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tv   Bloomberg Markets Americas  Bloomberg  November 27, 2019 10:00am-11:00am EST

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pieces of data of the day. guide as toseful where fed rates are going. inflation apparently really matters to the fed. it was flat in the previous month for the month of october. we were flatlined at zero in the prior month. that stays the same. some other data peppering the wires. income coming in flat at 0.0%. 0.3% pendingrom home sales for the recent month in october. that's a decline on a month-to-month basis. still growing. annualized rate of 3.9%. that's down from that eye-popping number we had the previous month where we saw a
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year-over-year number of six point 3%. kind of a mixed bag with regard to some of the key headline embraced. -- key headline numbers. inflation and a housing department that seems to be chugging along. guy: the real number that stands out throughout the day is the capital goods number. quite soft. months this time really picking up. that is a sign of strength coming out of the u.s. economy but i don't think people had anticipated and that's probably why we have seen yields rising at the front end today. these numbers confirm for the inflation story is going. we've been hearing from the fed time and again they want to get back to target. they want to get some of these inflation numbers a little bit higher. capital goods numbers drawing a lot of attention across the numbers. start with the durable
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goods report and those capital goods numbers. mark: the numbers have been bad all year. in the month of october they decided they needed to go out and spend some money that that's good news for the economy going forward. we will see if it's carrying through. it does set the quarter up for better news in the sense that we've seen consumer spending be relatively strong. guy: a lot of the games we've seen have been driven by rates going down. i've seen a very benign rate environment. if we are getting this kind of data and we get a deal on trade, why will the fed cut rates next year and by extension why would that be bad news for stocks? won't cut rates next year. the conversation could switch. the conversation certainly in
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the markets could switch to when did they raise rates. we can calculate when a rate increase might come instead of a decrease. let's wait and see. the fed isn't predicting that we're going to see any kind of miraculous long-term big turnaround here. goods numbers very volatile data. we have to wait and see what happens with consumer spending. the numbers were ok. the pace of consumer spending has dropped off. economy ismean the going to be in bad shape but it means we have about a 2% economy that we will see if it can pick up any steam or not. goingght now the fed is to be happy with that. one quick thing i wanted to mention about the income numbers. up .4.nd salaries
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that's good for the economy. wages are going up. deal,lk about the trade the president has been giving farmers money that the rest of us have paid in taxes on the trade tariffs and payments went out the month before. >> the consumer is still obviously the torchbearer. is this an accumulation of inventory to get ahead of that uncertainty with regards to the tariffs and the other trade issues? >> not the tariffs. it did show up in the gdp numbers. foras a revision third-quarter gdp. largely inventories. looks like companies trying to get ahead of tariff increases and that's not good for the economy in the longer run because the stuff you have in
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the warehouse means less stuff you have to make in the future. the durable goods, we are going to have to see how that breaks down. there were some indications in the gdp report that the cutback in spending in the oil patch wasn't as bad as we thought. and that may have some influence as well. guy: every single fed speaker i'm hearing at the moment is talking about needing to get inflation back to target. this is an urgent imperative for the fed. how do they do that? >> not much more they can do right now. their belief is interest rates where they have set them down now is going to help the economy and boost inflation. the way they are tracing it right now and what fed officials have said to me, salary numbers are going up. that's going to increase
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pressure on companies who are already dealing with margin pressures because of tariffs. now they are going to have margin pressures because of wages and they are going to have to raise prices and we will see inflation rise. to powell said they expected decisively rise. he didn't put a number or a speed on that but they do seem to think that in 2020 we will see inflation much closer to their 2% target. >> let me ask you a big picture question. you listen to what jay powell said. he talks about the fact that this recovery is starting to reach the most isolated parts of the labor market and he sees that as being an incredibly good thing. is this going to start to become more and more policy from the fed? do they need to run expansions a little bit longer so society starts to benefit a little bit more from some of these
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recoveries? more and more. it started in jackson hole and it's been drum beating ever since. >> this is the new justification for where they are with rates. about notworried having enough ammunition for the next recession. the idea that we can help the overall economy i spreading the benefits more widely to the less educated, to minorities, to the disabled. people who aren't usually in the labor force. that's an overall good thing and you see the minneapolis fed president actually setting up an institute within his fed to look at how they can do that. they only had that one blunt tool and if inflation starts to rise, they are going to have to think about. with inflation in check at this point, the fed can say let's run it hot for a little bit. let's run the economy higher than potential.
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and see how far we can go with this. romaine: inflation in check. the markets also in check. thanks to michael mckee. let's check in on the bloomberg first word news. >> the trump administration is considering whether to retaliate against france with tariffs. this after french plans to slap a new digital tax on large tech companies. the trade representative's on monday it will announce its findings. he says they are in the final throes of a very important deal. an invitation from president trump to the next phase of the impeachment process. the president will be allowed to
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present his defense. his lawyer could make a request to question a panel of influences. today one of the as's days per year. the western part of u.s. no making thanksgiving miserable. rockies covered with snow. powerful pacific storm is expected to bring heavy rain and snow deep into southern california. news -- global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. guy: stocks higher but not by much. we are up 5.3%. we are seeing weakness in the euro.
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big coal coming on later tonight. bund yields pretty flat. we are plus three on my data. the u.s. data the big driver today. this is bloomberg. ♪
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guy: i'm guy johnson romaine: i'm romaine bostick. from pimco global economic advisers. joining us right now. we have a lot of data points not only at the top of the hour here even going back an hour and a half or so ago.
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show an economy that still seems to be trudging along. let's start with the consumer side of the equation first. when you take a look at where we are with spending and where those spending trends are going you think there is little bit more room for optimism than what we had three or four months ago? so sure.t obviously the consumer is still one of the bright spots in the economy but there are some signs of slowing. consumer confidence has been falling. it is still at elevated levels but consumers are getting according to that survey more concerned about the labor market and i think what that reflects is that the corporate sector is actually in a profits recession and that's what today's gdp data showed. if you look at after-tax profits and make the necessary adjustments profits were actually down on the quarter and
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they were down on the year. so we have a profits recession and that is starting to affect corporate hiring and spending decisions. this has showed up already in a slowing of hiring in the labor market and we expect to see more of that and let's not forget the consumer is always the last issue to drop so i'm not particularly upbeat on the overall economy. i actually think that we are in a phase of a downshifting of growth. we have downshifted from a 3% economy last year to a 2% economy now. route tonk we were en a 1% handle for gdp growth over the next few quarters and as that happens you will also see consumer spending slowing further. romaine: mike mckee brought this up. how does that tie in with the wage picture which is still relatively stable.
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is this something we should expect to shift soon or do we have more about runway with regards to wage growth? >> i think you are seeing signs of topping out at wage growth. nominal growth has been decelerated in the last several months. also what matters for consumers is real wages, not nominal wages. and with inflation moving somewhat higher at least on the cpi measure which is maybe a more relevant one for consumers you can see that real wages are coming under pressure as well so i think consumers are coming under pressure from decelerating wage growth on a real basis. and job growth is slowing. talk about downshifting to a 1% handle economy. is that going to be enough to get the fed back in the game and
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cutting rates? >> i think it will eventually. not in the near term. the fed thinks or hopes that three rate cuts were enough. that they bought enough insurance. if you look at the fed's own forecast for growth they are still looking for something like 2% economy over the next year. i think if we see these disappointments coming through in the next several quarters eventually the fed will probably have to cut again. given the fact that a lot of the equity market games can be attributed to the fact that we've seen rates going down, what do you think the picture looks like in terms of the monetary policy tailwind? >> there is a question about how expansionary monetary policy really is. are below that rates their estimate of neutral.
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fomcast below the media participants estimate of neutral. the fed now thinks they are below that there is considerable uncertainty around that. at chairmana look powell's speech on monday where he talked about the high uncertainty surrounding estimates of the neutral rate both the neutral interest rate and the natural rate of unemployment. there is considerable uncertainty and there's actually they fed research, published a research paper that suggests that once you account for global factors that have been dragging down the equilibrium rate that neutral rate may be as low as 1% nominal. true thantimate is the fed is still in the restrictive zone and we should then see that coming through in terms slower growth also lower
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inflation over the next several quarters. romaine: how does the fed accomplish that? every time they seem to move that band around the bond market essentially challenges either the top or bottom line in one way or another and it never really seems at least from a market perspective that folks are satisfied. >> that's right. i think what you are seeing in the markets is that the market has come around to the view that we are in the new neutral. which has been the pimco theme for the last five years where that neutral interest rate is much lower. exactly the neutral interest rate is nobody knows. the market is trying to find out. the fed is trying to find out and the ultimate judge is the evolution of growth and inflation. inflation has basically spent the last five to seven years below target, which suggests the fed was not expansionary as it
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thought it would be or the neutral rate of interest was probably even lower than they thought previously. i think we are still in this phase where we are trying to find our way towards that neutral interest rate and the ultimate arbiter is what growth and inflation will do. now the fed is sitting back. thee watching the impact of last three rate cuts. we think they would probably be disappointed again so growth will turn out to be lower than they expect. that means they have to make another adjustment. the big worry is what does that mean longer-term? the lower they go the less room they have to cut eventually when the next big one happens. then they will find out it's much more constrained. guy: let's talk about what happens when we get there. to's say the fed cuts down
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zero. just starting to gain a little bit of traction elsewhere that may be the fed engages in curve control. it starts to manage the shape of the curve. we've seen it elsewhere. is that something you can see happening in the united states? >> that discussion just confirms that japan is really the guide to everything else in terms of growth, inflation, monetary policy. japan is already doing yield curve control. what's a big difference the fed is contemplating. it also showed up in the fomc minutes. ofy are not thinking controlling the longer end of the curve. if they go to yield curve control than they are thinking of controlling the shorter end of the curve. if and when the fed cuts down to zero and by the way, i don't
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think the fed wants to go negative. they could adopt a target for the two-year rate. thatot so sure whether would actually be necessary because i think an environment ,here the fed cuts to zero there's a good chance that u.s. treasury yields actually go negative. we already have a negative term premium in yields and so if the zero, thes down at negative yields elsewhere in the world are likely to drag treasury yields even lower. they may not even need that yield curve control they are talking about now. romaine: will come back to you in a minute. this is bloomberg. ♪
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>> this is bloomberg markets. i'm taylor riggs.
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she bp revised higher to 2.1%. for more on how that is impacting municipals i'm joined by a fixed income portfolio manager at wells fargo asset management. take. to get your the economy feels strong. does that mean we continue to be in the all clear with some of those lower rated high-yield credits? have given clues that they are here to support the economy and financial markets. that's a good sign for high-yield credits. the unique thing about the municipal market as many of the risks are very project specific. these deals are building specific facilities or senior care facilities or maybe other project finance so they have their own specific risks. in an economic cycle investors have to have their dancing shoes on. we are starting to see anomalies driven by the huge tidal wave of cash that's come in a high-yield
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fund. when you look at the corporate high-yield market and take it after-tax for the tap talks paying american. i think that's an anomaly that investors need to be mindful of because it's a missed pricing of risk going forward. >> i love that trade that you talked about. .ou had a similar trade is that providing the same anomalies? >> it's not. typically the individual investor in particular is much better off in the tax-exempt security. if you are paying a higher tax bracket you are going to get better tax adjusted income rather than going into the corporate market for names that exist in both of those marketplaces.
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the fact that all this money is flowing into these funds and it's a peer group where frankly the size of that peer group is the same size as the overall index. short and sweet. thank you to gabe dietrich. back to you. romaine: we are going to hear from the incoming eu commission president. that's coming up shortly. this is bloomberg. ♪
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guy: from london, i'm giant -- i'm guy johnson. from new york, i'm
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romaine bostick. we are waiting on the crude inventory numbers. expectations are for a decline. we have seen a pretty down trend line in those inventories. we are seeing numbers come across the wire any minute now. crude inventory is rising. well above what investors were looking for. let's check in with the first word news. a the u.s. economy getting break from capital spending downturn. last month u.s. business acumen unexpectedly rose after two declines. other data showing gdp rising at an annual rate of 2.1% from the initial report.
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federal regulators signaling they are in charge of all aspects of the grounded boeing 737 max. will conduct the final approval instead of letting boeing include sendoff's. i the end of the year deliveries may resume. this is according to president donald trump. an online interview he wouldn't say if he's considering taking military action such as drone strikes. offeredident says he's mexico's president assistance. the offer was declined. central bank shot traders. the real hitting a record low. --
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global news 24 hours a day on air and at tictoc on twitter powered by more than 2700 journalists and analysts in over 120 countries. this is bloomberg. guy: pimco global economic advisor joining us from newport beach in california. calculate the effect that loose monetary policy around the world has had on asset prices this year? how much of an effect the think hasfed cutting three times had on asset prices? >> i think it's had a big impact. the fed started to shift dovish at the beginning of the year. they only cut from the middle of the year but they stopped the tightening campaign in early january after the december rate hike and since then we've seen
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markets rallying so s&p is up 20%. up 25% as theis ecb has resumed asset purchases. of thisvirtually all increase, this rise, this rally in markets has been due to a much more dovish shift from not only the fed but global central banks. the point is that i think this the pricetty much in so markets have rallied on this liquidity injection and investors have become fairly optimistic on the growth outlook for next year. ago the fear was recession. arethe consensus is that we at the trough for global growth and we will see a recovery here. the markets are playing a soft landing theme and i'm getting worried that markets may have run ahead of themselves.
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guy: that seems pretty logical. if the big tailwind's monetary policy and we don't have that tailwind next year it's really not repeatable. >> that's right. even if we get some sort of recovery next year should be the the near-term further slowdown we get some recovery. even in that case that's not necessarily good for asset markets. this year we had a global growth slowdown. we had a slowdown in the u.s. but as i said markets are up in double-digit territory. last year was still a pretty good year for u.s. growth at stock market was down so there is not this tight correlation between growth and markets and if the economy starts to pick up next year then markets may fear that the fed may have to hike interest rates.
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caution is inhink order. romaine: oecd was talking about the idea that the global economy was going to remain in this rut. that sort of puts the onus now on fiscal policy. something that certain countries seem to be reluctant to fully embrace. do you think it's possible that if we do run out of ammunition. we will see a little bit more willingness by governments around the world to embrace fiscal policy and that could be more of a game changer with regards to the forecast for 2020. >> there are signs that governments are becoming more willing to do more fiscal with seeing this in europe. it's a fairly mild stimulus overall.
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the same time they have just been hiking the consumption tax and they're trying to offset that with other means of tax cuts and spending increases. definitely opened the floodgates in terms of fiscal stimulus. they are more cautious on the credit stimulus and the monetary stimulus but here in the u.s. i think politics is very fickle. we are heading into an election year so i think it's very unlikely that you will see 2020. stimulus out of in the near term we shouldn't get our hopes to hide that fiscal policy will come to the rescue in the u.s. and the other thing to keep in mind is that usually fiscal policy moves rather slowly because it is constrained -- constrained by the political process.
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usually fiscal stimulus arrives when the economy is already recovering. in the past the economy had been from a recession because monetary policy had the ability to stimulate on the recession arrived. we've used up most of the ammunition here in the u.s., there are still some things the fed can do. we've used up virtually all of the munition in japan and in europe and i think that's the main concern. hitsif that next recession , policy will be much more constrained. fiscal could arrive but usually arrives late. that's why i think the recession risks are still relatively elevated even though governments are willing to do more fiscal. guy: thanks very much indeed. pimco global economic advisor.
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let's turn our attention to what's happening in europe. the parliament has voted again on approving the eu commission today. her new team to start work in december. maria tadeo spoke to her earlier today and joins us now. what to she have to say i guess is the straightforward question? >> she had a bigger majority than she expected. she didn't run in the european election. our whole purchase was delayed for so long but the european -- in terms of priorities it's clear one has to do with climate action. the european union to be climate neutral by 2050 and
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cut down emissions by a lot. she's given herself a very tight deadline. the question is who is going to pay for this. the other question has to do with digital tax. there has to agree be an agreement on how to tax agile companies by the end of 2020. there's no agreement that they will go alone and implement their own tax. romaine: a lot of talk with nato and how strong the alliance remains. >> that's another big question when you talk about the language we've seen come out. this point looked
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brain-dead. angela merkel said that was too drastic. vonda lyon does play -- voluntary lay in -- bonder der leyen -- the european union has a different role. of course we have many european that are also members in nato alliance and as europeans i see where we do not need nato. if you remember five years ago in mollie the european union had the will to answer the crisis and fight peril but neither the procedures nor the structure. therefore we are building up the european union defense union knowing that it will be
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complementary to nato. >> that was ursula von der leyen . this is a big topic and will be a big topic because european leaders and nato leaders are meeting next week. guy: thank you, maria tadeo. we will see what happens with that one. romaine: coming up, we are going to talk deere. about 4.8%. we will tell you exactly why. that's coming up next. from new york and london, this is bloomberg.
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guy: from london, i'm guy johnson. i'mine: from new york, romaine bostick. our stock of the hour is british american tobacco. of warner on slowing vaping growth has slowed down the shares. here to examine the move -- the shares are up 3%. are we smoking more or not? still smoking cigarettes and spending a lot of money on premium cigarettes. that's allowing them to keep growing revenue. they previously thought that was going to be in the middle and
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that was because of the vaping hysteria we saw in the u.s. recently. it's something like 70% growth among high schoolers. that's kind of the regulatory talk around it has weighed on demand. guy: we are watching what is happening with the vaping story in the united states. it's a very different story. i went on to the national health service website today. to take a look at at what it has when it comes to vaping and basically it is saying vaping is not risk-free but it's a small fraction of the risk of cigarettes. you should use it potentially as a tool to give up smoking tobacco. it's a very different story in the united states. how's that transatlantic difference translating into what they are saying?
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>> they expect the customers who have gone to vaping will not come back. still don't know the long-term health risks of it. l pod has about the same amount of nicotine as a pack of cigarettes. it is still seeing growth. the lower end of that 30 to 50% range. we'll see how it all shakes out. romaine: let's turn from british re.rican tobacco to dee the ceo gave a cautious outlook. i understand the headline report was somewhat good. when you look at the forecast
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for 2020 and specifically the breakdown by segment, it was pretty awful. >> i think people were breaking for the fourth quarter numbers to be pretty bad. they met expectations but those have come down a lot. it's all about the 2020 outlook. see a have expected to more positive outlook because you have the trump administration pushing a lot of money. romaine: analysts were expecting an increase. same time you have construction equipment down 10% to 15%. i will say this is the ceo's first guidance. he just became ceo earlier this month. environments,ain do you want to be aggressive or do you want to play things conservatively?
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guy: can we talk about what's happening with boeing? i'm wondering is it because the faa is talking about certifying every 737 max individually as they leave the lot or is it because of these pictures we head out from the seattle times of what happened to the triple seven at. that's a pretty dramatic picture as well. argue those things go hand in hand. they're going to be evaluating these one by one to see whether boeing candidate -- meet its .oal that raised a lot of questions for me as to why the faa would allow them to do that. now we are getting reports that the faa was not quite thrilled with that announcement by boeing. the fact that the faa is taking
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back some of this control over work that was previously employeesto boeing signals a pretty significant shift over how these are going to be regulated. you throw on top of that regulators taking a closer look at every inch of this airplane. that will continue to eat into cash while they develop that. that wasone thing interesting is there still seems to be a lot of tension between boeing and the faa and it seems this whole crisis of confidence was about the relationship between the regulators and whether they were all on the same page. what's going on? does wallenberg have this under control? fair question to ask
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and i scratch my head every time this happens. he sort of pin the faa against the wall with we hope to start delivering planes. they are taking hits on their profit the longer that these are grounded. the other hand feels the spotlight on itself. want to tell employees that we are not going to be swayed by boeing's timeline. we are going to make sure these plans are as safe as possible before we let people start flying on them. guy: how on earth is boeing's communication team putting these ?ut how on earth are they miss communicating so badly with the market and then seeing the faa come in time and time again?
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these planes were first granted in march boeing was talking about putting them in the air in a matter of weeks and the longer this stretches on the more times they've had to revise their forecast. so it's a very legitimate question to say has boeing management handled this properly. he took a lot of heat in those hearings with numerous lawmakers on him -- calling on him to design -- resign. that point when you start to see these planes finally being delivered is he the man for boeing longer-term? romaine: coming up next on this program, futures in focus. that's coming up next. .his is bloomberg ♪
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guy: we are joined by vice president of callus investment.
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below 12. still explain this to me. use a bad analogy right now, cautious optimism. you see things firming up in europe and the optimism of the potential phase i trade deal. people are holding on to what they own and you are not seeing a lot of selling and you are also not seeing the expectation of violent moves. guy: talk me through key levels on the s&p. basically you're talking about 65 points in the upside down sides. this was the opportunity to throughoking in january
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march. maybe look for some protection just in case the optimism starts to fade. guy: what's your outlook for 2020? bei think we're going to solid. you are getting mixed results. we are walking and without market neutral strategy. that's about $9 million almost elliptically. we are looking for positive notes. guy: have a great thanksgiving. ranks very much indeed. next, the european close. this is bloomberg. ♪
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guy: the data delivers. rises asse, the dollar u.s. economic numbers continue to show growth. but with little sign of inflation, how long can the fed stay on the sidelines? a green commission in brussels.
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incoming president von der leyen says she will improve the climate to boost the economy. encounter new down to the big poll out of the u.k. that will be released tonight. it is a detailed seat by seat prediction using methodology that accurately forecast the 2017 election. what is it going to say? i'm guym london, johnson, with romaine bostick in new york. we are come to you down to the european close on "bloomberg markets -- we are counting you down to the european close on "bloomberg markets." ♪ here in the u.s., we are in the last full trading day of a shortened week because of that thanksgiving holiday. we had a record high monday, record high tuesday, and holding at record highs today.


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