Transcripts For BLOOMBERG Bloomberg Surveillance 20180102

Chinese equities are definitely leading the game. You can see one of the main gauges gaining 2 . We have a little bit of dollar weakness. Pmi isr manufacturing beating estimates. 60. 6. We were in line with expectations. Check out any kind of movement in europe. Look at the german bonds. Coming up up at 11 a. M. London time. The present we going to his outlook for the rest of the year. That includes china but also iran. Midday, the former u. S. Treasury secretary joins us. Towill also be speaking microsoft. Lets get to the bloomberg first word news. In iran, the death toll has climbed. 20 people may not die to the demonstrations. In a rare share of displeasure with public leaders. The iraniandefended peoples right to demonstrate. Penceice president mike will visit each of this month. The confirmation came after israeli Prime Minister said its included in the schedule. Its feeling that speculation. Hence had plans to meet with egypts president. The visit was postponed until this month. Denmarks Prime Minister has the he wants to include governments plan for tax reform this year. , heis new years speech said the tax cuts will make it more feasible to work, which will bring more people to the job market. Prime minister has revived the debate about whether the Company Country can become a republic. The nation needs to have an honest, open discussion about the issue. Becoming a republic would require a referendum in order to make changes to the constitution. Well be joined by the former Prime Minister. English area and to coastal areas saw the biggest Housing Price raises. Scotland,to bank of it saw jumper 13 in 2017. As a was five times the national increase. The south coast saw the next highest gains. News 24 hours a day powered by more than 2700 journalists and analysts in more than a hundred 20 countries. Im Sebastian Salek and this is bloomberg. Francine thanks so much. Stated hetrump has has had a fantastic year. We are expecting a raft of data from the u. S. In the coming days. On friday it is the jobs report. Join us now is our director of European Research. He is the cohead of strategy research. We are run the beginning of 2018. What will the bring . Growth is ok. Inflation may be picking up. Overall, if you look at the social situation, it still not there. Christian in terms of Political Risks and political cohesion, i think the focus will start shifting away from europe right now. I see three pockets of Political Risk right now. I think one is in the u. S. One has to do with the possibility of some incoherent communication policies. Thats coming of the u. S. Of minister nation. , very important trade policies. I think this will be a key question. There is some sense of and certainty about how robust the u. S. Administration is striking general domestic and international politics. I think this will be a concern. Do withr risks have to south korea, of course, the news of the weekend was welcome, as well as the middle east. Are you worried about the possible rise of protectionism . Only going to some kind of global trade war . Risksne it is one of the it is one of the risks but i growth is as strong as it has been for a long time. We are optimistic on u. S. Growth. This year, europe is firing on all cylinders. From an economic perspective, this year, the big question is if the phillips curve will return. We see unemployment at record lows and lead to higher wage growth and into higher inflation that will then lead Central Banks to hike Interest Rates on the already have . That is the big question. Without link come back. Will that link come back . Three interestrate rises from the fed, what happens if we get 25 basis points . Does it make a difference . The hikes are one question, but if you look at the curve, thats one of the big discussions at the end of last year. If you look at the curve in the end is notong responding. Thats the yield curve flattening. Thats normally a pretty good indicator of recessions ahead. It happened in the past week. We analyze this in the paper. This is of course just market expectations. That is going to be the big debate. If we get more upset prices on inflation, that will lead to the long end going up and the steepening of the curve. We dont expect that. We see gradual increase in of inflation. Underlying inflation in particular. That should give Central Banks some comfort. It evert know of disappeared. It might be under a structural change. Francine it was pretty distorted. We also have to take into account that we are coming out of a multiple years of substantial upward gaps. Its really difficult to know whether completely disappeared or whether it went through a structural change. It will take us a lot of years until he really find out and have more conclusive evidence about this. I think we will see the phillips curve reasserting itself. I think growth has reached the point where it is very robust. The margins are showing the teeth of inflation. I expect, pretty much as you said, that we will see rapidly rising inflation. As markets are concerned, Monetary Policy relative to actual real growth are going to remain quite accommodating. Largely because Central Banks went through a big experiment with this quantitative easing. It has been uncharted territory and they are going to be very cautious in unwinding and going back into the default case of tighter Monetary Policy. This is my chart for january of 2018. His is a very simple eurodollar. Of yellow line is the level 120. As a little bit of a broadbased selloff in the u. S. What happens in 2018 for eurodollar . Christian i think is higher. This is been our view for one half years. We have been quite vocal that the dollar has been overvalued. Ubstantial and the eurodollar has been undervalued. Presentede market was with an unprecedented event of quantitative easing. Regarding of what has happened, fair values around 125. I think were going to gravitate towards these levels. I think this will be further supported by incoming flows back ino the eurozone that leave 2015, dictated by draghi. Searching for higheryielding. Think, the big question as to whether this will prove an obstacle for inflation, one has to ask why the euro is rising. Its not rising for the wrong reasons. Its rising because fundamentals are good and the numbers keep coming up very robust. It may act as a headwind for inflation but all the other elements are going to act in favor of higher inflation. Thanks so much. You both as they with us. Stay with us. Robust growth in china. The nation pushes into 2018 with a strong outlook. Later, bitcoins hangover. Kicks offcurrencies the new year with a combo. What does that going to do next . This is bloomberg. Economics, finance, politics, good morning everyone. Im Francine Lacqua in london. Lets get to the Bloomberg Business flash was sebastian. Sebastian bp is set to take a charge of 1. 8 billion following tax changes in the u. S. While the longterm prospects willositive, the change affect in the shortterm term. They invest more in the u. S. Than anywhere else in the world. A chartered flight killed a major figure and for family members when their charter plane crashed. Said the companys former chief operating officer in europe will succeed him. Executive Bruce Steinberg and his family armand 12 people are dying costa rica. For memories of the family from florida, another american, and to looking crew members also died. Ray dalio describe steinberg is a wonderful man. Thats the Bloomberg Business flash. China has entered 2018 with robust momentum. Manufacturing pmi rose. A property tax may be delayed until 2020 while the currency strengthened the on six and a half per dollar for the First Time Since september. Our correspondent joins us from hong kong. Happy new year. One of the three main concerns what are the main concerns that china will have in 2018 . Happy new year to you as well. It seems is going to be an important year for china. What they are trying to do is financialsk in the system. They want to curb overall debt. They want to tackle Balance Sheet lending and shadow banking. Thats one area theyre going to look at. On the other hand, they want to clean up the environment. This is after decades of growth. They are trying to bring it all together. While not allowing the wider economy to slow. They can pull off this balance is important, not just for chinas economy but it will also be important for the rest of the Global Economy. Should worry about a property bubble and deleveraging anymore than we did last you . By all accounts, both of those are High Authority list. The worry list. They seem to take in the front of that market without tipping over into a deeper situation. Real estate is one of the biggest drivers of activity but they have managed relatively ok. Properties for living enough for speculation. The companies that rely on state at the risk of putting thousands up for work on the put a blind eye to the zombie companies. They are getting the balance right but if they truly want to convince the world that they have their debt problem under control, they have many months of hard work ahead of them. Francine what kind of messaging are you expecting from them in the first part of the year . It seems to be right now that they are sticking to the script that they are in neutral territory. There is no doubt that we will see more tweaking of the money markets. We saw a tweak after the fed raised rates at the end of last year. We will probably see more meddling towards the lunar new year. Theres plenty of liquidity flowing around and the like. In terms of the main benchmark Interest Rates, there is no indication they will between king that level. Indications not to expect any move until later in the year. Momentions are for the they will be sitting on the sideline or be doing some modest weeks at best. Think is so much. Bloombergs chief asia economics correspondent. As quebec the Christian Schulz and Unicredit Vasileios Gkionakis Vasileios Gkionakis. China manufacturing versus pmi is pmi and see blue white is china manufacturing. You can see them be as one, which is comforting. Chinesen we expect the economy to grow by about six and a half percent this year. Holding up quite well. We see in terms of Monetary Policy they are going to be quite easy. They will follow the fed to some degree to stabilize the currency. They will talk a lot about the revelatory tightening. That is the key. Especially from the market perspective. Will that tightening not spillover into the larger economy in a larger degree . We think it will be fine. We think investment will slow little bit but that should be offset by stronger consumption. That as the chinese move to that territory of tightening, it could result in Balance Sheet lending mechanisms. ,e would say in that case chinese authorities could ease elsewhere. They could cut the reserve ratios for instance. Economyto support the if there is any glitch in this tightening. Francine thank you so much. Irang up, well talk about and this death toll as Security Forces and protesters keep clashing for the fifth straight day. We are live from charon, this is bloomberg. The death toll in iran has climbed up as protesters and forces. Ators clash with lets get the latest. Will this lead to some kind of revolutionary situation . I very much doubt it. Surprising,ts are because they are rare. They have been happening in different cities spontaneously and the grievances seem to be quite similar. But i dont think the size and scale is anywhere near we have to bear in mind that iran is 80 Million People and by most accounts, i think at the very most the numbers of people coming out are in the tens of thousands. I was in downtown tehran where bute was a lot of people, there are far outnumbered by Security Forces. Its nowhere near that. I dont think its even about a revolution. I think what is happening right now is a series of anxieties about the economy. Certain sections of the population are coming to the fore and are manifesting themselves in this way, a certain demographic in irans society. Francine are they protesting what is happening the economy . Yes. Initially, these protests began on thursday. They were antirouhani. They were against economic policy. Now there are many people coming out saying these are organized politically by ronnies opponents. They seem broader against the political system in iran. Francine thank you so much. We will be back and have plenty more throughout the day. Andext, we talk europe leadership with Angela Merkel. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Francine economics, finance and politics. This is bloomberg surveillance and im Francine Lacqua in london. Heres Sebastian Salek. Sebastian the protest across the country over the last five days will die down within a few days. The secretarygeneral of the National Security council acused saudi arabia of waging social Media Campaign to take advantage of the protests. The demonstrations broke that last week, starting in the holy city, and a spreading to other parts of the country, including the capital. Mike pence will visit israel and egypt this month, despite speculation he delayed again. The confirmation came after an Israeli Foreign Ministry Spokesperson said the visit is not included within the visits of higher level dignitaries in january. Pence had plans to meet with israels Prime Minister in december, but the visit was postponed. The Prime Minister said he wants to conclude the plan to tax reform this year. In his new years speech, he s aid the tax cuts will make it more feasible to work, which will help ease the countrys labor shortage. The country could become a republic after Queen Elizabeth dies. Gauge publicull opinion, saying the nation needs to have an honest discussion about the issue. Becoming a republic would require a referendum to make changes to the constitution. Joined by the former australian Prime Minister. The biggest house price increases in the u. K. Last year. According to the halifax division, southwest england saw a jump in 2017. Sub the next time with prices rising 11 . Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im Sebastian Salek and this is bloomberg. Francine we are just getting manufacturing figures and they are worse than expected with manufacturing flowing more than forecasts for the month of december, falling to 56. 3. The forecast was 57. 9. This means it is retreating from a four year high. If you look at the longterm trend rates, we seem to be in expansionary mode and that does not seem to be slowing down too much. If you look at some of the things leading up to this, it could be a little bit of the pound may be, it could be some of the bank holiday falling. Overall, i would suggest its due to. Brexit uncertainty. Lets get back to Vasileios Gkionakis. Christian, the u. K. Manufacturing, that growth, slowing more than forecast in december. Is that something we should worry about, or is it something that could have been expected . Christian its a bit disappointing. We have the first phase of the brexit negotiations in december. One might have expected that u. K. Businesses would respond positively. They havent. But all sorts of things can happen. Perhaps the anticipation of a deal is already priced in for november. There was a little bit of nervousness from that. We shouldnt forget that. I wouldnt read too much into this. The u. K. Is underperforming the eurozone in manufacturing, and thats a sign that brexit is u. K. Ng because the manufacturing should be outperforming, which it isnt. Thats the clearest evidence that brexit is having an impact. Francine manufacturing is off which would be, more expensive, and then you assemble them here. Is there not a flip side to what the pound is doing . Christian yes, that could have a positive impact in the long run. In the short term, costs are rising. Everythingnce, made in the u. K. Should be more competitive than in the euro area at this point. U. K. Manufacturing has had a longer period of growth than the eurozone because the recovery has been longer here. That should trigger more investment, and it isnt. That again, has to do with brexit uncertainty. Francine im looking at europound, currently at 1. 88907. U. K. Assets go from here . It is very difficult. Ive been saying this for the last six months or so. Right now we seem to lack valuation clarity, for sterling u. K. Assets. Kk. It makes it difficult to find fair valuation ranges. Thats why, one of the reasons, although we remain very pessimistic on Economic Outlook hasthe u. K. , we think a lot theady been priced in and market will remain cautious about trading on the downside. Having said that, i think we are at the lower end of the forecast, as far as u. K. Growth is concerned for this year. One element is this year will be a year in which the number of firms are putting in place contingency plans, which means he will see further weighing on Investor Sentiment in general. I think the discussion was previously exactly right. We should not just look at the absolute numbers, but see them in relative terms. We have been through a Global Growth upswing. So, the numbers were meant to be better. The important thing is 2014 through 2016 the u. K. Was outperforming g7. Right now it has fall into the back of the list. Thats really important. Francine let me also focus on the eurozone. Her newedl used years eve speech to plant her fourth term. She also spoke about an alliance with emmanual macron. She said they would control migration, while of holding values of tolerance and pluralism. From numerous discussions and meetings this year that many of you are concerned about solidarity in germany. There has not and so many different opinions for a long time. Some are even talking about a speed through our society. Francine lets get back to Christian Schulz and vasileios. I should ask christian, who is actually german. Merkel, in thet tough time she has had over the last couple of months, can she go back and be the real leader of europe . Christian if you listen to her speech on sunday night, which i did, it does not seem like she is planning to retire. She is clearly planning for another four years, and perhaps even beyond. But if you look at the media and the previous for 2018 and beyo nd, there were obituaries for her, saying that even if she gets a government into place, it will be the last one. Everyone is focusing on who would follow her. Francine and who is that . Are there a couple names International Communities should focus on . Question some christian of course, there will be an election eventually, whether that is soon or in 2021, when the next she scheduled one is, we will have to see who that is. She establish can a grand coalition or not . She seems to have always been a favorite of another grand coalition. Europe is the big topic. It is also one for the history books for her. And now, tax reform and of these domestic things are important, too. For her, if shes not going to run again in 2021, the big thing is, what does she leave europe with . She highlighted proposals, getting europe closer together. There is the small matter of brexit to deal with in 2018 and beyond. I think she wants the stable government, she wants the spd on board. Promacron a very view. I think she will go to quite a distance to get them on board for this coalition. Francine you could argue that 2017 was actually europes year, it did better than expected. What does 2018 mean for europe . I think it will still be a pretty good year for europe. European equities have lagged below their u. S. Counterparts and are not reflecting the strong fundamentals we have seen improving throughout the course of 2017. Look, i do not want to downgrade Political Risk. I do not want to sound as if everything is failing, but i think we made a structural shift in the way we deal with politics and by implication, economics in the eurozone. Right now weve moved into an environment where there will be more Political Risk. Be it in spain, catalonia or in italy with the upcoming elections. But these are idiosyncratic risks. Are not the type of existential risks the eurozone was facing. I think there is quite a bit of catchup that European Assets will have to do. Growth is importantly not just drop, but widespread. We have the lowest dispersion the memberwth in countries across the eurozone. I think 2018 will be a good year for the eurozone. Francine thank you, Vasileios Gkionakis and kristin schultz. Coming up, a bitcoin hangover. Kicking off the new year by dipping after the outstanding rally. We discuss bitcoin next. Thsi is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. Bitcoin and cryptocurrencies grabbed headlines in 2017. Nasciente Blockchain Companies that will be theme. Vasileios gkionakis an Christian Schulz are still with us. Welcome to the program, jonathan. If 2018 is going to be a little different, in terms of how the market starts viewing the underlying Blockchain Companies. These countries have been difficult to put a value on or understand. Not a fan of bitcoin, but the technology is good and it is something we will see banks continue to talk about. Commodities trading, identification, trade finance. We are seeing all four lots more banks turning with ibm. Francine this is something the banks do internally . Or do they give it to summary elf t or do they give it to somebody else . Ultimately, it will be separately housed. I think in dublin, they said. This is something we are beginning to see with blockchain. The banks are joining in. At the moment, there is a lot of investment. We were promised cost savings. I think we will see a lot more financements in 2018 . Francine who does this Blockchain Technology . Is there one company that is better known than the others . If you look at ibm, they did a deal with maersk. If you look at wetrade, ibm is the main there. From a technology perspective, they seem to be grabbing the headlines. If you talk technology, everybody is dipping their toe i n the water. Francine jonathan, you talked about the top 10 cryptocurrencies. You have bitcoin, litecoin, elthereum. Will we see more of these cryptocurrencies in 2018 . Ethereum, that is being used by ubs. That is more of a Blockchain Technology, which is the debate over bitcoin that i dont want to join in on, frankly, the cut because it is very speculative. Francine you dont really like cryptocurrencies. You have made that clear. But is there anything you need to look out for when valuing this Underlying Technology . Lets be very clear about where i stand. Im not against blockchain and developments in the sector. Im pretty sure 10 years down the road we will be talking in a totally different framework. Is issue i have right now you dont have a credible solution backing them. Therefore, i question seriously their value. Secondly, you dont have any or you have minimal regulation. The way these things develop is initially have a number of smart people that Start Development and get engaged. They create value. Then, you have all these momentum players that want to start joining the party. At in the absence of credible institution backing them, this creates the massive problem. Francine you think 2018 is the year when they get regulated . We saw the french proposal by the french finance minister, saying, we should look at this from a g20 level. Is it up to government or banks . I think it needs to have a coordinated top level, like g20. That is why i dont think 2018 will be the year when we see a decisive breakthrough. We will start making some steps, but until we have the full coordination across all the country members, i think it will take some time. Francine do you, jonathan, is there a bank that does blockchain better than the others . Jonathan not really. Ofks tend to be ahead technology, because they have to be. The dutch are very strong, but they are heavy with commodity. Francine thank you, jonathan ties. Tyce. Ovajonathan up next, shale versus opec. Whats ahead for traders in 2018. This is bloomberg. Francine economics, finance and politics. This is bloomberg surveillance and im Francine Lacqua in london. Pects to take exope charge of 1. 5 billion following tax changes in the u. S. The expect the results to be positive for earnings. The u. K. Based oil venture invests more in the u. S. Than anywhere else in the world. Richard cousins was killed on sunday. The seaplane plunged into the river near jerusalem bay, killing all six people on board. Cousins was due to step down as ceo at the end of march. Formerly the chief operating officer will succeed him with immediate effect. Executivewater Bruce Steinberg was aboard the crasheden it shortly after takeoff. Bridgewater described Bruce Steinberg as a wonderful man. Its hunt forened cash. That is according to south korean backed financial securities. Thats a Bloomberg Business flash. Must choosee eu which bits it will maintain with britain that is according to david davis. Financial services could be included in the deal. Is still gkionakis here. We talked about the eurozone and u. K. Economy, but when you look at negotiations, christian, what kind of template will be u. K. Use . Christian at think that is the exciting debate to be had in terms of brexit in 2018. Of course, the transition period is important, but it is also important how the u. K. Sees itself. Ownit wants to set its import tariffs, and how it imports workers in the future, so it immigratio laws. We expect that at the moment, immigration laws will be tigt her. That is how we get to these negative Economic Outlooks for post brexit britain. If the u. K. Were to eliminate all import tariffs, that would make goods from around the world cheaper. Deregulate services, that could make them cheaper as well. So, theres a whole world of possibilities out there. This global term, brexit, where we get the regulation, lots of immigration nnd tariffs, in the long ru that would be a different scenario from the one we assume, this drawbridge of burton closing to the world. Francine Christian Schulz, the director of European Research at citigroup and Vasileios Gkionakis stay with us. Coming up, its tom keene. We talk more brexit. Francine leading the way. Chinese stocks set the pace for global equities. Manufacturing pmi beat expectations. The death toll rises as the protest continues. Slide. Coin extends its the morning. This is bloomberg surveillance and im Francine Lacqua in london. Tom keene is in new york. A different day, as we discussed 2018. Tom the annual visit, francine, with iran bremmer and their tea, down Near New York University and it is a very terse report from ian bremmer. We have details from that, coming up in the next hour. Francine happy new year, tom keene. Heres taylor riggs. Taylor as you mentioned, we start with the iranian story. There were more deaths overnight from the antigovernment protests. Iranian television reports that nine people were killed nationwide. One dozen had already died in demonstrations that begin must week over the governments handling of the economy. President rouhani has defended the right of the people to protest. South korea will enter talks with north korea next week about the upcoming winter olympics. It would be the first formal meeting between the two koreas since 2015. Theh korea is hosting olympics next month and the north Korean Leader has offered to send a delegation there. President trump will continue to withhold 255 million in military aid to pakistan. The white house will review what it called pakistans level of corporation in fighting terrorism. That theyhouse says got lies and deceit. Bitcoin begins a new year by declining. The cryptocurrency is now trading for less than 14,000. Bitcoin still ended 2017 at more than 1300 up. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Im taylor riggs. This is bloomberg. Thanks, taylor. Let me tell you what we will do acrossday, and taylor, five hours of bloomberg surveillance, we will look at our work with ian bremmer. Also joining us, brent smith of microsoft. We talk more about technology for 2018. And then as we look at washington and the geopolitics and budget for washington, jacob lew will join us. We do that later today, on television and radio later today. An extensive conversation with jack lew. Francine there is quite a lot going on in the market. We had very thin trading over the last couple of days. First of all, european stocks, i doubt we start off with those. They are a little under pressure, down 0. 6 , failing to capitalize on a positive asian session. We did see strength in the common currency. 1. 2071. Dollar and the hang seng, gaining some 2 . Property shares are soaring, but also a gauge of the nations manufacturing strength beat expectations. They were just mentioning china. Lets get montana, after was a pretty good pmi figures. If you look at the manufacturing pmi, its at 51. 5. Lets get straight to enda cur ran. Enda, first of all good morning to you. Happy 2018. What does china worry about in the next 12 months . Enda the biggest risk facing china is how they managed to pull off the deleveraging campaign. Wantolicymakers in beijing to slow down the pace of credit creation. They have identified the financial has an area that needs attention. While at the same time, they are trying to clean up the environment. They have left a legacy of environmental they coul degredation. If then can achieve those objectives without tipping over the economy, they cohead what the congressman. They will have quite the compliment. Francine what does it mean for the pboc . Enda the backdrop is the world Central Banks are moving towards a tapering cycle. It seems the pboc is quite content where they are. They will be prudent and neutral in the near term. While the pboc is tweaking the money market lending rate, this is the one that has a much broader impact on the wider economy, in the second half of the year, we could see the pboc moving towards taht. The government is trying to curb credit growth. Theres a view the pboc is stuck in neutral and happy to remain where they are. Tom we will speak with the ian bremmer her eie in the next hour. My take is president xi had a successful 2017. Poweroes it say about his as we enter the new year . Enda domestically he has authority. D his o theres even speculation that he could be one of those leaders that stays on beyond the expected term. Chinas status on the world stage is growing with the u. S. Pulling back from certain parts of multilateralism, giving china a place to defend the hole. They continue to play a role within the major asia trade deal. Theres a sense that china and xi jinping vasileios gkionaki ae global playing field. They are one to watch on the geopolitical front, tom. Francine thank you, enda curran, joining us from hong kong. Goeffrey yu. In jeffre so, we decided to start with china today because it seems china is out in force today. Can it continue this way . The bar is high for chinas expectations. Next year we expect the weakening. How do you deliver the marginal returns from here . That is something on the political side and economic side. Success is measured in different ways. Market, if rebalancing is successful, that is the best china can do for the economy. Francine what about the deleveraging . Debt levels. Right i think the quality of debnt growth is more important. More onBalance Sheet lending. As is thisuch much as a geopolitics story as it is the market story . It is. It is the slowest in five years or so. Thats still enough to keep the Global Expansion going. As long as the rebalancing happens correctly, the world can deal with a slowing chinese economy. But you dont want to see 6. 5 or so. Yu, i want to congratulate you. What a victory lap on sterling. Lets be smart this year on the u. S. Dollar and renminbi. Can we see the same brilliance this year on dollarrenminbi . We have a pretty boring view on dollarrenminbi. Im with him. Im kidding. Geoff, please. Geoffrey overall, you are looking at a situation where no volatility is acceptablef for china. Headlines overe the last week, you see a tightening of the chinese and their unwillingness to withdraw cash. Is that a sign that outflows will become a problem again . We might be surprised if the downside. As the open the new year on your great, broad review of Central Banks. Which central bank are you most focused on . It bea bmajor bank, or can a subtier bank like the pboc . I think the European Central the one that could surprise the must. I dont think they will move rates until the Fourth Quarter, but the risks of a Fourth Quarter increase are higher than the market will be expecting. I think they will end the Bond Buying Program in september. You see more and more policymakers talking about september for that. And particularly in terms of trying to talk the market into anticipating tighter economic condition. That is currently anticipated. Tom mark gilbert, great work there. We are thrilled to start out the year with geoffrey yu. I will be doing my interview of the day with Jonathan Ferro with jack lew. We discuss trump economics and the budget. Jack lew, looking forward to that infrastructure debate of next year. Jack lew on the 2018 washington. Stay with us from london, and from Eurasia Group, this is bloomberg surveillance. Taylor this is bloomberg surveillance and im taylor riggs. South korea is forecasting a sales slow down this year. Hyundai and kia motors says their performance will be hurt by stalling growth, rising protectionism and dangers posed by geopolitics. Investigators try to figure out what caused the crash of a seaplane that causkilled the ceo of the bridgewater company. Cousins was due to step down in april. In california, retail sales of marijuana for Recreational Use are now legal. Sales were described as brisk in stores. Los angeles and San Francisco didnt authorized shops in time for them to get one of the first licenses and some cities have blocked marijuana sales altogether. Thats your Bloomberg Business flash. Francine thank you, taylor. Tom, you are away. This is weird. Its january, 2018. Im used to you in the new york office, but this is special. Lets go back to geoffrey yu and also bloombergs mark gilbert. We talked about china and deleveraging. Those big unknown is inflation. Geoffrey, if you look at the way markets are positioned at the extra increase from the fed derail the markets . I think they are Strong Enough to sustain it. I thinka week before the decision markets fell 30 or so. And then markets absorbed it just fine. If its inflation generated, then whats there to worry about . If it is a supplyside shock or quitehing what set an sudden, than i might be a bit w orry . Francine are we back to believing in the phillips curve . I think it is a bit like father christmas. You hope it delivers. The market can absorb two or three or even four Interest Rates. That will still leave rates over 3 or so. Thats not a massively highlevel on a historical basis. Whats interesting is the gap between u. S. Yields and european yields. European yields have taken on less. If anything, you will see a rise in european yields, rather than treasury yields heading higher for the year. Francine let me bring it over to my chart of the week. Its a very simple chart. Heres the Barclays Group in white, plan that you have the total return index for bloomberg. If you look at the u. S. Treasury chart, where do they go in 2018 . There is always this talk of a rotation trade. Especially if we see some growth surprises. We are slightly concerned about the tightness in circumspect products. Again, if its a good, Global Growth environment, i think with the amount of cash on the side lines, it will be fine. I think it will be a midyear story, thereabouts. The ruled a catch on the sidelines, waiting to be invested. Cash on thel be sidelines, waiting to be invested. The corporate diesel rates are historically very low. I think moodys is predicting they will fall even further going forward. Not beenrn has reflected within the actual corporate themselves. That looks like its set for stability there, at least in the first quarter. Tom i cannot hear that. I look here at all we had. Let me ask you geffrey, an fx 101 question, can central bankers be overwhelmed by the reality of what the fx vigilantes say this year . Can that tell mr. Draghi and chairman powell what to do . When have fx investors successfully take on the g5 banks . Again, the eurodollar, tahts the one we need to focus on. 1. 25 veryhrough quickly, they might have to push back tapering expectations. But for now, its acceptable. To goark gilbert, i want back to what you said during the last segment, the importance of mario draghi. Last week in europe, there was a lot of chitchat about the United States of europe. The centrali banker to a united europe . He is. The rest of the European Union has a willingness to accept reform and it is politically more unified than it has been in several years. The economic backdrop is basically booming. Thisraghi is overseeing goldilocks economy at the moment. Inflation expectations are rising, but still below target. The growth factor is still very good. I think draghi is having a good christmas and good new year. 2018 is a bit more challenging for him, keeping his policymakers in line. But i do think the rhetoric will change as we get into the second half of the year, and we will see a tighter policy from the european Central Banks and from mario draghi. Tom Martin Gilbert and goeffrey yu, we will return. Before that, we look at American Business and european business, the linkages to the economy. Dominic barton will join us in the 6 00 hour. This is bloomberg. Tom bloomberg surveillance, from london and new york to begin your 2018. We start strong with geoffrey yu and mark gilbert. Geoffrey, you had a great call on sterling last year, but i look at the flows of money and there seems to be huge flows with the dollar and euro. Explain the tripod of sterling, dollar and euro. Geoffrey right now sterling is the boring one. We dont see much movement. The risks are brexit, but expectations are quite low already. The maindollar is point. May be advanced the tapering path of the policy normalization path. But the moment that eats into inflation, i think draghi will step in. The markets want to be long euro. Idle think the markets want to encourage that. I dont think the markets want to encourage that. Francine coming up, we speak with the google chief internet evangelist. We talk about net neutrality, road blocks, and everything in between, which is the internet of things. Some of the commissioners in punchesre pulling no when it comes to making sure apple and google pay their fair share of taxes. Good morning. Happy 2018. London. Ncine lacqua in tom keene out our eurasia headquarters. Looking forward to our guests, including jack lew, and the head of Eurasia Group. In the meantime, donald trump has call for change in iran, with demonstrators voicing their discontent against the countrys leaders. At least 13 people may have died. Get the latest lets get the latest. Air, or a revolutionary with this be going too far, describing the protests . I think it is going very far. Way too far. I have seen on twitter, especially people who are not in the country perhaps maybe in washington or elsewhere asking this question out loud. These protests, the thing that is rare about them is they are scattered across different cities around the country, and they are having simultaneously. Areslogans being chanted against the political system in iran. They are dramatic and severe. They are stronger than we have maybe heard in the past. But they are nothing like the numbers we saw in 2009, according to accounts from the time. The number of people coming out may be around the tens of thousands altogether across the cities. A call either for a change of the entire political system here. Outcry. Real cry an people, especially young people, who have an acute unemployment problem here, it is an outcry and a call for a lot more attention and help from the government and the system backing the government. Francine what are people demanding . It seems to be ranging from Better Living conditions to more political freedom. I think that is about right. There have been a number of economic problems in the country, particularly over the accumulatedhat have the past one or two years. This has affected the lower middle class and working class people. There is also a perception that there is still corruption in the system that have to be seriously addressed. Ais was directly addressed in speech saturday and sunday. This is something officials often speak to, this idea that corruption, address that there needs to be more transparency, that people have the economic bonuses that come through from the nuclear deal trickling down to ordinary people. People whohat is the rouhani emphasize economic situation, as bad as it is now, is far better than it was eight years ago. Deepstagnation was so eight years ago that people need to understand that it takes time for iran to fully recover. To the economy it had and the growth trend it was seeing 12 to 15 years ago. So it is quite a complicated picture overall. Francine thank you so much, Golnar Motevalli from tehran. Still with us, i mark gilbert and geoff yu still with us, mark gilbert and geoff yu. As we focus on iran and what for geopolitical relationships with the u. S. , there is a game of chicken, which i guess is oil. How much will it affect the price . Geoffrey for now, it is a domestic situation. But if it feeds into the proxy wars between iran and saudi arabia, which has been identified as a flash point, that is where the risk lies. Term, medium to longer markets are not going skyhigh, so it will not affect the trend much. Tom geoffrey yu and mark gilbert with us. Right now, for your briefing this tuesday morning, here is taylor riggs. Taylor the u. S. Has confirmed that the Vice President s delayed trip to the middle east is on for this month. Pence have postponed richard after arab leaders denounced the u. S. For recognizing jerusalem as israels capital. An Army Lieutenant general has of the islamic set has lost land it controlled in syria and iraq, but he warned that the group can still pose a danger. And hackers are mining cryptocurrency. Is widenings regime its search for cash following economic restrictions. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. Francine thank you. Staying with cryptocurrencies, bitcoin started the year with a tumble. Lets get back to bloomberg gadfly columnist, mark gilbert and geoffrey yu, ubs Wealth Management head of u. K. Investment office. A piece of Economic Research says forget bitcoin or cryptocurrencies, it is the underlying Blockchain Technology that will change the way banks agree with. Geoffrey we totally agree. Towards the last quarter, the last of from client questions to the first of client questions. Were asking clients the question. That is where we got to. But if, for example, you know bitcoin will be utilized by a country known as a rogue state, you will see greater regulation. Will it be regulated in 2018 . My desk just before christmas when it was at 19,000. Now, it is around 13,500. Does not equal blockchain. Blockchain does not equal bitcoin. Be coopted by the banks if it is considered maverick off the radar. The bank of england has been in this several years. China will look at this. It will get coopted into the mainstream financial system. Actual see some interaction of that technology this year. The cryptocurrency is a bit of a sideshow from that aspect of the technology, which can work and make finance more efficient. Currency . Tcoin a geoffrey no. It is not. It is a vehicle for speculation. Currency is a medium of exchanges. Until you have a critical mass, a large particle mass, of institutions or commercial entities accepting bitcoin as a oritimate exchange for Goods Services or products, then we can have a discussion. At this point, it is not happening. To equate the two, i do not think it will happen. Exactly. That is where i wanted to go. I do not want you to get in trouble with that general of the bank of switzerland, but help me with the central bank of south korea. What are their degrees of freedom in dealing with the speculative frenzy in korea . Do they have options or are they boxed in . Geoffrey i think it is an innovation process on the part of Central Banks as well. Several Central Banks are starting their own crypto units. In south koreas case, as evidenced by what north korea is trying to achieve, they have National Security views on this. They need to use their own hackers and technology to intercept transactions as well. But by virtue, bitcoin is something veered away from Central Banks. Is this an exchange whatever you want to call it outside the world of finance . Or is it just speculation . Everythese manias come up so often. People get wrapped up in the excitement. It has all of the key buzzwords you want. Ai idea of technology and and going off the grid, but it is just another mania. What youre hoping is you can sell the currency to the greater few, because you cannot spend it and will not be able to spend it on amazon. Tom a good way to get briefed on this is with mark gilbert of bloomberg gadfly. He has written a lot on this thing called bitcoin. We continue in london with geoffrey yu and mark gilbert. Coming up, do not forget your morning briefing. You can do it on bloomberg radio. From london and from me in Eurasia Group. This is bloomberg. Good morning. This is bloomberg surveillance. Tom keene is in new york. I am Francine Lacqua in london. Lets talk about oil, opec, and shale producers. Are in iran this comes as a Second Russian operations, began doubling chinas production. Geoffrey yu and mark gilbert are still with us. Opec, not opec, should we figure out what shale producers want to do instead of focusing on opec . It remains the most important question for oil. Itwill keep talking about forever. The fundamental truth of the oil market is prices these days are decided in texas, not the persian gulf. The real question is how much production will they be more disciplined, as they have been telling investors, or will they just put every dollar they can towards new oil. Francine if you think about it, 2017 was a good year for oil thanks to opec. Can they do the same for 2018, and if so, how . Will it has been impressive. The quota cuts took longer than they would like, but they were working. Industry started to fall around the world. We saw an uptick in the price of oil. The policy has butted to work. The real question will be if prices continue to rise above 70 per barrel, it if they can maintain that discipline. Or will some opec members say 70. Re we cutting it at francine does your oil forecast change how you model growth worldwide . Geoffrey not at this point. There can be an argument, of course. Shock will affect Central Banks, but for now, moderate prices lead to stronger canstment, so Global Growth be on the upside. And the invocations for inflation are coming through as well. Mathematically, there will be a knock on effect to inflation if you are above 60 per barrel versus where we were last year. But those Inflation Expectations have been rising anyway. In europe, the bond market will still catch up to rising Inflation Expectations going forward. Francine when you look at iran and we were talking about it with Golnar Motevalli. Clashes between Security Forces and protesters. Is there any danger that does impact the pipelines . Will those dangers are remote irane moment, but what people aree it looking for a people to stay and invest in the middle east. Clearly, if this was to develop and lead towards people talking about the possibilities for a real political crisis or even a regime change, then that happening in the thirdlargest opec producer would be a big deal. Francine what does demand look like in 2018 . We often talk about opec and the production side and the output curves, but is demand Strong Enough . Will demand was the big story last year. People are always talking about supply but what people talked about was the robustness of the economy. We have seen it the strongest then we have in several years. That will happen as long as the Global Economy stays strong. What will be interesting is whether the shift towards electric vehicles will change elasticity in oil demand. Francine is this the story for the next 10 years . How many of your clients ask for portfolio changes . Carsu do have a electric take over, it could be the end of oil. Geoffrey it ticks so many boxes. Sustainability. But even in the short term, china has renewed its subsidies in clean energy as well. If chinas rebalancing shifts intensivess industries, that will be a shift in oil prices. Francine thank you. Geoffrey yu and mark gilbert stays with us. In the meantime, if you have questions, log onto tv. Then come underneath the video screen, put your very difficult 2018 questions to our guests. This is bloomberg. Taylor this is bloomberg surveillance. sts get the bloomberg newsflash para there are signs opec is winning its tugofwar with shale oil producers. For the bti and brent crude reached record levels. Haveand other producers extended production cutbacks in an attempted dry up the oil glut. Bridgewater has been killed in a plane crash in costa rica. Steinberg and his family died when the plane crashed. Ray dalio called steinberg a wonderful man. The latest chapter in the star winner,ga became a top taking in 533 million in north beating out2017, beauty and the beast. That is your Bloomberg Business flash. Tom thanks so much. With Eurasia Group. Ian bremmer to be with us shortly. Francine lacqua in london, Holding Court with geoffrey yu of ubs. Where can i make money in Foreign Exchange this year . I do not care about economics, i do not care about ian bremmers deal politics and all that, i just need to make money. Where will i see that move in Foreign Exchange . Geoffrey zero and on your ecb proxies. Euro stock people talk about 10 to by year end, we took the we could be talking about nine. Switzerland calling for a rate hike at the end of this year. If that happens, the dynamics of how the world views the swiss bank will change. Tom does mr. Jordan of the snb have the courage to do what he did a few years ago and provide a stronger swiss franc . Geoffrey i think he will. If eurozone growth holds up, if inflation continues to move in the direction it is going. If the chinese go to switzerland and buy and consume, he will be fine for this is frank to strengthen, especially against the dollar. Francine is is the end of negative bonds this year . I think were heading that way. If you look at german twoyear yields, they went above the level of 2016 k the first time in five years that yields have not ended the year lower than the previous year. We are starting to see that momentum go. Probably staying negative through this year, but we are in nprecedented francine what is the biggest difficulty for mario draghi at the moment . Theres a get easier after he gets the italian election out of the way . Or does he look at the lack of german bond buying that makes him stock . Mark it is a mandate that says you target 2 inflation that makes life difficult for mario draghi. That holds the ecb council in mind with a gradual policy, a removal of stimulus will be tricky. I do think Economic Conditions will want the end of bond buying at the end of september, so i do not think they should expand that. In the Fourth Quarter, you show a rate increase is a sign of stability. A sign of normalization. It is actually a policy success. For that ecb to plant a flag in the Fourth Quarter and say we are on track to meet the inflation targets finally, lets raise rates. Francine as long as inflation is there and real. Geoffrey but if you have slashing,owing, italy that is a problem that is in his mandate. But will the government do. Francine thank you. Mark gilbert of bloomberg gadfly, and geoffrey yu of ubs Wealth Management. Coming up, ian bremmer, Eurasia Groups president. We will get his thoughts on geopolitics, and also the economy. Maybe we will talk oil, maybe we will talk little bit of china. I cannot wait to get to the report to see you exactly what we need to look out for the next 12 months. This is bloomberg. Omberg. This 2018,orning, what are your top risks for a new and different year from global recession and aansatlantic tension to geopolitical depression. With us the entire hour, ian bremmer from Eurasia Group on the president and americas world view. Business they must adapt. Dominic barton of the kinsey and company on the new tactics to get you to your 2021 strategy. And the top risk for global wall street. Sallie krawcheck on the erosion of global institutions. Good morning. Offices keene from the of Eurasia Group. Francine lacqua in our new offices in london. We welcome all of you to our annual show with dr. Bremmer as you look at the risks for 2018. Survived the new year. I survived the new year. What is your key risk, besides staying on speaking terms . Francine that is our new years resolution. Even more difficult to keep them going to the gym. Toys 17,t top risks of first of all, congratulations to eurasia. They put it the right way. If you look at the markets, it is ok. Yet, you have concerns about social cohesion. And politicians are lame ducks all around the world. Like an uneasy 2018. Tom we have a wonderful set of hours on television and radio. Dr. Bremmer will join us in a moment. I want to talk to you about brad smith. He has a yankee career with microsoft. We will talk to him about be Technology Risks of 2018. Without question, our interview of the day, the former secretary of the treasury for president obama, jack lew will join us on the tensions in washington. And it is an election year. We will talk about that with jack lew as well. Right now, with news from with first word news, here is taylor riggs. Taylor starting in iran, more deaths overnight in antigovernment protests. Iranian state television reports at least nine people were killed nationwide. A dozen had already died in demonstrations that began last week over the governments handling of the economy. President has defended the right of the people to protest. Hold talks wants to with north korea next week about the upcoming winter analytics. If kim jonguns regime agrees, it would be the first formal meeting between the two korea since 2015. South korea is hosting the limbics next month. The north Korean Leader has agreed to send a delegation there. The president will continue to withhold millions of dollars in aid to pakistan. The white house will view review pakistans trump says that the u. S. Has gotten lies and deceit. Extended its slide since going over 19,000 on december 18. It is now trading less than 14,000. Bitcoin still ended i17 up more than 1300 . 2017 upn still ended more than 13,000 1300 . Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Focusne thank you the today definitely on chinese equities, definitely on the dollar. Treasuries are following falling. Lets see where your Asset Classes are going. Chinese equities seem to be meeting gains as property sales are soaring. You can see a little bit of. Ivergence with european stocks you. Thank this is a joy. We begin the year strong, as we did last year and the of before, with Eurasia Groups top risk. Joining us now, ian bremmer, the force behind Eurasia Group as a look to a 20 Year Anniversary here. What is the next 20 year plan . Barton is here to advise you. Ian he is the right guy. Tom everybody said at the beginning that you could not do this. How did you surprise people . What was the number one thing to get you 20 years on to where you are today . Is thee biggest thing substance. The fact that Political Science and Global Politics matters. It matters to markets, to global industry. Something people were not paying attention to come anywhere near to the degree they are now. That is just the way the world is working. My wellworn get copy of leviathan last night. You talk about the hobbesian view. Why the gloom from Eurasia Group . Ian because when the Global Economy feels the way geopolitics does today, people respond. They see it is a crisis. They have to do something. Get the banks ready. We had that in 2008. Everyone knew dom and i talked about this. You and i talked about this. To respond. Sis way geopolitics are easily as that today, globally, as the economics were in 2008. Yet, there is no crisis, no sense of we have to respond. In fact, if you look at the americans, the one country that could conceivably help respond to dig us out of this crisis is actively doubling down. We say we have no intention of providing the kind of certainty to our allies, so as a consequence, anyone looking at the geopolitics today has to understand this is not sustainable and that crisis is coming. Tom dom barton with us as well from mckinsey company. Your institute is a miracle. I do not care about that. I want to know what businesses will do this year. Dr. Bremmer talks about accidents. You cannot do three or five year ieu ofng amidst a mil accidents. What do you see in the behavior of c class offices this year . Dominic its yin and yang. We have seen that improve. The challenge is you have to go after that growth, but at the same time be the pair for these risks. It is interesting the number one risk of that ceos see out there is geopolitical. The problem with those risks is they are not ability curves. They are one or zero. If something goes pearshaped, it is bad. There are issues about your resilience. So what are you doing for resilience, what is your supply chain looking like . How will it withstand some of the shocks ian is talking about . Agilityou think about in your organization, the ability to move resources very quickly. And we are in their midst of a Massive Technology transformation. Tom we will talk to brad smith about that. Francine, please, jump in. Francine is 2018 the year protectionism strikes back . Ian 2018 is certainly a year where we see much greater fragmentation of the global marketplace because governments are becoming more interventionists. Part of that is because the chinese have an alternative model for their investments. They will be seen as increasingly the most important driver of other economies around the world who will align themselves more with beijing than with washington. Part of it is that the president , here in the United States, who, in 2017, talked a lot about protectionism, talk a on trade beating up deals, but aside from the Transpacific Partnership did not do much in 2018, the u. S. Chinese economic relationship gets worse. Nafta gets renegotiated in the midst of a mexican election. That will not be good. You will not talk just about traditional Tariff Barriers but also nonTariff Barriers and Government Support protectionism for their own industries. Francine so what does this mean for globalization . What do you advise ceos do . Dominic we are also worried about this trade issue. Nafta is the big one on the table right now. That will be a bellwether as to how that moves. Because once we start going against trade, it is a race to the bottom. I hope that will not happen, but it is a big risk that is there. Again, what ceos and organizations have to think about is you have to think about being localized. The idea of being multinational. Have your supply chain around the world. The localou doing for economy, how resilient are you for that, how do you move people . Talentre shortages of moving on. How do you deal with, all of a sudden, a shutdown in trade . Tom last year, youre are dead on about transatlantic tensions. About Angela Merkel he enters the year without a real government in power. You lead this year with china and the vacuum in china. How powerful is their leadership, how assertive can they be this year . Speech imost important have heard on the global stage since gorbachev announced the end of the soviet union is when readyping said china is to play a global role. We are prepared to become a global superpower pay they have never said that before. Tom it was a long to our speech. What was the distinctive feature for eurasia . Ian it was that china is no longer small. They are no longer modest pay they will no longer be underneath they see that not only are they bigger than they have ever been before, not only does china now have consolidated leadership under the sharpest leader they have had since mao maybe greater than that that is happening in the context of no one else. In the context of trump. If trump had one major impact in the global order his first year and he has it has been what he has done, the road he has created for xi jinping. The opportunity for the chinese to really occupy some of that vacuum. The last time we had a big transmission in the global order was the u. K. To the u. S. Special relationship. Great allies. For the war together. Now, this transition from the United States is not going to china. Chinas creating an alternative. Economically, in terms of values, it is a very different it is very different from the u. S. Tom and we know it is not a silk road. Ian bremmer, dom barton, and we are honored to bring you one of the founders of modern technology. Vint cerf will join us. From the offices of Eurasia Group in new york, this is bloomberg. Bloomberg. Tom good 2018 to all of you. On Francine Lacqua and tom keene with you. I am at the head of Eurasia Group headquarters. Heard Technology Used an overused and misused. To speak withod someone maybe he did not invent it in a garage, but he did so much for today. Vint cerf. I am told he is an evangelist, but that barely describes his contribution to technology, to america, and to what we all assume today. Wonderful to have you with us today. I am hearing the word technology tossed around. Ofis not the technology william shockley. What does Technology Mean to you in 2018 . Vint it certainly means a lot more internet everywhere. It also means a lot more software. Devices with programs running everywhere. You have heard the term internet of things. Believe me, you will be surrounded by software. That software will be filled with logs, and those bugs will be exploited. We will be surrounded with buggy software. That is what 2018 will deliver. Tom does this software, does this miracle whatever we do with it every day, is it a job creator and a benefit to the society . Where it is an advantage to some and it is addressed to others . Vint i would not put it that way. We have shown Software Enabled devices that we carry with us or that we wear or we are surrounded by we have done they have done a great deal of good for us. I still think that is true. We have to be more aware of the potential risks of this dependence is placing on us. You have to be smart about using the technology benefiting us. That is why 2018 will be important. People have to learn how to protect themselves in this online environment. Francine talk to us about the convergence between Artificial Intelligence and big data. In five to 10 years, how will that change our world . First of all, all, the term Artificial Intelligence is misleading. It makes people think that these isices are like humans it not that fancy. It is simpler than it looks or sounds. A completely different thing than Artificial Intelligence. What we are actually seeing happening is that huge amounts of data are being processed by these programs we call artificially intelligent. We use the term Machine Learning, because that is closer to what is going on. Processing data, deriving insight from it, is what these tools will do for us. But in the end, these are tools. It is important to recognize it is the human beings using the tools, we hope wisely, that will make a difference. The tool, by itself, sort of just sits there. Wonderfullyf is dressed for those in Silicon Valley, where the idea of overdressed is a flat tshirt. Lets bring in ian bremmer. Ian first of all, i want to say thanks. I agree completely that this is a wonderful, unprecedented time for what technology can do for humanity. , as domame way that barton was saying before, that economics look so much better than they have over the course of the past 10 years. And if it were not for the politics, i would feel so much better about these things. And yet, we know that the alternative to what the americans are presently driving for ai, Machine Learning, is what is happening in china. And they do not play nicely together. We know all of the efficiencies being given by technology, to create more money for the global marketplace if the politics do not find ways to help people make that transition, then you will see a lot more instability in countries, a lot more challenges. That is what is playing out in 2018. Because either central governments either are not getting it right, are not seem to be legitimate, or are actively fighting in different models, that the Technology Tools forols for conflict as opposed to what i know you have wanted and fought for, trying to create this as a mechanism to bring people more wealth and sustainability. Vint i really love the way you have put this in perspective. What i see is this a enormous ability to bring knowledge together, to allow people to share what they know, to work collaboratively. These tools amplify our ability to do that. The good side is we are capable of doing things we could never do before, because we have helped. On the other because we have help. On the other hand, we create risk, as we depend more and more on these things did there are people who would like to exploit our dependence on these technologies to disrupt things. The peculiar situation in china as they invest in Artificial Intelligence machines, becoming more increasingly dependent on that, and therefore, their risk is up as well, just like ours. So we have an interesting situation that maybe, the becomezed may destabilized. Francine if china wins if china wins this race for breakthrough technology, what does that mean for the rest of the world . Ian sorry, ask the question again. I do not hear it. Francine the question is about a technologyarms race. If china wins, what does it mean for the u. S. And the rest of the world . Vint the rest of the world will watch the chinese and the americans investing very heavily in robotics, for example, Machine Learning software and everything else. It makes them more competitive. The real question is can we make it possible for the rest of the world to take advantage of those capabilities as well. I think the answer is yes. That we can. As these tools become more affordable and people learn to use them, the rest of the world will be able to take advantage of them and compete. Francine ian . Ian i was just going to say was talking about resilience before as well. This is a critical point. We saw with the russians and everyone talking over the last year about what they did, did not do during the american elections. The issue is not how are you going to fight back against the russians, it is how do you make yourself Strong Enough, make your government resilient if 10 million of buying ads on facebook is enough to help bring down the president ial election, you have a problem. Tom vint cerf, thank you. We look forward to speaking with you again. Evangelistgle as well. With us, dom barton of mckinsey and of any company. Here is a top risk. I do not introduce you guys with all of the accolades of what you have done we live in in an antiscience milieu. What vint cerf did with robert kahn was legendary, unheard of, before he went to teach at stanford. Dom barton, this could not happen today. We are at risk of an antiscience, antitechnology america, arent we . Worry. it is a on the one hand, you were seeing this massive investment going on in technology, in health care, in medicine, material science. The fact is we could be doing so much more. I think we should be celebrating science in a much more significant way then we are research. It is critical to what we are doing. From rmb done decades ago. We need to increase it. One thing i would like to get back to on the resilience piece is on cyber. This is not at the level of ai or the more sophisticated part of technology, it is what vint said about buggy software. Last year, over half a billion people were badly affected by information,aving having stolen it. What i worry about is the systemsto set shut down. Think about our trade systems. What happens when you cannot communicate internally within an organization . This happen to people like maersk mersk and others. Even at the basic level, resilience on cyber has to be a high priority for all of us. Global you cannot manage risks, clearly resilience is a response. That is what you are talking about. Francine yeah. Number five, you have u. S. Iran relations. We were talking about the unrest. You expect this unrest to become bigger in iran . Ian it is very clear that trump wants to burnish his antiiran bona fide. It by going after the iranians, going after the Iranian Nuclear deal, going after what they have done with support for hezbollah and other terrorist organizations. Most recently, given demonstrations in iran, coming out and saying we oppose repression, support what is happening on the ground there. There is a conflict about whether the u. S. Iran deal making it through 2018. If that is true, you could see the iranians going back towards their nuclear plants. Even if not, the relationship between the two is heading towards tom it is frightening how long we have been doing this. Technology and international relations. Linking in politics and freedoms and democracy and information transfer along to our technology as we have never done. Dominic yeah. Is itnefit of technology will allow knowledge to go everywhere, and everyone gets to participate. But it also is a vehicle to be able to be abused, control people, shift people. I do not know one of the comments you talked about the erosion of institutions. We also do not have institutions in place to deal with this new world. The problem is we do not have a crisis, as you said, to say we better get that will war two is not over. Tom we will comeback on this. Brad smith will join us, from microsoft, talking about where are the institutions of technology. This is bloomberg. Good morning. This is bloomberg surveillance with tom keene at the Eurasia Group headquarters. Im Francine Lacqua in london. The Eurasia Group just released for 2018. Risks it says identity politics have taken the stage in recent years and we will see more evidence f. It says identity in 2018. China was the top of the list with eurasia suggesting it is no longer biding its time and has consolidated enough domestic power to redefine the external environment and set new rules. We are joined by former Prime Minister abe and the current president of the asia society. Minister ofime australia and the current president of the asia society. How is the Australian Government handling that . Are they going to increase or slowly fade away . Look at thef you australian dimension to this is just one part of a much smaller broader picture which is being painted by the Eurasia Group risk analysis for 2018. The right of china, the response of government within the region to the rise of china and of course more broadly the response of regional governments including the united china willell to how handle the ongoing challenge with north korea. I think for the year ahead all roads continue to point to beijing but on the question of geopolitics also on the future of the Global Economy as well. Francine where do you see the relationship tween specifically australia and china going and will that hurt trade and investment in australia . Obviously there are political tensions between the two governments at present. The Prime Minister has made a about thestatements activities in australia. This has caused reaction from beijing. We will see how this stabilizes ahead or doesnt and we will see whether in fact economic consequences flow from the current political instabilities and the relationship. Point the earlier relationship between china and australia is one of a much broader equation involving all regional governments where the rise of china is a palpable phenomenon. Do you see donald trump and the u. S. Being a little bit more engaged in asia in 2018 and therefore rebuffing or pushing back china little bit . The president undertook significant visits to the region 2017. Latter part of toda the bottom line is we have one andunresolved security strategic dynamic and its called the north Korean Nuclear program and that will be front and center not just for the next and thet most of 2018 risks of miscalculation in should have all of us concerned if we are calculating geoPolitical Risk for the year ahead. Tom mr. Prime minister, you have led a traditional australian life of some really child and youa went to Australian National university and became definitive on china. Is this china like the china you studied decades ago . Is the president s power extraordinary like it was . I began studying child just before the death of mao. Tom we just lost our signal with the former Prime Minister of australia which is a good reason to bring in ian bremmer. We were talking about the changes in china. Xi, you look to speech earlier. You said it was profound. I didnt love his speech. I was concerned about his speech. Tom you thought it was important. Excuse me. In america we all knew when the soviet union collapsed this was a major global opportunity. I dont think in the United States people understand the trump is focused on his legacy. Sheesh and i didnt love his sp. Jinping is focused on the legacy of what may be a new superpower. If you were to ask me today which system is in greater need of structural political reform the United States or china thats a tough one to answer. That is been an easy one to answer for decades now. The chinese stream is more real for the average chinese today than the American Dream is for the average america which is how trump won. Rudd, what projection for america does australia need . Theres been one simple request and that is predictability. Blowing hot and cold within a 24hour news cycle. When it comes to dealing with something as complex as the becomeslationship that fundamental. We cannot afford to live by tweet fiat another year ahead as the stakes get higher in terms of handling the unfolding nuclear crisis. So, predictability. Francine does it mean that globalization may get hurt this year . Bottom line is globalization has already been hurt. The core dynamics of globalization for the last two to three decades has been opening Global Financial investment and trade markets and what we have had in the last 12 months is something of a sea change in the reverse direction on those counts. Only have we had nonsuccess with the wto liberalization round we have also had american withdrawal from the Transpacific Partnership and on top of that we see in unresolved question on nafta. All this points in one direction. Have we reached the high tide of globalization of trade, investment flows and capital flows which have been the ingredients to give so much global prosperity in recent decades. Singles President Trump signal the beginning of the reverse trend. Tom kevin rudd, former Prime Minister of australia. We are honored to bring in sallie krawcheck. I knew her years ago as a definitive securities analyst at stanford bernstein. Duties atto executive the bank of america and started a small shop that had a bearing up 2017. Bangup 2017. What was the highlight for you . The womens march. The institutions have failed women. The government has failed women. Business is failing women and theres a recognition after years of im going to go get my raise and its going to be terrific and im going to do this on my own to we have to come together because this isnt working for women. Interviewd an amazing with Carly Fiorina on the challenges she faced of the food chain at hewlettpackard. You have the same idea on wall street. In this time of Sexual Harassment and all thats going on what is your prescription for global wall street to get best practices in governance and in leadership over the sensitive issues . Lets take a step back because weve all got a story. Weve all got a story. Its not just the stories. Is that the businesses are not working particularly well. What can lead to Sexual Harassment, lack of diversity at the top and somehow as a country iesare calling mantocrac meritocracys and believing it. Wall street and Silicon Valley which are mostly men which have been epicenters of harassment actually are not providing particularly good returns for their investors. Venture Capital Funds mostly you can just invest in the public markets. Wall street the returns through the ups and downs. Its not just the Sexual Harassment. Its a lack of diversity which has led to poor results which has made all of us poorer. Francine are you going to see a shift in 2018 . I think there is no doubt. I think what happened in 2017 is we had the largest march in history whether it was 3 Million People, 5 Million People. There was a moment when women all said, where is Gloria Steinem . Whos going to lead us out . She didnt show and women started naming names. That was veryened different than what happened before. We supported each other and rallied around each other. Tom we are saying this in an america different from all the other nations that dr. Bremmer studies. We see that with the tone of the present administration. What would you say to the leader of our big banks, investment is the, Brokerage Firms best practice to get more of the food chain . I will never forget being on your show where we were with a Portfolio Manager and he turned to me and we were talking about women in business and he said we just love having women. We just find it hard to keep them. And do you know what i said . I turned to him and the southerner in me is like, be polite. Be polite. I said, have you thought about promoting them . Oh,he just sort of went, what a novel idea. Promote them. Tom she was completely rude. The very first news story of up which is 500 women in hollywood coming together to put money behind the issue. Tom take this into a top risk. Thee have written about erosion of institutions. If the number one risk is that trump ride space for the chinese to actually do a lot more you cant look at the me too movement in the absence of President Trump. Its probably the single most the single domestic impact he has had in the United States. Women around the world are looking at Democratic Institutions and saying these dont feel legitimate for me. They dont feel legitimate for us and we dont think the governments are going to fix them. Something nothing is going to happen. I think thats a dramatic change. I think it undermines our democracy. There is a second level affect to it. Global warming affects women more than men because women do not have the economic strength that men do and women intuitively get these issues we haventore and advanced even though we have been leaning in. We are sort of stuck and we need to do something different. I am sure we will continue this dialogue whether we like to or not. In ae want to bring gentleman you may not know. He is definitive in technology and the legal aspects. He has sobered many decades at microsoft. Brad smith joins us right now. I heard in the last week all sorts of interpretations of the profound effect of technology. When you go back to your princeton and years ago technology was an enclosed compartmentalized idea to study. Thats not true anymore. Technology is everywhere. Yearswill we be in five as you look at the larger picture of technology . We are seeing technology have several important impacts. With the advent of Artificial Intelligence we are going to see an ongoing impact on not just as this is an governments that also economies and jobs and i think people are bracing for that but we are still looking to the future without a clear sense of exactly which jobs will be eliminated, what new Digital Skills will people need in order to take these jobs and the other thing to think about is the International Aspect of this. At one Level Information Technology has become more global. The industry has become more global. This is another area where we are seeing the rise of china. We are seeing chinese tech leaders emerge as global tech leaders and at the same time we are seeing fragmentation in the technology sector. They are no longer is quite a Global Internet as we could see a decade ago and five years from now we may see a bit more of that fragmentation. Part of your charm is you are not in Silicon Valley. Silicon valley right now is a pinata for washington. Everyone is going after them. How afraid should San Francisco and the cliche of google or apple your good competitors, how afraid should they be of washington in 2018 . Find when i get to washington or new york that most people seem to think that seattle is either just next door to Silicon Valley or part of it. I think for all of us there is increasing tension between the west coast and the east coast. I think we have been seeing this unfold over the last decade. You certainly see political commentators in washington, d. C. Identify the tech sector as a pinata. Left. Ot just those on the its those on the right, those in the center. I dont think people have transferred the concern about technology into a defined course of potential regulation. Hat could come it really behooves all of us in the tech sector to be listening to that and to be out addressing the concerns and even Just Technology the concerns which i think Silicon Valley has sometimes been slow to do. To the commonwealth of massachusetts, lets talk to ian bremmer about the tech comments. What is the tech commons and what does it mean . Hes got the president of microsoft saying that what we thought was going to be a global tech comments x like you are going to see fragmentation. As we move from the information to Data Revolution is much more topdown and so the space that being created, the way that people are engaging and the commerceo engage in increasingly are either coming from a bunch of fragmented countries that are competing with each other or is through the chinese government. Those are completely different and thats not the u. S. Led globalization that we have been thinking about the last 40 years. The facebooks and googles and microsoft are italy as strategically important for the are equally as strategically important for the United States as lockheed and raytheon were during the cold war. I dont think they have the sophistication to understand how to do it and i think some of the Silicon Valley libertarianism is problematic. In china, patriotic corporations, its the same thing and thats going to be an incredibly important space for brad to be a leader. Which government is ahead of the curve . Who and how do you educate the government to be able to do that retraining . You look at Government Support or investment in ai i think one would be hardpressed to find a government that is more focused or determined than the chinese to make this area a success. With whatntrast that we see in washington, d. C. Where this administration is more focused on traditional manufacturing and the like them the socalled digital or new economy. Divergencenormous there. When you get into in the area of skills i think its a lot harder to find a government that is out at the forefront. In the United States we are seeing some leadership at the state level which is not surprising. Look at a state like colorado been verygovernor has focused the last couple of years. Look at the United Kingdom which has been investing heavily in getting coding into schools. It is such early days when we think about the impact of ai on jobs. I dont think any government has really formulated a strategy to address it. Francine a lot of people expect these changes to happen next 10 to 15 years. Are we underestimating it or overestimating . Will it be sooner or later . At least if you look at tech predictions overtime we actually tend to overestimate whats going to happen in three years or five years and underestimate what will happen in 15 to 20. I wouldnt be surprised if we see Something Like that happen again with ai. Well take a little bit longer than some people say but i think theres no doubt that over the next two decades it is going to be in ai era and it is going to reshape every sector of the economy. Touchprobably going to virtually every job that exists in the Economy Today in every country in one way or another. Tom brad, if i could move away from microsoft, as president of the company i have talked about the current microsoft had in their large distribution to shareholders years ago. Is that going to be our good 2018 . Se to microsoft in are you going to lead corporations towards billions of dollars or can you invest it to make the Seattle Mariners a legitimate Baseball Club . I dont know that i would place either of those bets at this point. I think the first thing we are going to find before january comes to an end is people are going to start to watch very intently on what the impact of the tax bill is on different parts of the economy because i think we ended december with this meme that the tax legislation was going to return money to companies. It was going to lower everybodys tax rate and i think right now literally Tax Departments of the country are basically hard at work over the holidays going through this thicket of details and what we are going to find is who is really getting money back, whos going to see an increase in their tax bill. Think one should probably wait for that to unfold before predicting anything about what shareholders are going to see. Think one should probably wait tom thank you so much. President of microsoft. With ian bremmer, top risks of 2018 at Eurasia Group. Her wonderful offices on fifth avenue. And with us is sallie krawcheck. You in theo back to trenches. You didnt write about technology but we lived investment firms going down the tubes because they didnt keep up with the Technology Arms race. How big is that arms race right now . We are talking to brad smith. The arms race now is factors larger if you can keep up. The large institutions are in very tough positions because they have prior terry technology they have helped their entire sips systems on that are very difficult to move off of. I used to joke if i wanted to change the color of the page number on the client statement from red to blue it cost 50 million and took six months. Literally at some of these companies the technology they are using they have like five people who know how to code and they are old and dying. Tom ok. What is the prescription to take the technology within our top risks to a Business Strategy . If you are running x number of bodies at bank of america and your fiveyear plan is six months, thats the technology outcome. It is so tough because it is hard to show a return on that investment for shareholders. Its hard to take it to your board and say we need to stop everything and do this. Tom is it a merger . Merger afterciti merger and it was a tech debacle. They didnt take the time to integrate technology. Its hard to show to your board, its hard to show to your that aind constituents is going to make a difference for them. If its the only thing going, its fine. If there are alternative suddenly we have a problem. Thats what is starting to play of 2018. Tom i am off the show if francine doesnt speak now. Jump in here. If you look at your top risk for 2018. Is in the backdrop of a less Resilient International geopolitics you also see accidents such as cyberattacks. North korea, syria. Something going wrong with russian terrorism. What do you most worry about those five in the accident category . It almost could have been the top risk if you are choosing between that. Because at the end of the day this is an environment where we know things are going bump in dont think we are heading to war with north korea. I dont think we are heading to war with iran. I dont think that cyber is going to bring down quickly infrastructure around the world. I know that when you dont have the politics right, when the governments arent prepared to lead and they dont trust each other, rogue states, rogue actors and differences between major powers thats when you get confrontation. Thats why we call this a geopolitical recession and the potential for a major accident or two or three in 2018 to really whipsaw us is greater than at any point since i started the Eurasia Group. That is i think noteworthy because we have a year of President Trump so far and we havent had a crisis of any sort to politically over the last year. Geopolitically over the last year. That feels fortunate but it doesnt feel sustainable. Imagined for me to that our luck is going to continue. It makes for a gloomy outlook. Francine do you think diplomacy has changed . And what does that mean for . Os ceos need to be on this and on top of it and what i worry about is we are all getting caught up in the daytoday of the tweets. The speech in china was the biggest speech since the fall of the soviet union. It got very little attention among ceos because we are so caught up in the tweet of the moment. What is the next urgent thing that may or may not be important . This president of hours you may have noticed seems to like attention. He seems to like attention on himself all the time. Thiso we get sucked into and i worry that as Business People we end up missing the bigger issues. There are no tweets in this report. There is not a mention of Donald Trumps tweets and yet the media will spend more time talking about the tweets tom are you talking about me . Is it my fault . No. It is so easy. We all do it. Tom ian bremmer, thank you so much. We wills 2018 and continue this discussion on radio. Dont forget on television and the former jack lew secretary of treasury. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Alix happy 2018. Yields popping as manufacturing growth hit the record. The current extension of stimulus may be its last. Plus iran takes to the streets. As militarylate officials threatened tougher action. And d. C. Is back to work. ,n the agenda infrastructure regulation, trade and avoiding a government shutdown. Welcome to bloomberg daybreak europe im david westin alongside alix steel. Alix the European Market selloff and a weaker dollar. Eurodollar near a threeyear high as the dollar continues to get pummeled in the selling in european bond market spreading over here in the u. S. Yields moving higher by three basis points. Take a look at the german 30 year yield up by four basis points. You have