. yesterday was the worst day for tenure balloons -- 10 year bunds

for quite some time. we are seeing a little bit of pressure on nestlé in the commodity space. brent crude holding up, headed for its best week since 2009. a lot of focus on the italian referendum. i want to show you what investors have been doing to hedge. options traders have been driving up the cost of protections. they have been building up their defenses against potential turbulence, paying the most in more than two years to hedge against the euro stocks 50 index. what is interesting is if you look at the very end, you can see that coming down a little. today, we have been seeing a little bit of calm coming into the market, especially if you look at the bond market. i said the 10 year yield was

coming down in italy. they are set for their biggest weekly drop since september. if we look at what is happening with the euro, as well, the euro heading for its first weekly gain in a month. some saying that this has been huge. as a proxy for this political risk on what is happening in the bond market. those declines in european shares are not translating over here to the u.s. we have are three major averages trading in mixed fashion. the dow is down slightly. nasdaq are upe slightly. the market feels pretty tired. investors are digesting payroll and the opec decision and the big bond selloff in november. as for bonds today, we are not seeing a selloff, we are seeing a bit of a rally. this is the 10 year yield. bonds trade in verse two price.

it was basically in line, possibly a goldilocks report. .78,000 jobs were estimated the jobless rate is 4.6%, the lowest since august 2007. . month over month, utility workers down. emphasizehould really is the super low jobless rate. take a look at the sector composition of the s&p 500, we take a look at the imap, you are seeing a lot of green.

some of the rate sensitive sectors, these stocks look more attractive to investors today. not surprisingly, we have the financials as the worst performing sector as rates also fall. it also comes back to the rates. vonnie: fascinating. that is abigail doolittle at our markets desk. let's check in on the first word news. sebastian: more meetings are set today at trump tower as the president-elect fills out his cabinet and senior staff. he will talk to john bolton today and democratic senator heidi heitkamp of north dakota. returns for a second meeting. trump's choice to be secretary of defense is a retired marine general the goes by the nickname matt dog. 2014 after a in

four-year -- forty-year career. the european union's police agency warns that islamic state is likely to carry out attacks in the near future. several dozen people may be in europe now. police say they are capable of committing terrorist attacks. voters in austria will get a do over on sunday. last may's presidential election was won by 0.6%. could becomearty western europe's first right-wing head of state since world war ii. both candidates have pledged to assault -- assert more power if elected. global new wears -- news powered 24 hours per day. this is bloomberg. vonnie: thank you.

just a quick update on president-elect to donald trump's cabinet on business. the blackstone ceo has been named the chairman of the president strategic and policy forum that includes business leaders such as jamie dimon, larry think, and mary barra, this according to the press release out a few moments ago. they will be called upon to meet with the president frequently to share their specific experience and knowledge on jobs. first meeting will be held at the white house during the first week of february. blackstone ceo stephen schwarzman will be the head of that forum. nejra: it is crunch time for italian voters. prime minister matteo renzi with the referendum vote on sunday. he is trying to change the government to streamline things. as italians go to vote

on constitutional reforms, they are deciding whether the senate needs to be curbed back in terms of the power it has and take back local authority stronghold. what the people in the markets are nervous about is that matteo renzi has staked his own political future on the outcome of a referendum. he wants a guest to the referendum. he has said repeatedly that he will step down if there is a no vote. italy has had 63 governments. we may see more political risk or the instability of all which investors don't want, if he steps down. how do you deal with the banks. there are big banks trying to raise capital. that would mean that investors internationally could shy away from subscribing to that capital increase. what does it mean for the smaller banks? will they need some kind of rescue if we have a technocratic

for the next couple of months. >> let's go right back to rome for more on this critical vote. joining us now is a nonresident italy programmer fellow at the brookings ins due to dish institute in the united states. his research focuses on the european union security policy challenges. great to have you on the program. now, what is interesting is that, until today, we were seeing markets pricing in a no vote in this referendum, but we of calm,g a little bit particularly across the bond market today. what outcome do you think we are going to see on the weekend? we know that the polls have been notoriously unreliable. it is anybody's guess.

i think that if we were to see a no vote, we would have two options. we would have matteo renzi resigning and the president of the republic and trusting a new government to reshuffle. what you would have been would be a relatively weak government. on the other hand, what we could also see is the president of the republic and trusting a technocrat -- and trusting a technocrat to form a new government. everybody's eyes would be on the current finance minister, 70 well requested -- somebody well-respected. vote,we do see that no are the biggest risks to italy and the banking sector are actually more probably to europe? matteo: i think they are more probably to europe.

risk coming the bank would be ready to stand by ably and the markets of already factored that in. i think the big risk is more medium to long-term and it is political. this development would contribute to strengthen those forces that are playing the populist part in italy. we have movements that are extremely well-positioned if we go back to the ballot box. you would keep seeing this advance of either right-wing or more populist parties that reject european integration, that have pro-russian foreign policy, to a certain extent, and that question the existence of the eurozone. >> has matteo renzi backed himself into a corner? does he have to resign if the constitutional reform does not pass or are we in a new era of

politics were what you say on the campaign does not necessarily have be what you do in a position? matteo: we certainly have seen that before. legally speaking, he does not have to resign, he is not compelled to do so. however, he placed so much of his own personal political capital on this campaign that he would be expected to do so. >> what happens to the banks either way? the slowburn of italian banking prices has been ongoing for several years and the banks seem to be fudging their way through. is there a full-blown banking crisis? it is not all italian banks that are in trouble. some are, monte dei paschi, the oldest bank of the world, is in trouble.

european authorities would be ready to allow the italian government to step in and play outside the rules or play outside the traditional european constraint. france and germany go to the polls. i would imagine berlin and paris would be rather keen to allow italian authorities to do with this swiftly rather than having an escalation or escalating financial crisis spreading to the rest of europe. we have also the austrian presidential election this weekend. we spoke to an investor much less concerned about that with the imminent market impact than .ith italy politically, what is the difference in significance for you?

matteo: austria is a far smaller economy and a healthier and stronger economy. italy has one of the largest , in absoluteworld and relative terms, and is the third largest economy in europe. austria would be fundamentally a political, historical signal. for the first time since world war ii, we would have an extreme right-wing head of state. does not wield executive powers, but the signal would be very strong and it would ignore this advance of , in the across the west united states, and the u.k., and across the european continent. much for joining us on the program, matteo. >> coming up, the november u.s. jobs report. the looming federate increase.

we will break down what the numbers mean for the u.s. economy. pennsylvania congressman lou barletta says he is in the running to become labor secretary. he tells the associated press he will talk to his family over the weekend about the job, which he says has not been formally offered. he was an early trump backer and an immigration hardliner. he was known for taking a tough stance against immigration when he was the mayor of hazelton in northeast pennsylvania. ♪

live from london and new york. jobless rate fell to

a nine-year low last month. the numbers show that american companies are hiring. blackrock's global cio of fixed income. >> we have lived in this world for the last two or three years when everything is driven off of how the jobs number would translate into what the fed is doing. i would argue that the fed is moving more to the backseat. this job is always an important report, but when we were going through it today, it is into climactic relative to what we had in the past. we are talking about potential fiscal adjustment. as long as we keep on this path, by the way, it is almost to stay at almost 200,000 job pace we have been on for almost two years now. my sense is that it trends down,

particularly as you try and close to a 4% unemployment rate. as long as we stay at those unemployment numbers and you get fiscal liberals through tax, it is going to be more but growth in the broader economy and wage acceleration alongside of it. it is interesting to remark about where we are. the unemployment rate is down to 4.6%. that iter been the case has been this kind of situation and you have seen this type of fiscal stimulus? >> no is the answer. since 2010, there has been over 50.2 million people that have been hired. there are only four states in the country that are bigger than that. illinois, ohio, michigan, the numbers are staggering.

your point, you put fiscal on top of that. a historic dynamic. you still have an economy that has slack in it. you have an economy that operates at a higher level. if you start bringing down taxes , what is what japan has done? they have brought down the corporate tax to induce corporate behavior or induce corporate's to locate in japan. we are at the highest tax bracket in the world, 39%. talk about what president-elect trump has talked about, 15% tax, and then use -- you say state and local, that is down to 20%-20 2%, that is a big deal. you are putting a good economy, -- jobst jogs market market, all of the jobs have been service sector jobs. theou can get the goods, manufacturing sector, which is part of what he is talking about , you can get that moving, you

can take a different leg up in terms of the economy. >> i'm curious, will those goods producing sectors hire people or will they buy stuff, machines to make their products? we have already seen this big automation wave. what is to say they won't use the money for that? >> it is a great point. think about what is going to happen. what companies have been doing. borrowing, buy back your stock, borrowing, buy back your stock. now, the borrow is a bit tougher because the rates are higher. maybe you will take some of the tax shield off a cousin of deduction -- because of deduction. how do i grow my talk line -- my top line? of got to go my top line revenue. it means i spend on capital expenditure. some of those jobs go to automation or robotics, but you can see a capital expenditure growth that will lead to some more jobs and it can lead to the

economy. you start spending on, the vendors who supplied parts, they spending. there is a momentum that can come to this. >> that was earlier on "daybreak america's." >> later today, erik schatzker the have an interview with head of the bank of mexico. broke that on the show. catch that 7:00 p.m. london time. this is bloomberg. ♪

and newive from london york, counting you down to the european close. vonnie: this is bloomberg. it is time for our latest bloomberg business flash. cars,s recalling 680,000

most of them in north america. there are potential seatbelt problems in the ford fusion and the lincoln mxz. there have been two accidents and to injuries linked to the problem. avoided the debt market for the last two years. it sold $2 billion of bonds. that is according to a person familiar with the matter. it sold longer-term unsecured debt last year to meet regulatory requirements. that is your bloomberg business flash. nejra: let's take a look at where european markets are trading as we head for the close of equity trading. we are seeing downward pressure on the stoxx 600, down 0.3%. its first weekly decline in a month. euro stock volatility rising, as well. the ftse 100 off by 0.1%.

the cac 40 off by 0.45%. the dax is virtually unchanged. the ftse mid is on pace for its best weekly performance. we are seeing calm ahead of the italian referendum on bond markets, with 10 year yields coming down by 50 basis points in italy. also coming down nine basis bund yield.e tenure a little bit of weakness after the jobs report. how is that playing out with profits from the bund yield. sterling and the stronger euro? this is bloomberg. ♪

live from london and new york, this is the european close. i'm nejra cehic. incks finishing the day

european trading. let's take you through the market action. a big day with u.s. jobs data out earlier. looking ahead to the italian referendum this weekend and the australian presidential election. look at how equities are finishing up. downward pressure earlier but the italy ftse now unchanged. the germany dax unchanged as well. on track for its best weekly performance among developed markets despite concerns around the italian referendum on the weekend. elsewhere, downward pressure in spain and portugal. a little bit of a skewed to the downside but some of those markets are unchanged. bit of a pullback in the dollar. euro pretty much unchanged. in the fixed income space, yields coming down, the italy 10-year yield down 15 basis points.

cds coming down in italy. in the commodity space, some downward pressure on metals. if we take a look at how we are performing across industries, overall, the stoxx 600 on track for its first weekly decline in a month. more industry groups losing rather than gaining. i.t. and financials leading that. outperforming. if we look at volatility, stocks have been coming down today. volatility going up someone on the index. set for its highest level since the trump win. at then volatility

highest since august against the u.s. finally looking at the euro, unchanged at the moment, but it is heading toward its first weekly gain in a month. vonnie: i am looking at cmm. a whole lot of risk here. you can see them buying in u.s. equities is not substantial but in the green. treasuries. that is partly due to the jobs data here in the u.s. that was good enough for the momentum to continue with the labor market but also the idea that inflation could be coming down the pike. that is also affecting markets a little bit. bit of aeeing a reversal in financials and semiconductors. the s&p to ang quarter-point game today. 4% dollar index is up about since the election but it's consolidating this week, lower

relative to other currencies. seeinge are again commodity currencies and the krone appreciating, as well as the british pound trading close to 1.27. we are seeing more buying of u.s. treasuries and a 10-year is about 2.38%, just off of its ties of the week. below 12ok at the vix, this morning, now about 13.5. the dollar index is below 101. the euro and the yen have much more waiting in that. lower thisding morning. mortgage holders will be watching that closely. let's check in on the first word news. russia is accusing foreign

spy agencies of launching spy a tax on banks maybe as soon as monday. say the attackers plan to use services based in the netherlands belonging to a ukrainian company. that company says it has not been contacted by law enforcement. officials are searching for the wreckage of an aircraft that crashed. former secretary of state henry kissinger is in a familiar position, shuttling between the u.s. and china to defuse tensions. he met today in china with the chinese president to figure out how much of president-elect bashing will follow him to the white house. meanwhile, steve schwarzman has

been named to chair the digit policy forum. it will be made up of business leaders who will advise the white house on how business policies affect growth. global news 24 hours a day powered by more than 2600 journalists and analysts in over 120 countries. this is bloomberg. vonnie: thank you. we got a mixed picture of the u.s. labor market this morning. u.s. employers adding 170,000 jobs in november, unemployment theping 24.6%, below federal reserve's idea of full employment, but wages declining. the probability of a rate hike remains at 100% for this month. joining me now is the head of global rates and strategy at td securities.

average hourly earnings month over month declined .1%. it is not that they are declining overall. a slowdown in the pace, but they are still increasing. are they increasing enough for the federal reserve to go with a rate hike now and another one soon? >> we think so yes. the data threshold for the u.s. has been met from the fed's standpoint. today's report was marginally weaker than what we were expecting. we think the fed will continue to highlight two hikes next year. the question for the market is how many more? this report does not make the fa de to suggest more than two. the question is if we get significant stimulus, do we have a pickup in inflation next year, and the fed may suggest more hikes. but the market is well priced for december. the market is also well priced or potentially two hikes next

year. the front end of the yield curve could stabilize here and we have time to figure out how much discussed and meals we get, what the growth impact would be for the market to take the next lack in terms of fed expectations. get some want to breaking headlines. we have that decision by s&p on south africa. it is affirming the outlook negative. this is what investors were feel for love, that s&p would change the rating. needsee the financing beyond expectations, so that has risen substantially, and gross debt in 2019 will be 54% of gdp. looking at what the rand is doing off the back of that decision. now .9% stronger. clearly a little bit of relief in currency markets on that decision.

nejra: i just wanted to pick up on that point about the fed after the jobs report. we had rick rieder speaking earlier saying the fed has gone into a backseat for markets. so, howu agree, and if do you invest with so much uncertainty around policy? look at the price action over the last month, the entire increase in rates has been led by the long and emma which means it is not about that expectations. with all the uncertainty around fiscal policy, the fed will wait bigee what plans come out rather than taking a view on the fed, the market will look at inflation risk premium, out of the curve, which is why it is our view that the long end is where you can have higher convictions. the fed will take [no audio]

are seeing inflation expectations rise and that is why the yield has been moving higher. interest.gnificant i would argue the ecb meeting next week may be more important for the market than the fed meeting. it is not clear what the market is pricing in. hi has not been super clear whether it is time to start tapering. if you get a signal from him around tapering, the long end of the curve has a lot more room in terms of how long rates could rise. nejra: let me take you do this chart, which i know you have been looking at as well, the 10 year treasury bund yield spread, at its highest since 1989. where does it go from here? >> over the last two years, every time it got high, i have --

i'm not sure this is the time to start trading. the two ends of that spread are both moving independently in opposite directions. are highly bit because of the italian referendum, we have the australian elections, a lot of elections next year. it is hard for me to see how bunds can back up with all of that risk. i'm not sure the trumpet affect is done yet for the bond markets. i think the spread can still widen. when we get closer to 250, we will be at levels where we think the treasury move is done, and that is potentially where you can look at the spread to tighten. at what level do you think the treasury move is done? fair value.is 275 the market tends to overdo things, you have hedging, you can get to 3%. if the dollar strengthens a lot, rates do not rise as much.

something in that zone is fair. at that point, you can start thinking that is sort of done in terms of widening. vonnie: if you look at breakeven, what is it telling you? 1.97 now, so a lot lower than the 10 year. >> what the market is struggling with is fiscal stimulus with the economy at potentially full employment, a significant amount of inflation. we have never had fiscal stimulus when the economy is doing fine. when you look at 2001, during the recession, the stimulus package was after a pretty significant recession. this time we are talking about the percentage points of deficit increase and that should move inflation expectations higher. this is outside of the fact that the base affect moves anything higher. at 2%, we are at a pretty high level for the year, but we are

in a paradigm shift here. inflation risk premiums should be positive, not negative. we are arguing to get to potentially 2.5, especially if the fed looks like they are not responding. vonnie: would that be a major repricing of one move? >> it could be, particularly if the fed suggest in december not talking about sooner hikes. there is a fear that the fed could be behind the curve. i don't think they will be, but they will not jump the gun and talk of a hiking sooner. there is a lot of uncertainty. do a protectionism, fiscal stimulus? if the fed is only going to hike twice next year, along and will get nervous around inflation. breakeven is one way to hedge against the selloff in the treasury market in the long end. vonnie: thank you. always great to have you.

austrians will vote their next leader in on sunday. whatever decision they make, 70 years of post your political order will be upended. this is bloomberg. ♪

nejra: live from london and new york, i'm nejra cehic. this is the european close on bloomberg markets. the bloomberg business flash, some of the biggest stories in the news right now. russia is reporting output is close to a post-soviet record. they pumped an average 11.2 million barrels a day last month. it wouldry told opec

join the cutback and reduce output by 1.2 million barrels. russia is the world's largest energy exporter. poised toobama is prevent a chinese company from oning germany's extra on national security grounds according to people familiar with the matter. they make semiconductor equipment that could have military ask -- applications. the company employs 100 people in the u.s. where it generates 20% of its sales. the city's ventas on the verge of becoming the best-selling luxury car brand in the u.s.. mercedes was on top of the race last month. sales of its sport-utility vehicle more than tripled. bmw had been a luxury car sale later the last two years. that is the latest business flash. alertday, austrians will their new leader, upending 70 years of postwar political order. hoffer ofe is norbert the anti-immigrant freedom party. he is facing the green party's

alexander vandevelde and. both are outside of the ruling democratic party that have headed austria for seven decades. joining us now is alan crawford, who covers european governments. he joins us from berlin. outline for us the significance of the vote. austria, in common with germany and the presidential post is somewhat symbolic, the real power is held by the chancellor. nevertheless, this is an usual election. as you mentioned, the two main establishment parties that govern the country since the war were both knocked out of the election in the initial round, so voters are faced with a stark extremes essentially of a former green party leader who is running as an independent who is very pro-eu, has been

supportive of the policies of accepting refugees, and on the other hand, a far right party that is anti-eu, eurosceptic, and wants to completely overhaul refugee policy. it is a stark choice. do we have any signs of which way the vote will go and what it will mean for the rest of europe? >> on the first point, it is genuinely too close to call in so far as we can trust opinion full these days, the latest polls, they were tied. we simply do not know. as far as the rest of europe, this is a barometer for how strong populist sentiment is in western europe.

of course, combined with the italian vote, it will be very closely watched. nejra: we have talked a lot about the italian vote this hour. another country to vote soon is france. tell us what we have learned this week. field is becoming clearer for the elections which come next april and may. we learned this week the republican candidate will be france will feel -- francois fillon from the conservative republican party. he calls himself a thatcherite, so a reformist conservative. night,other hand, last francoise lalonde, the sitting president, surprisingly ,nnounced -- hollande surprisingly announced that he

would not be running next year. the first time a sitting president has not gone for a second term in more than 50 years. it is starting to become clearer what happened. the polls suggest it will be illon and marine le pen going to the second round. alan crawford, breaking down the latest news on france and looking ahead to the austrian presidential elections. coming up in battle of the charts, although small caps on been a big winner since the election, investors are starting to brace for declines. this is bloomberg. ♪

vonnie: it is time for our

global battle of the charts, where we look at some of the most telling charts of the day and present them to you our viewers. you can always access these on your bloomberg. kicking things off in new york is our stoxx reporter joe p oley. >> today i'm talking about the russell 2000 small caps. they just got done with our best month in 16 years versus the s&p 500. they are outlined in the red box. it has been nothing but positive for small caps and's the election, whether it's the strong dollar or some of trump's policies, people have been favoring that. however, the bottom performance tells the story. it shows the vix for the russell 2000 versus the vix for the s&p 500. it is at its highest since 2014, so people are nervous about these gains. maybe it's gone too far, maybe it's time to take some profit.

that is interesting because the trades in the opposite direction of the underlying index. you would think the russell 2000 vix would be lower but it is not. that is very troubling for people holding onto russell 2000 shares. sell, ands time to you can find all of this on the terminal. vonnie: fine presentation. they rock, what do you have -- n ejra, what do you have? nejra: until today, we were seeing the markets price in a no vote on the referendum over the weekend. say everyone is preparing for the worst, we could see a relief bounce in italian stocks on monday because the positioning has been overwhelmingly bearish. earlier i showed a chart where

traders have been paying the most in two years to hedge against swings in the ftse. we have also been talking about in fact that there is a calm the italian bond market head of the referendum today. yields are coming down and that premium spread with the bund tenure coming down as well. this shows the ftse earnings yield versus the 10-year debt this year. it shows italian stocks are looking the least attractive this year versus bonds. it is a simple chart but i thought it was food for thought ahead of everything we've been discussing with italy. the market is definitely one way of listening to the prevailing opinion out there. i think that wins today. nejra: i win? vonnie: yes.

i feel like i need to give you something across the water. , only because we are watching the outcome of the referendum on sunday. >> there is always next time. vonnie: love the attitude. today, a big interview you want want to miss which also has an impact in all these things we are talking about. john micklethwait will sit down with imf managing director christine lagarde. it's a wide-ranging interview on the global economy. 1:00 eastern new york time. ♪

vonnie: it is noon in new york, 5:00 in london, 1:00 in hong kong. david: i'm david gura. welcome to "bloomberg markets."

we are covering stories from washington to london to beijing. a mixed picture for the u.s. jobs report. 170,000 jobs added in november. wages unexpectedly decline in, so what does that mean for the fed and the markets? donald trump's team continues to make with goldman sachs and gary cohen as he plans to move from wall street to washington. -- an interview with the we are halfway into the trading day on this job's day. abigail doolittle is here with the latest. >> we are looking at largely unchanged markets. the dow is slightly lower. the s&p and nasdaq are up slightly. tired trading with these unchanged percentages, telling us to