Transcripts For BLOOMBERG Bloomberg Surveillance 20180108

A little bit of movement when it comes to the stoxx 600. Its gaining 0. 8 . A lot of investors are trying to figure out if the encouraging Economic Growth from last week will continue. We are exposing data out of the eurozone. For the first time in a long time i have decided to look at the korean won. This is after the central bank said they could intervene. You could see, currently at 1066. We will talk fed and risks to the global economy. Plus, we talk geopolitics with daniel tenenbaum. And we have the exclusive interview throughout the program. We bring you our conversation ermotti. Io reporter after a year marked by a disaster and snap election, theresa may is looking to enter 2018 on a stronger footing. The british from minister ended months of speculation and concern for the Cabinet Reshuffle. It is no surprise. Damien greens departure means some changes have to be made in i will be making some changes. Reporter the u. S. Federal reserve will need to pick up the medce as the slam rate increases occur. The administrations computer modeling of the economic effects result in Interest Rates that arent inconsistent with the feds current guidance. Travelers from around the world faced more chaos yesterday after flooding and john f. Kennedy caused fresh flight delays. After thewn two days first major snowstorm of the year and hers to do with long lines. Of the year left passengers to deal with long lines. Germanys chancellor has said her country needs a stable government to tackle be enormous tasks ahead. Angela merkel began make or break talks to renew the alliance with the social democrats and opens the doors for a fourth term. More than three months of the postelection stalemate, as merkel tries to avoid a morning without a majority. Theirk. Consumers curbed spending for the first time in five years in 2017. The Consumer Spending index flipped to 0. 3 last year from fell 1 inel december. And hollywoods leading women have taken the fight against Sexual Harassment to national tv, as they used the Golden Globes awards. The annual ceremony is a prelude to the Academy Awards and the celebration of both movies and television. National news figures and other men in positions of power took this opportunity to speak out. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Salek and this is bloomberg. Francine thank you so much. Steve bannon issued a lengthy apology to donald trump and his family over comments in the book fire and fury. He said Donald Trumps on was both a patriot and good man. He said his support was unwavering for the president and his agenda, and that shows daily in the National Radio broadcasts on breitbart news. The president s allies have been speaking out against the book. The president s tweets read from the plainspoken truth. A selfmade billionaire who revolutionized reality tv tap into the hearts and minds of the country. Nobody questions the stability of the president. This is a man, he did not become the president by accident. The president is engaged. He understands the complexity. He asks really difficult questions of our team at cia, so good, make informed decisions. There is a level of genius with his personality. I have worked with the president and the people around him, and he has been an active and engaged leader. Francine for more, we are joined by stephanie baker. Thank you so much for coming on. Stephanie, what happens next. This seems to be taking over a lot of the airways. Is there a concern the president uses this, actually, to distract the base . Stephanie i think it has overshadowed his legislative 7, which is of 20117 the tax reform, which is what everyone ought to be talking about. The book has been a tent for inaccuracies and people have denied they have said their quotes are inaccurate. I think it will linger any continue to dominate the airwaves because so much of it does ring true, despite some of the inaccuracies. I think bannons statement yesterday is notable because he did not dispute anything he said and he actually did not say sorry. He just tried to put his comments in context, saying his accusation of don jr. Being unpatriotic was really actually aimed at Paul Manafort for taking the meeting with the russian lawyer in june 2016. I think this rift will continue and the big question is how it will impact the november midterms. Francine in the meantime, it will impact the way trump ithides to deal wit protectionism. Stephanie the issues he wants to tackle are far more divisive. Infrastructure, immigration, trade were even within the Republican Party there are deeper divisions. And i think he is going to have a hard time on infrastructure. He will make republican democrats on board. Same thing with immigration. He will bring democrats on board. I think he will have a harder time getting thing through legislatively in 2018. The tax reform was comparatively easy. Francine the author of the book has had a past, which is not as clean as other journalists. Will it lead to investigations . Stephanie i dont think so. What is remarkable is to have a sitting president threatened a writer with a libel suit. That is unprecedented in modern history. You know, as we know, trump has threatened to sue many people. That is his way of operating and has not gone through with it. I think in many ways what the tok reveals is wha Robert Mueller is investigating. We do not know everything that Robert Mueller has. Thats the main thing to remember. He is probably much further ahead of the press, or Michael Wolff, than multiple realize. Francine thank you so much, stephanie, our senior correspondent. When you look at this, and as stephanie was saying, this was meant to be 2018, the big win for tax reform. It has been for markets, the u. S. Market did very well last year. But a load of the impact has been anticipated. So now, in an environment where the market is very authoric, you have to look for assets which are still attractive in the equity market. It is probably japan, emerging markets and europe, which is held back over the uncertainty over the next elections and the german coalition. We have been positive on the u. S. , probably it is time to rotate a little bit to other markets. As the impact of the tax reform fades and growth and political actions become more certain elsewhere, including in europe. Francine thanos, does a book like this impact the currency markets . I think it does. When you look at the fundamentals, the dollar should be stronger. But it is not. I think uncertainty in the year has to do with that. The market is in love with ma cron, but is concerned about the trumpet ministration. Markets,see in stock in the years despite historical high levels, the Institutional Investors are short compared to the benchmark. Francine but it is still record highs in u. S. Industries. Institutional investors are not long in u. S. Stocks, despite the very Strong Performance in the good u. S. Data. Francine what are they worried about . One aspect could be they are concerned about uncertainty in the u. S. And the debate with this book does not help. Also, there could be some concern that the u. S. Is approaching the end of the cycle. Francine this politics uncertainty, does it impact that policy . Does it impact fed policy . There are a lot of things that are likely to impact fed policy. Last week we saw statements from powell in 2012, where the fed admits they are short in volatility. They are going to be very careful from rocking the market, we think. But we also think inflation is going to rise and we will see this friday, more data in the u. S. We think the yield curve is also a concern. We think the market is pricing a little bit less than it should. Or less pricing the right amount of hikes. They are pricing three hikes this year. Of thelly high prices 2 3 hikes. We think the hobbits the prices could come from europe, where you will have a discussion of the successors to many board members, including draghi. A lot of the good news in the u. S. , and we are not worried about the u. S. Economy. We think growth continues. We are in the late stage. We are looking for other areas in the world, where we can get a better value. Good chart have a to look at breakevens. He will look at that next. Both stay with us. Surveillance. Surveillance. There is many coming up. We hear from the ubs ceo about its outlook for the year ahead and what could derail europe. Macron is in china. What challenges will he face . We will discuss that next. This is bloomberg. Macquari francine economics, finance and politics. This is bloomberg surveillance im Francine Lacqua in london. A grush by global banks or take it vantage of beijings pledge to open the Financial Markets even further. Speaking to Tom Mackenzie, we hear the views on the risks and opportunities ahead in 2018. We continue to see a robust Economic Growth. Be repeatable, of course. Th weof this grow will probably lose some of the momentum from the u. S. Or at asst not a strong during 2017. Some of the rebound of commodity prices. Some of it from the property, or in china. We expecter end, brazil to develop well. We expect to watch the other end. That is the repercussion of the. Monetary policy by Central Banks. U. S. Are equities in the are starting to look a bit frothy at this stage . I think we can say that starting the year, we believe in the intensity. Ensuring other assets, but also on their own at current levels, we believe the growth will continue. But of course, valuations across all Asset Classes are high. We are focusing a lot of attention on policy and diversification. Reporter what are you seeing in terms of trading action from your clients . Are we starting to see a pickup now in volatility . Its too early to talk about the quarter. In general, we expect generally the First Quarter to be more accurate. In terms of market volatility and realized volatility on Financial Markets, the fx, its still very low. Therefore, i dont see a change. I think the last six to nine months. How about looking into 2018 . I expect more volatility. Inorter how do you factor this move to normalization from the Central Banks . How is that going to play into the market . A largerhink percentage of spending is anticipated. I look at the positive side. Normalized rates will create some benefits. Also, in general speaking. Everything normalized rates environment should also have a positive effect on the rest of the economy. Francine that was ubs Ceo Sergio Ermotti speaking to Tom Mackenzie. That is what ermotti sees for 2018. Still what does, Athanasios Vamvakidis still with us, Athanasios Vamvakidis and Alberto Gallo. Is it overvalued . You are saying there are a lot of Institutional Investors waiting to come into europe. I would not say the eurozone is remaining here. All of the levels will tell you the eurodollar a condemning equilibrium is about 1. 20 to 1. 25. You are almost thre. Were almost there. The recovery is ahead of the eurozone recovery. Do not expect the euro to be so strong today. Its not a stretch position, but this position could be at risk. Or, in the market, pricing repatriation of profits in the u. S. Because of the tax reform. Tehse are the two factors that could support the dollar in the shortterm. Francine when you look at the kind of you were saying about the hawkishness of the ecb, that might surprise on the upside. What would that mean for the markets and the german bund . I think the market has been repricing europe since the elections in france last year. However, lets remember we are starting from a 10 year period of underweight. Investors in the u. S. Two years ago were not discussing whether the eurozone would break up, but how two parts or five parts. This view of the eurozone, which was very popular, very spread out euroskepticism has turned into european stability. This has an impact on all of our prices. What i would call the market now is not really overweight, but struggling to ballot something which was a 10 year underweight. Thats in my view not just in the currency but risky assets. If you look at ecb policy, people on the board, the most any influential ones, will leave in the next two years. You are probably going to have a board which is less dovish. That is not something the market is looking at yet. It is still a year ahead. Are muchbundws below where they should be. They should be around 80 basis points. Francine how much of a shock, if they set a limit price, how much of a shock will that be for the markets . The market wants a gradual transition. We dont know if thats always impossible because we see investors have been loading under ration, but also on betting that the world and the government thought market will stay the same tomorrow as it is today. That we are a bit more cautious on volatility in the rates markets. 4 we are aware that Central Banks want to massage the market and make it go gradually to a u. S. Equilibrium. But the market is very one way into the same trades. So, were much more cautious on this than the Central Banks. Francine i want to talk about italy and what could end up being the key risk for 2018. The former Prime Minister could still be the kim in your. E former trimester could still be the kingmaker. How can search investors before the italian elections. We were talking a little bit about german bunds. This is the spread between italian and german yields. We saw them significantly up. A think that was in november 2018. And then you have draghi in 2012 saying he will do whatever it takes. There is not a danger of going up . Investors are concerned. There is a lot of discussion. Underweight was what of the most popular trades at the end of last year. However, looking at the environment and spreads from 2011, theres a change of regime between 2011 and now. The ecb has stepped up. Theres a risk the real risk is the fivestar movement because of their agenda, which includes a series of extreme economic measures. They are not coherent with each other, including a potential euro exit. Like le pen risk was for france, is something we estimate at the low singledigit level. The real risk for italy, the real possiblelike le risk is the is a coalition and that coalition does not implement the next reformss in three years. They need to improve the judiciary system. They need to continue liberal market reforms. They need to invest in education. Italy only has 20 of adults with a degree and lacks degrees in stem disciplines. They need to fight inequality and poverty. Theres still a lot of inequality between the north and south, and the rich and poor. So, five big reforms for italy need to be done within the next three years before a slowdown. That is my main concern about the next government. Francine thanos, even if there is some kind of coalition, which is considered as fairly stable for the market, if the far right movement the farr Left Movement has 25 of the vote, what does that do to investor psyche . I believe the market is underpricing the risks here. A Weak Coalition government would not be able to implement any reforms. I think expedia so far has showed it is very difficult to lament reforms, which is exactly what the country needs. So, there is the shortterm risk if Political Uncertainty increases because of an ability to form the government after the election and the longterm risk coulde reforms increase potential growth in italy and help address the very challenging dataeconomics. Francine how does the ecb do this . Do they ignore it . ses it change draghi policymaking . There is very little they can actually do, really. Now the key program is coming to an end, and there are technical constraints draghi they cannot address. And the ecb cannot be seen as Foreign Policy specifically. Even if this is a large country like italy. Francine thank you so much. Alberto gallo and Athanasios Vamvakidis postit with us. We talk about the French Connection as Emmanuel Macron arrives in china, looking to discuss french business. 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. Politics. This is bloomberg surveillance , and im Francine Lacqua in london. Heres sebastian salek. Reporter steve bannon has issued a lengthy apology to donald trump and his family. The former what has chief strategist said donald jr. Is a patriot and a good man. Thats after Michael Wolffs book attributed comments to donald trump jr. s meeting, saying the gathering had been treasonous and unpatriotic. In the u. S. , the the portrait of several highprofile ministers, theresa may is looking to enter 2018 on a stronger footing. The british Prime Minister ended months of speculation and confirmed a Cabinet Reshuffle is imminent. Obviously, damien greens departure means some changes to have to be made and i will be making some changes. U. S. Federal reserve will mean to pick up the pace for the Interest Rate increases in response to the tax overhaul package. The administrations model reflects the economic effect of the tax plan and results in Interest Rates that are not inconsistent with the feds current guidance. Travelers from around the world faced more chaos yesterday after flooding at john f. Kennedys International Airport caused fresh flight delays and divergence. That came amid operations already strained by freezing temperatures. The meltdown two days after the first major snowstorm of the year left passengers to deal with long flights, if they could get into the airport at all. Germanys chancellor has said her government needs he stable government. Yesterdayalks begin to renew an alliance with the social democrats. The u. K. Consumers curbed their spending for the first time in five years in 2017. U. K. s Consumer Index fell 0. 3 last year from 2017. The Credit Card Company says it is unlikely to recover this year. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Salek and this is bloomberg. Francine thank you so much. Now, Emmanuel Macron has called for an overhaul of relations between china and the European Union. The french president is pushing for more balanced ties with the worlds secondlargest economy, welhile embracing president xi jinpings infrastructure push. I dont know whether this is a french story with the president coming to china, or whether this is a china tribulation story. I think this is a tribulation story. I think it is a trade relations story. For europe, it is important to attach itself to one of the Fastest Growing economies. Germany did this 10 years ago and became the leading european growth. France has a very ambitious reform plan to be competitive in likeext 50 y ears, germany. On the other hand, also china is trying to reengineer its growth model to a consumer driven economy, to increase their trade links to the middle east and europe. Its a very strong positive if europe strengthens links to china. And in the context of the silk road project as well. Francine what does this mean for you, thanos . Is this a renminbi story or a european story . It has direct market implications. But it is important in the long term. The u. S. Is moving away from the leadership role in international trade. I think we will be more from your upcoming in and stepping in to cover this gap. China is already investing a lot in europe. So, its very important for our officials to have closer relationships with china, given by definition that economic relationships are increasing. Francine when the french president talks about signing together the rules of the relationship in which everyone will win, is this a win for china . How do you frame that develops relationship . What we have seen in the p ast was that china was hungry for assets. As they have demonstrated in africa and Southern Europe and so on. Europe still has cheap assets for china, but i think this is a shortterm relationship. What really needs to come out of this potentially, which would be positive for the longterm relationship, where europe could be part of the supply chain. Europe and china could combine their supply chains. Europe can offer consumer goods for chinese consumers. This can be a very strong positive for europe as a whole, corehe larger countries. China has invested in portugal, and also italy and spain. This could be a very strong partnership. It also improves our positive you on europe. Francine francine is this the president pushing as hard as , when askingmp did for a more fair deal with china and by pushing, does it work k . This is a long purpose. The truth is, europe needs the investment. This has been a credit and cover recovery in europe. China is one of the significant investors in a number of regions in europe. View, closernt of economic relations are very important. Do you worry about the next pboc governor and the challenges they have . Away from the trade, if you look at the risks in 2018, the new person in charge will still have to deal with the deleveraging. China still has to be looked in reserves. B reser if you calculate that that 15 or 20 in the banking system. The net reserves, if you had to fix the banks, will be roughly half of the official number. However, what if investors failed to recognize that there is a very large. Amount of savings across chinese consumers. Which is over 20 trillion. Of theonly take 5 savings and funnel the into thepitalizing banks and state owned companies, you have solved the problem. Its not a complete market economy. Some of the savings from the National Pension funds to capitalize the banks. To real issue is how engineer a future growth model, which is not too resource heavy or heavy on industrial productions. That is i think, what the government will do and will announce in the coming weeks. Francine thanos, how do you see the china risk in 2018 . Relatively low, unless we get a dollar rally. Thisll make things difficult for china. China is balancing its economy, which will take many years. When we get a number of market shocks for china in the years ahead. Francine thank you, Alberto Gallo and Athanasios Vamvakidis. Theresa may tries to show strength with the Cabinet Reshuffle to start the year, but will it really make any difference . We will talk about the u. K. Next and this is bloomberg. Francine this is bloomberg surveillance and im Francine Lacqua in london. Theresa may is looking to strengthen her cabinet position after the reshuffle to start the year. This comes after the departure of several highprofile ministers and the unfortunate conference be. Months of speculation and confirmed the shakeup is imminent. It is no surprise, andrew that the damien green departure before christmas mean some changes have to be made and i will be making some changes. Francine how much does the reshuffle actually matter . Vid joins us now. Still with us, Athanasios Vamvakidis and Alberto Gallo. David, first of all, good morning. How much does this matter . It seems if you are we shoveling, you are in a strong position. It is possibly an understatement. Theresa may did not have the best year in 2017. She was described as a dead woman walking. Nobody expected her to last until christmas and now she is talking about a reshuffle. It does sound from the reports that we will not get any big changes. It is a sign of her increased strength. We will see some changes. In the peripheral positions. And remember why she is making changes she said on the bbc. She had to ask damien green to resign. That was a pretty calamitous event. Is,ink the bigger question what does this mean for brexit . Again, it does not seem anything significant will change. It looks at the balance in the cabinet between proeuropean and fore more keen separation. It has been reported there will be a minister for no deal. Francine that is quite a portfolio. An interesting job, right . This is a cabinet position, something that will report to david davis. It is a bit of red meat to the brexiteers. And again,erms this is speculation. We understand that the chancellor will keep the job and Boris Johnson look at the job. Important . Or less we are seeing reports about the education secretary and the health secretary. Nothing that eye catching. What we called th ebithe biggiet thorn, forest johnson, he seemed unmoved. Francine i meant lesson pardon when dealing with brexit. What does this mean for the pound . This is a fairly transitional period. The market would like to see a u. K. Government that is more united. The path of getting there was far from ideal. For me, we get the decision from the rug. The bank of englad is unlikely to hike again. Its likely to start negotiations on trade in the second half of the year. The u. K. Government needs a pragmatic approach from the very beginning. Francine thanos, this is my pound chart. Ing tells me it will hit 1. 50. Is that possibe . It depends on waht the dollar is going to do. Overall, though, we are bullish on sterling. Taxesen though the u. K. Have been ok, we are likely to see a strong year at sterling. Francine alberto . I think the real question is Jeremy Corbyn. The u. K. Is not doing so well, also compared to europes recovery. It is a paradox. Is sustainingrope the u. K. We have postponed the problems the nhs and social inequality, the fact that real wages have not grown, we have an economy too focused on finances and services. We do not focus on the industrial plan. And then come the real ashes after the transition agreement. There is a slowdown. And jeremyn to corbyn wins. Francine this would be poost 2019 . It depends on the amount of has . The governmene government the could be a softening on the stands after the amount agreed to pay two europe. Now you are to setting often you will see the kids and how early you can see them. Maybe European Countries do not have an incentive to punish the u. K. If theres an early agreement, the fx market can cheer up. But labour is waiting for the structural issues to errupt or not. Francine david, a serious is labour. H theresa may was to bring in new faces. Whether that will be noticed for the general public, im not sure. Labor has slipped behind the tories again. You might expect in the current scenario that leadership would be doing a lot better. If Jeremy Corbyn is going to win , and the labour party is exciting to make the noises they expect, you should see those pulls a little bit firmer at this point in the parliament. 018 will be giving a little bit more of suffer ching. Of suffrage. Francine we talk tot he ecb. Calls for the Central Banks Bond Buying Program. At next. S th this is bloomberg. Francine economics, finance and politics. This is bloomberg surveillance , and im Francine Lacqua in london. Reporter ubs is in discussions to acquire a majority stake in the chinese joint securities merger. The ceo says the zurichbased bank is ahead of its double headcount in the country over a fiveyear period. An comments were made in exclusive interview with bloomberg in shanghai. We start the discussions with our partners a to 49 ths ago, going up and we made plans for the future to go up to 51 . Reporter the belgian rival has rejected the takeover advances. The Danish Pharmaceutical Company is now pressuring the board to open talks on the bid for the 2. 6 billion euros. The proposal includes an upfront cash offer of 28 euros a share. The next month him in his 44 more than the stocksclosing price on friday in brussels. The ecb pulls th policymaker is talking about ending the purchases. Is the ecb taking policy d . Essons from the fe when you look at the broader timetable, they will be a lot of force trading. Is it time for germans to take the helm . Probably it should be about confidence for the next governor. We know many boardmembers are leaving, starting with the Vice President , peter price and within thehi next two years. It could have a different board and president. We do not know if he or she will be german from another country. Probably the next president will not be as dovish as mario draghi has been. The economy justifies that. We have to remember europe is years behind the u. S. Cycle and being too hawkish could create a too fast currency appreciation. Whoever the new governor or president will be, he or she needs to be very careful and gradual, as the fed has been doing. Francine do you worried that at some point, euroe strength will be a hindrance for the european economy . Years of data has a very strong. Inflation is moving to the downside. I think the ecb should be very careful not to send hawkish messages too early. The discussion about the future of qe should take place in the summer. They should be careful to send not the wrong market signal. It will be seen as very hawkish. The qe strength was said to exit. So sending their own message, which is overshooting for the euro, could be a concern. Francine let me bring it over to my chart, which is this one, year is the u. S. 10 breakeven, which is the at 2. 04. Does that mean inflation is definitely coming . We were waiting for inflation, but it was always a step behind. Today we have much lower u. S. Unemployment rates. We are starting to see signs of wage increases, a lot of minimum wages being hiked. Inequality has become a bigger concern. Theres the risk of stimulus. That is something we did not really have last year. It was expected, but not certain. We think there is some spillover this to higher inflation rates. However, the are stealing structured a revitalization. We get to that 1. 8 core, which could scare markets. Francine thank you so much. This is bloomberg. We will talk about closets and finance. Francine sending a message. The dollar strengthens as investors Inflation Expectations quite above the 2 target. An apology from steve bannon, as he says Donald Trumps son is a stable patriot. Ubs tells us there are still a lot of issues to be addressed in europe. Good morning. This is bloomberg surveillance, and im Francine Lacqua in london. Tom, its the first full trading day of 2018. We look at the data from last week and forward guidance. Tom politics is a huge distraction with Michael Wolffs look over the weekend in washington. Stephanie baker will join us in a bit. But you have got a Cabinet Reshuffle. How many bodies go . Are they bad people that are going . Francine so, we are going to wait to have the exact details, but we think it will be three to four. The message is that theresa may is strong and it will not have that much of an impact on brexit negotiations because the key positions are remaining put happen in ao couple hours. Reporter steve bannon is try to get back on President Trumps good side, issuing a lengthy apology. Those monks came in a new those remarks came in a new behindthescenes book. The president s allies appeared on sunday talk shows to defend him. British Prime Minister theresa may says she will reshuffle are cabinet soon. Newspapers report she plans a reshuffle to promote a younger and more diverse generation of conservatives. Damien green was forced to quit last month after an inquiry on pornography on his computer. Chancellor Angela Merkel has begun make or break talks that would open the door to a fourth term. She hopes to renew her alliance with the social democrats. There have been more than three months of a postelection stalemate in germany. She does not want to govern without a majority or face another election. The two koreas will hold their first highlevel talks in years tomorrow. They will be focused on north korea sending a delegation to next months olympics in south korea. At the same time, south korea will try to give undermining the u. S. hard line against the north. 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. Tom equities, bonds, currencies and commodities out of the frigid cold of america, warmer temperatures with francine today. Still below freezing, but the market warms up. Usually a quiet day today and it is. No curve flattening under 50 basis points. Oil not part of the story. The vix, 9. 57. Butequities grand higher, it is day after day after day higher i put in bitcoin. Theres a new etf coming out. Should i go into the double leverage longer short b itcoin . That would be a good cash alternative, right . Francine i think if you can chart it, you can buy it. ] im not giving any advise. Tom i will talk to matt miller. Francine there you go. The european stocks are gaining it had. The earnings season is expected to support these equity prices. We are getting a little bit of data. Economic confidence is better than expected for the eurozone, 116 instead of the 114. 8 estimate. The. S athe korean won see sa little bit of volatility. North korea and south korea getting together to discuss things of the future. Greats a grea observation from socgen. This is the long euro. The center tendency is this long line. We have exploded up to let me count them, six plus standard deviations. A huge, huge long bet. I will get that out on radio and twitter a bit. Good morning radio london as well. Sick standard deviations as well. This is the only word i could come up with from taylor riggs. Inormousag general bet on long euro. Francine a very technical term. I know tom is reading up on italian politics. I wanted to chart it. A lot of this is because of the Bond Buying Program from the central bank. This is the spread between the italian and german 10 year yields. If you look at the polls, theres a Center Alliance to be the biggest political group. The ecb is buying a lot of bonds. Tipsrs in the market for are betting the core Consumer Prices are set to surge ahead of the crucial cpi data, which comes on the back of fridays jobs report. The vix, hovering around the 9 level. Deutsche bank disclose the Fourth Quarter operating revenue. We are now joined by Nick Gartside. Nick, you always make us smarter, so make us smarter on market moves. Will they stay, or will we see record highs in general . The sentiment is very much there, and when you think of that wall of worry, this is just the start of it and you touched on those eurozone confidence numbers. When you look at that economy, it is on fire. Francine it is on fire, but for how long . Continues going higher, it could hurt the recovery. It does and Something Like 1. 30 to 1. 35 is achievable. There could be a consolidation in the middle, but we will likely see a reaction function change from the European Central bank. Tom i looked, nick, that where we are. The euro bet is extraordinary, topping six standard deviations. Is that unique to the euro that is, if you will, that are three to five standard deviations made . It is fairly commonplace and one of the big drivers is the weak dollar. When you look at the fed, you in. Two hikes priced when you look at the other Central Banks, that is where the big differences. When you look at the ecb, you have the first rate highpriced at the end of 2019. That seems absurd, given the level of Economic Activity in the eurozone. Francine the absurd nature was the exogenous shock, which will give you a direction for the spring and summer. There has got to be something outside that you need to observe to have a believe and where we are going. Yes, and one of the key things is politics. Political volatility will remain elevated. That gives you a buying opportunity. So, the real key for europe could be inflation. Inflation is dead for a decade now. Kudos, you can an uptick in inflation and that ultimately causes the ecb repricing. Francine ok, but where do you observe the inflation, or where will you find the inflation . Is it country to country in europe . Or is it a general omnibus inflation . Therit is country to country. For two years now, the eurozone has outperformed the u. S. Economy. Look at the latest with negotiations and germany. The trade union there is advocating for a 6 increase in wages. They are unlikely to get that, wouldflation around 0 represent some sort of Wage Inflation. Francine button it, germany is not spain. You can negotiate with growth in germany, but can you do it in spain and greece . When you look at inflation differentials, germany is the big laggard. Ultimately we need more inflation in germany. If we could get higher inflation then, you could see other countries follow. Francine Nick Gartside stays with us. Coming up later today, a conversation with martin gilbert. That is at 11 00 a. M. In new york and 4 00 p. M. In london. This is bloomberg. Reporter this is bloomberg surveillance, and im taylor riggs. Ingrid uber does impact biomedical to gain an extreme mental blood cancer treatment. The price is 1. 1 billion. They could end up paying as much as 7 billion over time if the drug reaches certain milestones. Has offeredrugmaker to purchase 1. 3 billion. The deal would give novo nordisk the treatment of rear bleeding disorders. To engage inlined talks. Stay with bloomberg for more on novo nordisk. Will be joined by the fo. By the cfo. Sergio ermotti says the swiss bank is the head of the plan to double the headcount in china over the fiveyear period. That is your Bloomberg Business flash. Tom thank you. Ts been an extraordinary weekend in the u. S. Fire and fury i have read about 40 of it, thanks amazon kindle. Just a lot going on. Lets focus on this. The president recouped to camp david and they recommitted to selling the tax act into this year, which is hugely unpopular according to polls. Apology put out an i get all about. But here is the motion of sunday morning. We begin with a contentious Stephen Miller comment. The president s tweets absolutely reaffirmed the plainspoken truth. A selfmade billionaire reality tvzed and tapped into something magical. Nobody questions the stability of the president. This is a man that she did not become the president by accident. The president is engaged. He understands the complexity. He asks really difficult questions of our team at the cia, so he can make good, informed policy decisions. There is a level of genius to his personality as it relates to his marketing, political judgment and insight. I have worked with the president and the people around him and republican senators and he has been an active and engaged and effective leader. Tom we have the commotion of stephanie baker, our great intellect, in dealing with american politics. Does this debate in the angst over the Michael Wolff book, does it have legs . Is it a weekend thing . Or does this have a real, sustainable effect on the white house and washington politics . It looks like a rift that is set to continue. I dont see them making up over this like they have with previous risks in the past. Be,real question should what effect will this have on the november midterms . Bannons support was crucial and he remains popular within the base, the antiestablishment republican base. Hes backed numerous candidates ahead of the november midterms. What does this do to the republicans chance of keeping control of the house and of the senate. Can they do it with steve bannon and trump at work . Tom clearly with a more liberal, democratic tendency. He are his comments and the first line i really agree with. The most astonishing aspect of the response is that anyone is wa surprised. Many republicans still seem determined to connect the president. He behaves like a traditional republican, the more the congressional gop want to prop him up. If there are no surprises to this book, what was the surprise for you . You know, the book has been attacked for being inaccurate numerous factual errors. People saying they were misquoted. However, the majority of it does ring true. And you are right, it confirms what we have read. It confirms our worst fears. It is worse than many of us thought. At what wassing between the lines. Think some of the quotes that sood out for me was to bannon Robert Mueller investigation was much more serious. He did issue a policy, but he did not react any of his statements on Jared Kushner Money Laundering and that was part of the book that ring true to me. Steve bannon and others had taken this Robert Mueller investigation for more serious than others. Francine does the book impact on thetrumps face midterm elections or the rush investigations . It does give Establishment Republicans the upper hand. You see steve bannon be isolated. Republican donors seem to be abandoning him and that will have an impact on Donald Trumps base and the far right key party candidates. They are seeking distance themselves from steve bannon and ally themselves with donald trump. Francine this is only a couple weeks after the big tex overhaul, and it is amazing how they are going from a win, and now we are discussing the book. Are there any implications on Financial Markets . No, it should be minimal. The impact on the economy is pretty limited and markets will focus on tax reform. And that adds about one quarter to gdp this year. Tom everybody in america is deciding to file their income taxes earlier this year because of all the chaos. Has this thing changed in popularity . They really have got to sell bill to the american people. How do they do that . They have not focused on the and they need to sell that, particularly the head of the america november midterms because it remains unpopular. I believe the journey will be out into Many Americans by other tax returns to see how it affects them. Some people will see the immediate effect through payroll taxes. Others will see the effect until the file. They need to instead of donald trump talking about how he is a stable genius, he needs to stay on message and slimy taxable to the public to change perceptions on it. Francine very stable genius. Stephanie baker, thank you. We will have plenty more on politics and plenty more on what is going on in the markets. We will be speaking to the ceo of nobody nordisk. This is bloomberg. Francine this is bloomberg surveillance, with tom and francine from london and new york. Novo nordisk has made an for ablynx. Offer the move by the danish drugmaker to rekindle growth by beefing up the blood disorder unit. , thank you forrd joining us on bloomberg surveillance. I was looking through some of the analyst notes and some suggest you will need to raise your offer. He willave a red line not go over, or are you ready to negotiate . Our intention is to get into a dialogue and get a decent understanding with the value that ablynx provides. It is possible that prices can be raised if we get Additional Information about the valued drivers in ablynx. Francine how does it work . Do you have a best offer you are willing to go to, or are the stepbystep negotiations . Currently, we have been trying to base the proposal to the board of ablynx based on external available information and without being in a specific ilog we would like to get specific dialogue with the board of directors. We would like to get into a specific dialogue with the board of directors. There is no specific, predefined level. Francine have you been speaking to be shareholders. And are they on board . Solely theno far, basing our information on external available information and without any context to shareholders. Now we had made a public we are interested in acquiring the company and are in a dialogue with the board of directors and from here on, it is more meaningful for us to be in a dialogue with the shareholders. Francine do you think there are other suitors waiting and why is ynx so attractive . We do not have knowledgeable the other suitors. That question could be directed to the ablynx board of directors. Becausettractive target they are having a new treatment rare bleedinga disorder, which has been active more than twofor decades. The second is we have been in a Research Collaboration with ablynx since more than two d 2015, and we have a higher duration for the skill set of the Research Organization and we would like to include global the novo nordisk platform. Francine are you ready to go hostile if negotiations dont go anywhere . As a also noted here, we like ofintegrate the people ablynx into the novo nordisk. We are trying to get into a negotiated transaction because that will ensure we will be able to integrate the high skills of the people of ablynx into novo nordisk, in joining our global Research Organization and driving research. Tom wonderful to speak with you this morning. You people own the diabetes business, which is maybe the worlds Biggest Health issue i believe 80 some of your business has to do with the diabetes business. You people print money. Maybe you print danish money or euro money. Maybe you print dollar money. You are the mother of all take ups for anybody looking at an obese, overweight world. How do you defend yourselves from being taken out by an american giant . I would like to note that we are in the majority of the votes in novo nordisk, we have an eight class voting system, and the majority of the votes are by the organization that has a longterm purpose of being stable. That is one key element. But another key element is we deliver competitive results and luations that protect us against hostile takeovers. I think the key driver is really that we have a longterm, Stable Shareholder owning 28 of capital and over 70 of the votes at the annual general meeting. Tom i am sure you are a great watcher of europe. O you believe in the european recovery . Has your finally escaped 10 to 20 years of i think we are seeir business a gradual recovery, and i think the nearterm outlook for europe is more positive. It is interesting, in our business there is a clear correlation between the overall Economic Growth and the Economic Growth we see of our franchise. I think prospects for europe are certainly better, and it seems draghi has been successful in managing a recovery of the european economy. Tom thank you so much. We look forward to speaking to you off our london desk the next time you are in london. With us on that london desk, nicholas garside. I just mentioned to the cfo of novo the idea of europe at escape velocity. Are yields at escape philosophy . Velocity . Have we gotten to the point where we have seen real acceleration to higher yields . Very much so. We should see that in 2018. Egsimately, one of the big l of support has been ecb buying. That comes to them and in october. When you look at the direction of european yields, much higher at the end of this year. You look at twoyear germany, 60 basis once. That is pricing in an emergency. Europe is clearly not in an emergency right now. Tom thank you so much. We will continue with mr. Ga rtside this hour. Here is taylor riggs. Trumps alliesnt are defending his fitness for office in the wake of allegations that explosive book. Over the weekend, the president once again denounced the book and described himself as a very stable genius. Time is running out to avert a partial shutdown of the u. S. Government. The deadline is january 19. Democrats and republicans are far apart on a spending bill. There is no indication either side has budged on immigration and a spending cap. President is calling relationship between the eu and china to enter the 21st century. He is in china for a threeday visit. He wants more balanced trade ties. More problems at new yorks jfk airport following that severe storm last week. Flooding at one of the terminals cost more flights to be delayed or diverted. This has already caused thousands of passengers to be stranded. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thanks so much. I would suggest, francine, and i dont know if this happens at heathrow, but this borders on national disgrace. Inat at my dining room table the last 30 hours with one of my daughters friends who sat on a at jfk. Or four hours she was given half a cup of water for four hours. It wasnt just one playin plane. This was a national thing. Unfortunately, it happens everywhere. It happens in the south of france because of the storms. You have to find out whether it is the responsibility of the airlines because they could have. Nvented it or the airports i was six hours on a runway a couple of months ago. Tom i have never done it. Francine it is very difficult to travel with the elderly or very young kids. Tom do you see how her voice changes when she says the elderly . On a monday she does that. The elderly. 100cine im talking about plus. To acquireiscussions a majority stake in its chinese business. China correspondent spoke exclusively on a wide range of topics at the ubs Greater China conference in shanghai. He asked about the global Regulatory Environment. We are very pleased to finally have more clarity about the new framework. There is going to be some discussions about how to implement the roles at national levels. I suspect that we will be able a growth ofto have our based business and also complements any future profitability with profit returns. And buybacks potentially . It is hard to make an announcement right now, but it is part of the equation, and we always say it does not really change. We have always mentioned in the past that we would have a baseline dividend policy to achieve growth aligned with our profitability, and complement in it with special dividends complementing it with special dividends as we did in the past. What is the Material Impact trading positions . Smoothbeen a relatively transition so far. Is that the experience . So good so far. It has been a smooth transition. We saw volumes in the first few days where people were watching and making sure all systems and ,eporting were working properly but i dont see any major changes so far. We are well positioned in terms of we have leading capabilities in research, in executions. We are well prepared. How would you describe the Regulatory Environment . What are they getting right and wrong . Regulators do many things right. Banks in the past, particularly , the the financial crisis world needed to take action. When you do all these changes in one go, of course you make some mistakes, and some of them have been fixed. Some of them probably need to be fixed going forward. I am very pleased that the big chunk of regulation should be behind us, and we can focus on growing our business and managing the next challenges because the last 10 years were highly influenced by regulations in our industry. The next 10 years will be influenced by technology and changes. It is a good time to look forward and not back to the past. Did you welcome the tax changes that were pushed through in the u. S. . How has that impacted the u. S. Side of your operations . We always look forward to any changes that make business, any business place where we operate more competitive to operate. We expect those changes to growth in thesome economy and push the profitability of not only the Banking Sector but the economy. Much of this has already been discounted in the prices of liquidities as we see. Very favorable view, but it is going to take time to see exactly how does going to be implemented and how the market is going to react. Could you see corporations in in as a result capex as a result of this . One could say yes. On the other hand, on low rates on balance sheets, those were there before, and i dont think corporations need to have indications to have new investments. I think it is better for small to midsized businesses and large companies. Francine that was Tom Mackenzie speaking exclusively with the ubs ceo. Joining us is patrick winters. Great to have you on the program. When he says he is expecting more volatility to become more normal in 2018, how much does that help the swiss bank . Listen, i think the first thing you have to know about ubs is it is an investment bank. Low volatility hurts the investment bank. People are not trading so much. It also means for the Wealth Management that clients are less inclined to trade. If there is low volatility, and stock markets are rising, that is still a good thing for Wealth Management. That means assets under management are rising. Francine there is always someone new heading up Wealth Management. Is this important . I think you have to look at the background to this. The old head of that division was a 30 year ubs veteran. Tos presently decided step down in december. That raised some questions about that sector, is it competitive . This is an area where ubs has to keep an eye on the ball. Credit suisse is also upping its game. In 2008 and 2009, Western Banks were going down in china. What were the Lessons Learned about what they got wrong a decade ago . Ago to thet a decade side for a moment. I think what they are doing right in china is taking the slowly approach. They know china is going to be the most important market for them in asia. In terms of Wealth Management, it will eventually be the biggest market in the world. They have to be on good terms with the government and clients there. Tom great work out of china by our team smart comments from ubs. We will continue with jpmorgan. Lots more to talk about as well. Coming up, we will look at the new brexit. Prime minister may is back from holidays. I guess the big four in the british cabinet stay. We will do that in the next 20, maybe the next 45 minutes. Your morning briefing across a warmer north america. Bloomberg radio, coast to coast. Stay with us. It is bloomberg. Francine good morning, everyone. This is bloomberg surveillance. Tom and francine from london and new york. New year, new cabinet. Were talking about brexit. Prime minister theresa may says she will be announcing a reshuffling to her senior team soon. This expected she will promote younger faces from more diverse coalition. Joining us now to discuss this david and nick. Welcome back to the program. Key positions that have an influence on the economy and brexit our standpoint, but she is also creating a no plan Prime Minister. That is the most surprising part. This new level position of a no deal brexit minister, somebody who will be tasked with planning for the talks to collapse. This is something that the very probrexit part of her party was clamoring for. They have argued that you need to have the threat of walking out of talks to get a good deal. Many people in the party feel like no deal would actually be a good thing. It is a bit of red meat for that part of the party. Unconfirmed, but we should get news on that. Who goes into that role will be interesting. Nothing particularly changes. Change thee doesnt dynamic of where britain is headed in terms of the negotiation. Francine does it make may st ronger . Unimaginable a few months ago that she would still be in the job. She was described after the election as the dead woman walking by her party. She is still walking. She is using the holiday recess to shuffle the deck a little bit. Not enough to change those key positions, people like Boris Johnson will have been such a thorn in her side. Francine i have heard calls saying theresa may does not last the year. I have heard Jeremy Corbyn is the next Prime Minister, and it could be before that 2019 brexit deadline. Where do you stand on brexit . It was unthinkable she could do Something Like this even a few months ago. It is a sign of strength, and delighted as ever will be sterling. Sterling rocksolid. Still fairlyngland missed price. There is no reason they cannot hike rates twice this year. Francine i think we are just getting breaking news from somebody in the cabinet saying theresa may will carry out a reshuffle in the cabinet. Do you care about reshuffles . . Oes that pound on the it is pretty marginal. The closer we get to the deadline is when the market will zoom in on the negotiations. Tom there is talk of a no deal minister on trade. Explain that to our global audience. Were going to have a junior cabinet member working with mr. Davies. Are we going to have a cabinet minister that says there is going to be no trade deal . Has been a lote of criticism from the probrexit camp in the conservative party that we are not serious about walking away. This is a sign that we really business. Ess mean there has been this is a of no proper money to prepare for this scenario. It is fleshing out the threat that britain is tough enough to walk away. It is a junior cabinet member. It is not a secretary of state. This person, whatever it is, and unconfirmed report, will report to david davies. This is to show the rest of the European Union that this is a possibility these talks could collapse. Tom we now go to our team coverage. Francine, will the cats be shuffled . Francine i think the cap is there to cat is there to stay. There is always a little odd rivalry when the cat at downing eet meets the cat from in the meantime, if you have any questions just load up tv and you can steal some of the cool tom charts. You can also ask nick a question. This is bloomberg. Is bloomberg surveillance. I am taylor riggs. And some of the countrys other Big Companies have agreed to pay workers more money. Royalre matching a handout. In hollywood, the awards themselves may have seemed like an afterthought. The industry took the fight against National Harassment to tv. That is your Bloomberg Business flash. Thanks so much. One thing we can do with the bloomberg is we can look at the back of a given currency pair. Bring up the chart. This is really advanced stuff on the bloomberg. I dont show this to often. On the razzledazzle bloomberg. All you need to know on eurosterling is this is the time duration one year. Here is the bet, stronger euro. Here is the volatility call. Stronger euro against sterling. What is so interesting is the chart on eurodollar does not look like this. There is a real on hinging of currency dynamics. Very much so. You can only think of sterling through that brexit prism. If you think of it there, you have a huge amount of uncertainty as you go out one year. That coincides with the culmination of the brexit negotiations in a year or so. If you think of eurosterling, it is really going to be a market of euro strength. The key will be when we get the ecb pricing rate hikes. If you look at eurodollar, that moves Something Like 10 this year. Eurosterling is probably half of that. Stronger by about 5 . Tom are we at any point where it is about price and yield . I think about yield up, which means price down. Are you managing for a bond bear market . Very much so. The epicenter of that bond bear market is europe. The Monetary Policy setting, it is set for an emergency. Clearly, europe is not an emergency. A good outgrowth the u. S. Francine what happens to the bank of england . How may times can they hike this year . Probably twice. You have underlying Economic Growth 1. 5 . The risk is that stronger. The other impact this year could be wage growth coming through. You always get that lagged impact. We should see a bit of Wage Inflation this year. Tom perhaps a little more uncertainty out there than we imagine on this january of 2018. Nick gartside, take you so much from jpmorgan asset management. Neil shearing from Capital Economics is with us next. Stay with us. This is bloomberg. Is bloomberg. Tom this morning, the fire in the fury of the sustained and advancing dow. Can we go doubledigit by valentines day . This morning, the fire and fury of President Trump. Issues. S the white house continues to massage the message. China. Does not trust mr. Macron attends beijing. This is bloomberg surveillance. I am tom keene. I cannot speak french. She can in london, Francine Lacqua. How did i do . Francine i think you should get a side job translating the book into french. Rally. Are extending the politics, left right and center. Tom right now, the president at camp david and the what has. There is taylor riggs. Taylor steve bannon is trying to get back on President Trumps good side. He has issued an apology. His remarks came in a new behind the scenes book that raised doubts about President Trumps fitness for office. The president s allies appeared on sunday talk shows to defend him. Theresa may will reshuffle her cabinet today according to a government spokesman. Willapers announced she promote new faces from a younger and more diverse generation of conservatives. Wasdeputy damien green forced to quit last month after an inquiry about pornography on his computer. Make or break talks would open up a door to a fourth term for Angela Merkel. She is trying to renew her alliance with the social democrats. She does not want to face another election or govern without a majority. The two koreas will hold their first highlevel talks in more than two years tomorrow. At aalks will be held border village where the 1953 armistice was signed. They will focus on north korea is sending a delegation to next months olympics in south korea. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thanks so much. Through the data quickly. Equities, bonds, currencies, commodities. The euro back to a 120 level. That gets my attention. The vix under 10 with a good equity move. That is an enormous move in the dow. I put the going up there to bitcoing up there to upset francine. What a good way to lose my retirement. Francine you chose that point. I chose the south korean wan. Attention think the in europe and the u. S. Will move on to earnings season. Expectingnvestors as that to be strong. Keep an eye on that. Crude oil. We must talk about the elections. I actually charted it. I will push it out to our radio listeners. This is the italiangerman 10year yield spread. If you look at the uncertainty surrounding the italian elections on march 4, it has put their fixed income markets under a little pressure. Dont forget, the ecb is Holding Strong and buying bonds. Tom absolutely. A brilliant note on the bet on long euro. It is massive. Bets off theeuro cftc with a trend going back to the financial crisis. Three standard deviations. That is a normal trend. We are out six plus standard deviations. That is outstanding. I put this out for radio. That is next ordinary bet on the euro. We will talk about that in a bit. Right now, to the events of the weekend. Let us capture the angst of sunday morning. The president s tweets absolutely reaffirm the plain truth, a selfmade billionaire, revolutionized reality tv, and it into something magical that is happening in the hearts of this country. No one questions the stability of the president. I work with him multiple times a week. He did not become the president by accident. The resident is engaged. He asks very difficult questions so we can provide him the information he needs. The truth of the matter is there is a level of genius to his personality as it relates to his marketing, political judgment, insights. When i have worked with the president and the people around him, he has been an active, engaged leader. Is, and historic moments in the history of the presidency of the u. S. Kevin cirilli with us. He sent me a note on sunday, tom, you are unstable and a dummy. Kevin that is fake news, and you know it. Tom i read 40 of Michael Wolffs book. It is brilliantly written, but isnt it just a compendium of what we already knew . Is there something new in their there . Kevin there are a lot of mistakes. He did not know who the commerce secretary is. He thought wilbur ross was going to be the labor secretary. That is just wrong. The big takeaway from the book is steve bannon in the fallout from steve bannon. This is the architect of President Trumps nationalistic policies. Now he is gone. He is outside of the white house. Conservativeh the movement is largely diminished. I was speaking with his close circle all weekend. Even the folks i talked with inside the white house all say it is too little too late for steve bannon, and that apology you put out days after. Oncepaul krugman in a book mixed up to fed th president s. I once mixed up majorly in a book. Monday, tuesday, wednesday to sell this tax bill to america . Kevin house of representatives get back today. The question is the calendar. They have to pass that partial government funding bill. We will likely get a Budget Proposal by february 1. A lot of moving parts. I was talking about things coming down the pipeline. There is that infrastructure plan, which we are supposed to get reportedly by the end of the month some type of barebones proposal for how they plan to pay for a 1 billion infrastructure proposal. Francine does the book impact midterm elections . Kevin great question. I think the line of attack, first and foremost is the steve bannon file, but from the democratic perspective, the line of attack we have seen make it through is questioning the president s Mental Fitness for office. This was a line that the president used against Hillary Clinton on the campaign trail. It has now come back against him in full force now that he is in office. Taxas never released his returns, but he is also never released the types of medical records other candidates did in the past. Francine Michael Wolff has come under somewhat of concerns or questions about how he put this book together, but overall will Robert Mueller read the book, and will there be more investigations . Kevin i dont think the book is going to lead to more investigations. The big two takeaways are that if you are democrat and read this book, you are going to agree with it. Takeaway is just how they completely cut out, i mean completely cut out steve bannon from the political advisement circle and the level takeaway if isolation now. Just one aside, and this goes to your work on capitol hill and bouncing off the corridors of the white house, it is amazing reading 40 of this book how mr. Kushner and mrs. Presented within the blur of this information. How long do they last at the white house before they moved back to new york . Kevin here is what i will say, steve bannon, one of the big reasons he got under President Trumps skin with that interview, many reasons, but one of the key reasons was that he went after the president s son. That is something that just doesnt fly for the president of the United States. And jerod, ivanka she will always have her fathers ear so long as she wants it. Tom so ends our gossip for the day. Kevin cirilli, thank you so much for your diligence in washington. Joining us now, neil shearing of Capital Economics. Chief emerging markets economist. Is the u. S. Still the dominant engine of growth that jumpstarts em . Neil china. It is all about china. Tom mr. Macron is over there now. Germany, france is trying to get in on the action. It is the biggest export market for brazil, russia. It is all about china. The u. S. Is important, but primarily a closed manufacturingbased economy. Francine what can you tell us about china . The u. S. And france asking for more fair trade relationship. Will we get it . Y question. Is a ke my sense is we are not going to see much action as regards china and trade, any big realignment. We could see it with mexico, of course, the less likely with china. Tom a lot of politics linkedin with their trade discussion, and that is front and center in the u. S. And england as well where we look to theresa may to make a cabinet announcement. Later in the afternoon, scarlet fu Holding Court with Arthur Laffer on the tax legislation. That will be fascinating. This is bloomberg. Taylor this is bloomberg surveillance. Lets get to the Bloomberg Business flash. Impact has agreed to buy biomedicals. 1. 1 billion, though the price could reach 7 billion if a drug reaches certain prices. Nordis agreed to buy ablynx. Ubs is in talks to buy a majority stake in chinese securities joint venture. That is according to the ceo who told bloomberg the swiss bank is ahead of its plan to double their headcount in china over five years. They have been taking advantage of chinas pledge to open up to global Financial Markets. That is your Bloomberg Business flash. Francine we are just getting some breaking news out of the aramco ipo. We understand from sources that goldman is said to be in the lead for the top roles. We understand saudi aramco is set to finalize the mandate as early as this week. The ipo is so big that you probably think it is not important, i think it is the one. Ig thing on wall street, you want to get involved because it is so big that the windfall to your Investment Banking this question quite significant. Tom you really want to know what the fees will be. Im sure the saudis have huge leverage on this. Lets get to the ambiguity that is the u. S. Dollar. That has to do with microeconomics. It is really associated with douglas north of Washington University in st. Louis. Neil shearing with us of Capital Economics. Here is the chart. It is an ambiguous dollar. I dont know what to make of it, but this trend in the rebound of the dollar where we rolled back over, this Capital Economics have a dollar call . At there pretty bullish moment. The fed should tighten. Inflation trend should start pulling back later in the year. But that together, and we are bullish. Have mr. Shearing saying strong dollar, and so many go against that trend for the weaker dollar as the chart indicates. What is the weaker dollar case that your radar is up about . Neil if you want to make a weaker dollar case, it is more about other global Central Banks. In our view, there is less in the way of inflation pressures in those economies. They can hold off a bit longer. The fed has to be a bit more ahead of the curve. Francine if you argue President Trump may actually double down, which we have not seen so far, to distract from the current book and issues in general, does that mean dollar weak if you have border taxes and the like . Neil is protectionism dollar week or dollar positive . Suspicion is it is dollar positive. You would expect the mexican peso to weaken. You would have dollar strength. If we see any protectionist shifts, that is probably dollar positive. Francine at what point does the dollar become too expensive for the economy . Neil good question. We saw this in 2014 and 2015. That started to take some heat out of the u. S. Industrial sector, and the fed had to hold off with its dollar tightening. We are talking about a 5 stronger dollar this year. Increase,we saw a 20 i dont think we will go back there. Francine thank you so much. Neil shearing of Capital Economics stays with us. Later today, our conversation with martin gilbert. We will ask him about mifid ii. That is 11 00 a. M. In new york. This is bloomberg. Francine bloomberg surveillance tom and francine from london and new york. All eyes are on china, india, and russia. Each are releasing inflation data this week. Investors are looking for clues on whether the longest Winning Force on ems since 2000 2004 will continue to run. Ofe people say it is because structural reform, but some will argue it is because of equities in Technology Stocks powering ahead. Neil that is certainly the case in china. You could also argue it is a bounce off the bottom. I think most markets were oversold. A lot of people saw hard landings in china, russia, brazil. My sense is there is quite a lot of good news priced into the market. This year, particularly in latin america. That is somewhere i would keep a close eye on. Francine can china and other emerging markets export inflation to the u. S. . Neil this is the question everyone has been asking for the last 10 years. When will china be the source of inflation . I dont think we are there yet. Wage levels in china are still way below where they are in the u. S. Quite the samet extent that it was 15 years ago. Tom francine and i will be at the World Economic forum from davos in two weeks. When does india catch up with china . Not on a single statistical basis, but mentally, catch up and leave the head of china . Is that reasonable . Neil it is feasible. At these scope of gdp, it has a much greater chance for catch up. It doesnt have the same economic structure and dig Manufacturing Sector that really helped china explode onto the global stage. Until that, i think it is going to struggle. Tom is it burdened by its demographics . Bringing it over to the United States, are india and the United States burdened by their demographics . Neil the demographics in india are relatively good, young and welleducated population. In the u. S. , aging population. Demographics are something india has going for it, but you could say that for brazil in the 1970s. It is never about demographics, it is always about policy. That is really what gets growth going. That is what happened in the 1990s it was not the demographics story. Tom no of Capital Economics. Coming up, the timely conversation. Forget about the book. Within the blurb of policy decisions of january and february, nafta and the continued discussion by the president of budgeting the wall. It is a warmer new york. Toasty warm. 20 degrees. This is bloomberg. Tom bloomberg surveillance. Francine lacqua in london i am tom keene in new york. Her a looking forward to our new steering studios. Taylor tom, francine, president allies defending his fitness for office in the wake of revelations from the explosive behindthescenes book. Administration officials flooded sunday talks those. The president announced the book a verycribed himself as stable genius. A time is running out to upper a partial sundown shutdown of the u. S. Government. Is january 19. Ne there has been no indication on either side budging on either of the two key issues, immigration and the budget cap. Lawmakers may decide to adopt a shortterm spending measure. Frances president is calling for the relationship between the e. U. And china to enter the 21st century. Tradets more balanced ties. He also hopes to cooperate with china road and belt initiative, the plan to send billion spend billions of dollars on infrastructure. Johnproblems at new yorks f. Kennedy airport following the severe storm last week. Flooding at one of the terminals caused more flights to be delayed or diverted. Others had to search through mountains of bags for their luggage. Global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you so much. We talked about this earlier. You said you enjoyed a 6 hour wait at one point. You wonder if this hellacious weekend at jfk is the beginning of some real change in how we move bodies around this nation. Francine the problem is its costly and when you look at the closures here in europe, unless you spend a lot of money up front, its actually very ficult to manage these dealing with storms and thats why you have this horrific backlog. The pictures are quite something. For radio listeners, you see thousands and thousands of people waiting with hundreds of bags on the floor. Lets move on. This is what we love to do at surveillance, take a moment and dig deeper. I think of the american philosopher who once said something to the point the media eats the political young. Andel tannebaum is with twc an expert on global sanctions. To your wonderful research, maybe its page 23 or 123 or 240 of Michael Wolffs book, it all comes back to reactions to sanctions with russia. Where do we stand now with sanctions to russia and how upset is mr. Putin. . Daniel sanctions on russia are evolving. There was congressional red legislation last summer that allow the president to do more further designating asked x of the Russian Defense sector, oil and gas sector and designate oligarchs, individuals that may be restricted doing u. S. In the business in the u. S. Even last week, there was a privately owned bank in russia that proactively suspended business with the bank sector because of uncertainty. Imagers reading Michael Wolff amateurs reading Michael Wolffs book, you are the pro. How do you interpret all the different players reactions to what i am going to call sanction asked . Angst . Daniel it is whiplash. There are been so many there have been so many changes. These can have devastating impact on any economy the sanctions are levied against. Still doing work in russia, there has been a Significant Impact to the economy from the russian sanction standpoint the generally perceived risk of in the market where there might be uncertainty. Its hard to understand the relative priorities of where to energy, sosanctions to speak. This administration is reacting very quickly to any sort of changes to the global perspective on these sanctions issues, maybe not in the most connected manner. There is not danger putting extra sanctions, the u. S. Is perceived as the evil, ugly imperialist. It firms up the resolve of a country to be antiwestern. Daniel the best sanctions packages in the world are multilateral where we work jointly with other countries. Is awe are seeing today more unilateral approach and certainly on north korea and south korea given the talks happening today between the governments, that further pushes the u. S. Into more of an isolationist and how they are negotiating sanctions. Unfortunately, the net result is the u. S. Is perceived to be a bully on these issues. Francine how does china deal with sanctions . Daniel the Chinese Government this came up toward the end of the summer with all the Nuclear Weapons tests, the Chinese Government has put in place very significant sanctions on paper in terms of no chinese businesses can open accounts or loans for north korean businesses, north korean businesses must not be able to function in china. What you will likely hear out of the Trump Administration is some sort of validation of those efforts and doing work in beijing with the government and private sector, these are legitimate changes that have come into focus. Whether or not there are any gaps in the coverage is unclear. Tom is mr. Mueller whether he is looking at russia sanctions or other discussions of sanctions come is he looking at the past as we perceive or does he tried drag in the present discussion of sanctions . Daniel i think you cannot avoid dragging in the present. Most of this is looking at prior transgressions were for restricting interactions. You cannot look at the current dynamic. York, i dont think sanctions was in any of the textbooks, but they have got to be bad for trade in diminished gdp. There is the trade side. What really hit russia was the financial sanctions. The inability of the big banks to roll over their dollar debt. Tom do you filter this into mr. Manafort and cyprus as well . Do you just see that and go, that is normal how they do business . Daniel the challenge the markets face is any of these changes increased the cost of compliance. Weve got to do more Due Diligence in those territories named by the press. While that is not anything new in cyprus, regulators see that and begin asking banks and other institutions questions about what they are doing to dig into these in the higher risk territories. Francine what happens with the protests last week . Midjanuarye is a deadline for the Trump Administration decide whether its going to continue waving u. S. Sanctions on irans u. S. Oil exports. There views on the jcp away, the a,called iran deal jcpo the socalled iran deal. There will certainly be additional resignation designations. Nothing to deal with the nuclear deal, but as a result of the protest, it seems the administration has latched onto that. This canss, a lot of be symbolic because most of the iranian government is under some sort of sanction or designation restrict them from the u. S. And certain asked x of the european of theain aspects european system. Tom its great to talk to somebody whos an expert on the generalizations we see. Mr. Tannenbaum is with pwc. We continue with mr. Shearing. Your monday briefing in your car, its a warmer car, not like the brutal cold we saw last week. Robert moon here in moscow. Bloomberg radio launched into our 26th year. Stay with us. Taylor this is bloomberg surveillance. I am taylor riggs. Will nameis Goldman Sachs and citigroup to help manage what could be the largest sale ever. J. P. Morgan chase, hsbc, and Morgan Stanley are expected to be named Global Coordinators along with goldman and citi. Aramco said the offering is on track to take place this year. Stepping up the battle for ride hailing dominance in europe. According to people familiar with the matter, tax if i once to raise taxify wants to raise money to burn for expansion. My taxi is backed by mercedes bins mercedesbenz and daimler. The industry is leaving women to leading the fight against Sexual Harassment to national tv. That is your Bloomberg Business flash. Francine thank you so much. Ubs is in discussions to acquire majority stake as chinese securities joined the venture. Bloombergs china correspondent spoke with. Here he is. We have been growing our business. Set ambitionswe by 2022, double our accounting in china and we are on track to achieve that. 600 people back in 2016. We will be around 1200 at the end of 2018. Francine that was Sergio Ermotti in shanghai. Joining us now for more is bloombergs chief asia correspondent. And still with us in new york, neil shearing. Thank you so much for joining us. When you look at this ballet between france and china, the u. S. And china, i dont know if brute force is how you want to call it, but does it help getting the chinese on board if you keep telling them the rules of the game need to change . Its interesting if you consider a year ago when president xi said he would defend the world order and factionalism. Things havent changed very much. Mr. Trump is still looking inward and china gets criticism is not opening up fast enough. That is why it is interesting to see president macron in there today. Hes not just talking about deals for French Companies, hes also making the point china needs to open up and reciprocate t france is willing to its interesting the message coming out of this meeting today. Its kind of more of the same we have had over the last year, but shows you the issue hasnt gone away. Francine how can the chinese capitalize on this . What does president xi want out of president macron . Enda i guess it would be useful and a Good Opportunity for president xi to put his money where his mouth is. He could offer a tangible deliverance on where he will open the market to French Economy French Companies are it he could signal where foreign banks and companies will get opportunities, which is estimated to be worth hundreds of billions of dollars. They say its dominated by chinese banks and companies. There are certainly areas he can. Ive signals that would be welcomed by chambers of commerce and others for sure. Tom the chat this morning worldwide is the desperation on airbus. Paneuropean. I get the idea mr. Macron and france need a more buoyant airbus. It does china need to come to an agreement on airbus . Enda it still does. China is rapidly moving up the Technology Chain and the value chain. There have their own homemade design jets being tested in the air as we speak. I think there is still a sense they need western knowhow, western technology and certainly one where they need western made western designed products. I think there is scope for western companies to stay ahead of china, but theres no doubt they are moving up in the value chain rapidly. They are not far in behind in many other suspects sectors as well. Tom here with Capital Economics and em, what is your statistic on real chinese growth . 6ish . Ptimistic 7, neil we have our own china activity proxy that was up its percent and now its just above 5 . The economy slowed quite a bit. My bet is it gets below 5 pretty soon this year and ends the year somewhere in the early 4 . I think the economy is in a sharp slowdown. Francine all right. When do we get a new pboc governor . Neil we should this year. Francine it could be imminent and it could take several months. What is his or her number one priority . Neil of course, all the words and communication out of beijing will be about Financial Stability. Theyve got this runup in private sector debt, particularly state owned companies and try to manage that and the fallout. Some of that is going to go bad. Theyve got to manage that alongside the economy is slowing, so the consensus view is what that means is actually they focus on the Financial Stability risk and key policy relatively tight and rein in credit. Lose loosen policy and cushion the slowdown, that has been the experience over the past couple years. Tom steps right in. 4 , 5 would be loosening. Neil shearing with us and we will continue. Enda you and occur in curran as well. This is proving successful for a lot of people. The bonus round of should come over here and click on any given segment and here is that chart, better bonus, the log bloomberg dollar index. You can steal that and dazzle neil shearing. This is bloomberg and there is the fire, the fury, the sunrise of washington. This is bloomberg surveillance. Andand francine from london new york. Theres quite a lot going on in london after the Prime Minister announced she will do a Cabinet Reshuffle and she has appointed a new conservative Party Chairman and then we are expecting her to reshuffle her top team later on. Chris greatly has been Chris Grayling has been appointed after sir patrick locklin. You like history, tom. Has been replaced having overseen frankly a general election in june of last year which was pretty disastrous for the tories because they lost their majority. We have a new Party Chairman for the conservative party and a new the Northern Ireland secretary have resigned has resigned on health grounds. The foreign minister, the brexit secretary, or the chancellor we are not expecting them to be replaced. Tom have to see the changing of the lower guard for the cabinet, Senior Officers stay. Our single best chart, neil shearing with west capitol economic, new brilliant work linking economics in the market. The msci global index and its log, which means slope matters, the boom of the 1990s, the boom of the 1980s and this boom in the last 6, 7, 8 years. What inning are we in in terms of linking your world of economics into equities lifting for em . Neil our sense is we are past the seven then in the stretch, well into the game at this stretch. If you look at the u. S. Economic cycle, its looking pretty mature with 10 years into recovery, unemployment at record lows, the only thing we havent seen is inflation. When we see inflation, that can be when the game is over. Tom do you presume the m a enthusiasm we have seen in the last hour on insolent and pharmaceuticals insulin and pharmaceuticals do you think that goes over the em or are they removed from that debate . Neil i think they are removed. At this stage in em, its financials, commodities, and theres less in terms of m a and driving that market. Francine are we going to see volatility in 2018 in emerging markets . Neil we cannot get less volatility than we saw in 2017. At some point, i think volatility comes back. Inn we saw big volatility 2015 in emerging markets, it was driven by china and that coincided with big falls in global commodity prices, problems in brazil, russia, sanctions in russia. I dont think we go back to that kind of world, but i was of the the surprising we see this goldilocks period of strong Global Growth and low global inflation continuing for very much longer. Something has to give at some point. My bet is that some point or the end of this year, we see u. S. Inflation pick up. Francine what is your take on globalization . We heardd threats from President Trump and he hasnt quite followed it through. Could this be a big topic for emerging markets in 2018 . Neil i think it depends whether your glass is halffull or halfempty. The half full story is globalization is difficult to roll back. We have seen it in the nafta negotiations. As soon as theres a move toward stringent measures against mexico, global him Corporate America will push back. On the other hand, a lot of the easy stuff you can only cut trade tariffs once heard i think we are through with the big wave, its quite difficult to roll that back. Bring us up very quickly. Taiwanese dollar. I have never seen this shown this. With this massive year out, twoyear bet on the strong dollar. In my right, thats an antitrump dollar. The president really doesnt want that kind of volatility surface. Neil the one thing you want to do is get the u. S. Trade deficit and you do not want a strong dollar am a particularly in these asian currencies. These other countries where the u. S. Runs big deficits. Tom neil shearing, thank you so much for being with us from Capital Economics, particularly with the focus on emerging markets. We will drive forward the conversation on bloomberg radio. Bloomberg surveillance with Jonathan Ferro bloomberg surveillance with Jonathan Ferro and pimm fox. Vanillaexchange, i go today. Euro under 120. Eurosterling, i put it for francine just to make her happy. This is bloomberg. Alix d. C. Drama. Allies out in force defending President Trump against michael the clockok while ticks toward a government shutdown. Theresa may is set to reshuffle her cabinet while the hard eers still in control. Sergio ermotti says more from our exclusive interview with him from shanghai. David welcome to bloomberg daybreak. I am david westin here with alix steel. Very welld not bake over the weekend. I did not fluff my eggs. Did you watch the Golden Globes . I was in bed. David only the beginning. Alix s p futures down by three points although we have seen the best start for the year since the s p for the s p since 1999. Eurodollar on the back of it a little bit although we saw dollar had a