Transcripts For BLOOMBERG Bloomberg Surveillance 20180109

It strengthening after the bank of japan seems to be pairing some of the bonds. Asian equities see a little bit of movement on dollar yen. For also looking at a stock 600. 600. Oxx eurodollar is at 1. 1936. Coming up, we talk Central Banks. With ouriscuss it guests from blackrock. We also have an exclusive conversation with ignacio gallant. Ignore this. This is something from a couple weeks ago. Lets get straight to the first world news. North korea has said it will send athletes and a delegation to the winterland picks and south korea next month and wants to resolve issues on the divided peninsula. Delegates from saul said that south korea wants both nations to march together at the games. The two sides held talks in a village in the joint security area of the heavily fortified border. U. S. Special Counsel Robert Mueller has like raise the likelihood Donald Trumps legal team that his office will seek an interview with the president. According to people familiar with the talks, miller brought up the issue of interviewing trump in a late december meeting. The newspaper says a special counsel team. The u. K. Prime ministers attempt to give her government a new your ebook reboot has been marred as senior ministers refused to follow her orders. Things quickly went off script. First Health Secretary jeremy hunt and then the education secretary were locked in discussions with her after rejecting proposed moves. The Economic Development minister says britain should be granted the trade deal that is called for. Comment in exclusive interview with bloomberg. Plusthink canada plus plus will be the mean we need to achieve. Beyond that, theres a problem we need to solve which is the following, brexit is another piece of the western world that is basically more and more fragmented. Global news 24 hours a day. Journalists and analysts in 120 countries. This is bloomberg. Every time i hear from the minister i think of Boris Johnson go. Serious indications for brexit. Not to President Trump and he is close to announcing the vice chair nomination. The official said richard claret off richard claret is not a choice. Another has said the central bank should reevaluate if a 2 inflation target is warranted. Have alieve we should reassessment and think about the implications. We might like the rank of canada choose not to do anything. We should be having those discussions. Francine what is next and what can we expect in the future . Amanda knows a thing or two is the head of economics at blackrock and the former Deputy Governor of the bank of canada. He was also the deputy of finance back then. If you are donald trump, what kind of vice chair would you pick . That is the biggest question. We have had historically vice chairs that were complementing the chair in important ways. Now we have jay powell. We have a sense of where hes coming from. He will be a pretty pragmatic chair. I think he can try to use the vice chair to shill shape tilt that he finds to his liking. Im not quite sure what would be to his liking. You could make a case that a more hawkish vicechairman would make sense given some and of the ideology weve heard. But in a world with her to go with a pretty significant fiscal stimulus, it may be tempting to make sure they dont have to hawkish of fed. Stanley fischer brought the international into the fed. This is something that would go into my own thinking. I think a strong leader internationally is going to be an important discussion of the next two years. That to my mind is key. We are in a case now where the u. S. Might be putting less weight on the international aspect. Im not sure of a carry a lot of weight. Francine talk to me francine talk to me expectations. Bond markets are starting to price in the inflation to present target. Now there are talks about changing the target. I think the community as a whole is asking what the right level target is. At the bank of canada, we have a long history of asking this. We have a fiveyear cycle where we are reviewing whether its the right target. Interestingly, the last time as part of this discussion was earlier, 2011. Whether the question should be we were lowering the target. Of maybethe question having a higher target. Mostly stage, i see that as due diligence. The reality is, Central Banks are having a hard time getting the 2 target right now. Starting to jump higher, you want to make sure you can jump to that level. I dont think this is really a live discussion in the near term but more of a longterm rethinking. Francine do you look at the phillips curve . We have a pretty good chart. This is the xp ex dividend yield. Compared to a u. S. Twoyear yields. Other any of these graphics you like because they give you different insight to what the normal entries give you . In terms of the dynamic of inflation, we think inflation in the u. S. Will be going back to 2 . Key things in our 2018, return of inflation. We think the indicators that we. Ook at our once we built look at a phillips curve relationship on top of that trying to tease out information from big design sites. Signal a we have seen in 2017 was temporary and we have a 2 world that is pretty solid. We dont think thats fully reflected in markets. The break evens are starting to move in that direction. I think thats the thing that will continue to play out. Francine do you think itll be a repeat of 20 17 we are waiting for inflation and it will never come out . Everything we see at this rebounding and the recent bid has been in line with that. Its always possible but theres nothing suggesting that we have another surprisingly downside. There a worry that the fed is the hike more than expected in a takes the market by surprise . We have three hikes for 2018 as a baseline. I think this is well entrenched in the market thinking and i think the fed has been very comfortable reaffirming that as a baseline. At the same time, objectively we think about the probability of getting for hikes. They would have to be significant as well. Is a huge difference between three and for hikes. If inflation were to run slightly above 2 for a few months, the narrative could change more quickly. We could be in a four hike world of the course of a matter of weeks in terms of expectation. This is something that would drive market to some extent. This is the reason why there is maybe a strong dollar view over the next few months. Potential surprisingly upside more than the downside suggests thats the direction where the market could be surprised. Francine thank you so much. John paul stays with us. We are live at the border between north and south korea. Highlevel talks get underway for the first time in years. Later we bring you an exclusive interview with the ceo of an energy giant. We talked the Business Climate in spain. This is bloomberg. Economics, finance, politics, this is bloomberg. Lets get to the Bloomberg Business flash with nejra cehic. Nejra Samsung Electronics has missed fourth order Fourth Quarter profits on weakening chips and weakening currency. A 7 surge in the korean currency came as prices for benchmark memory chips leveled off after a year of gains. Patrick drawdy is maintaining both companies as he waits for the debt laden european operation. The stake will be distributed to shareholders. The Holding Company will have at ofst 51 of the voting power the u. S. Company. Aston martin is targeting evaluation of as much as 6. 8 billion in a potential ipo of the sports carmaker. The company has held for the merry advisers about valuation including debt that would put it on par with ferrari. Investor interest could be bolstered by the planned expansion into the the could tip sportutility Vehicle Market in 2019. That is the Bloomberg Business flash. Francine north korea has said it will send athletes and a highlevel delegation to the Winter Olympics and wants to resolve issues through dialogue and negotiation. Theyates from saul says want both nations to march together at the games. At sides are holding talks the joint security area on their heavily fortified border. Our north asia correspondent joins us. What has been the prevailing mood . But howls significant, much can we believe that this is a breakthrough. It is significant, given how frosty the relationship had gotten of the last year, especially with donald trump in the white house and the backandforth between pyongyang and washington. To have this breakthrough, a thought, if you well. The North Koreans shows that they had frozen relationships with the south. And has come a long way. The main delegation from saul, which arise this morning for the two are drive, has not come back across this bridge. This is the main the unification bridge that goes into the joint security area that is jointly controlled by the two countries. Its part of the dmz. Thehe peace village, and peace house is where they are having those discussions where earlier to say earlier today, the low hanging fruit, where north korea will send a highlevel delegation along with athletes and even nature squad to the upcoming winter games. They open one month from today. There were other issues that they tried to discuss or at least wanted to forward. Towards whaty step the south helps is a continual, ongoing dialogue on all the korean issues, in particular the eventual goal to restart denuclearization talks. Francine its quite incredible to have you live from their. You talk about nuclear talks, does this put this model and donald trump in a difficult case . He says he welcomes these talks and talks are good. There is some wariness and not only washington with allies like japan. Shinzo abe has said that talks the sake of talks are meaningless. Maddux has said that south korea cant be offered the opportunity to drive a wedge into u. S. South korean relationships. Even the Japanese Foreign , we want aas said complete briefing from the south koreans. Once these talks are over. What did the south koreans promise to the North Koreans . But the big step, question is what will happen a month or two months from now when the winter games are over and the games and all the worlds cameras have gone home. And the u. S. And south korea begin or resume their military exercises in april. Will the tensions be ratcheted up again . Will the north show their true colors and say we want to negotiate our differences through dialogue. Saying,got a headline from north korea, that they will reopen the military that were cutline in 2016. Its not just about the olympics. It seems north korea is trying to show they are working in good faith. Francine thank is so much. He is our north asia correspondent. He is Stephen Engle. How much geoPolitical Risk should we be pricing into the market . Are blackrock guest is still with us. Disciplinesof some is we have not been pricing geoPolitical Risks. Its difficult to price the possibility of a nuclear war or something happening in the south china sea, but 2018 will bring what . Geopolitics is tricky for the market. In 2017, if we go back to what , geopolitics was top of the mind in 2017. Brexit, the u. S. Election, the reality is that this has not materialized into market volatility. We have not seen that. Its hard to see a strong link between geopolitical events and their market impact. There tends to be a reaction with a materialized but the lead up is very difficult position. Forward, we see a new indicator of geoPolitical Risk that which i to track. That seems to be creeping up. Sense of heightened Political Risk compared to the last couple of years. Guest same time, our base our best guess is this will not affect the market in 2018 and if it does it will be temporary. Anthere were to be escalation of conflict, that would be a different story. Francine is yen still a haven . I think the question of yen and a haven is more questionable in 2018. We would tend to say, u. S. Treasury is providing diversification and hedging for these kinds of risks. More in this environment. We think there is a continued case for treasuries playing a role in the portfolio despite the fact that we see rates are rising. That being positive for the Asset Classes but diversification will remain in high risk. Francine you are positive on animals peers. How much does that have to do with the plan. This is something we are slowly digesting. It significantly potential. The tax cut itself that now has been pushed through, we are talking about significant numbers. Its 100 billion of tax cuts for individuals. 150 billion for corporations. We are talking about more than 1 of gdp. Thats not the stimulus, but thats besides. Francine doesnt filter through . If you are trying to figure out what that means, this is not trivial. 50 basis points alone. That, they are currently going through a bill on spending. It will be a lot more spending then we have seen recently. That could amount to another same size impact. Francine do you worry where they find the money . Will he go to consumption . I think the big part of the story will be in and investments that has been the missing link in this recovery. We think theres a shortage of investment globally. Those fiscal measures will tend to incentivize investments. I think part of the story is. Its not only a u. S. Story. We think it will be constructive for the rest of the world. Its important and contributes to a lift elsewhere. Is theader story here fiscal story is significant. We dont think the consensus has fully adjusted for what it means for 2018. Thats the good news. It might stir animal spirits. At the same time, were talking about deficit finance. Good for 2018,be it raises more questions down the road about when the cycle ends. Francine i have a million charts i want to show you but we are running out of time. Shows thatart that we can argue we are midcycle, which would be a concern. I want to ask about europe as well. How do you pick europe against the u. N. . Is train overcrowded . I euros heard that . Will a high euro hurt that . We think the peak is measured in years, not quarters. The animal spirit been stirred up a huge amount could accelerate that. , we areve the baseline not too worried about the end of the cycle. Part of the reason is europe. This cycle is the first one where we are going through this while the world is so integrated. The question of what will happen next, we are at the peak of integration. Story. Ture is a u. S. Its what the global overrating is about. There are pockets of slack in the global economy. They still need to be filled. The fiscal stimulus will leak and that will help europe. We think europe has more to offer. At least in terms of our equity views. We believe there are more opportunities in 2018. The euro is a . But we tend to see there is a basis for a stronger dollar going forward. Mark,stiopnis but we tend to see there is a basis for a stronger dollar going forward. This is pretty modest still. Canada we have seen in is an outlook that suggests future sales expectations by companies are constructive and pretty good. Of ahas changed the view lot of economists. They are proforward. It is basically priced in right now. I think what is interesting, if you look at what is priced in after that, are we going to get one more hike . To hikes . Three hikes . The market does not have a strong conviction. We have a bit of visibility in the near term and a lot of uncertainty. You so much. Nk to short of time. The head of economics and Market Research at blackrock. He will be back very shortly. For an indepth interview about renewable energy. I want to ask him about some of these stories. Do they believe in batteries or something else. 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. Economics, finance, and politics, this is bloomberg surveillance. Here is nejra cehic. Said it willkorea send athletes and a high delegation to the olympics in south korea next month. Delegates from seoul say the nation wants both to march together during the games. Trump isident donald very close to making a decision on his nominee to be vice chairman of the fed, according to a white house official, who says that pimcos Richard Clarida was not the choice. The nomination will be part of a wider leadership shakeup at the central bank after trump picked Jerome Powell to replace janet yellen. Robert mueller has reportedly raised the likelihood with Donald Trumps legal team that his office will seek an interview with the president. Mueller brought up the issue of interviewing trump during a late december meeting with his lawyers. The special counsels team could interview trump very soon, possibly within the next several weeks. The u. K. Prime ministers attempt to give her as ministers refuse to follow her orders. Things quickly went off script. Secretary jeremy hunt and the education secretary were locked in discussions with her after rejecting proposed moves. Economic Development Minister said britain should be granted the trade deal that david davis has called for. A politically independent figure made the comments in an exclusive interview with bloomberg. Plus plus plusda be the minimum we need to achieve. Beyond that, a problem we need following. Ich is the brexit is another piece of the western world that is basically more and more fragmented. Nejra global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am nejra cehic. This is bloomberg. Francine originally a force in his home country of spain, his become that she has become a major power player he has become a major power player. The company specializes in clean energy, and he has been a heavy investor in wind farms and owns hydroelectric facilities north worldwide. As the market moves towards cleaner energy, they have positioned themselves to take advantage. The chairman joins us right now. Always a pleasure to host you. Thank you so much for coming on. Ignacio i am pleased, and congratulations for such a magnificent building. Francine we are lucky. We knowhave heard how difficult it is. We got it as well three years ago and we know that is not an easy thing, so congratulations. Francine it is one of the most Sustainable Office buildings in the world, and this is your specialty. You have been working in renewables for 10 years but some rivals have been catching up. Is there a section of the market you feel more vulnerable because of competition . Ignacio it is a must 20 years, so i think 20 years ago we took seriously. We thought we would have to change the trend and we decided to invest heavily in renewables. We closed most of our power plants. Less than 1 is reduced with coal, and we decided to close the two remaining plants. Our initial has been diminished by 75 , and that has been good for the company. We are five times bigger than we were, one of the largest european utilities. That has been good for shareholders, for the environment, so sustainability is a good business. Francine you were one of the pioneers, but you have a lot of rivals getting in on theenvirony is a good game. Where do you feel the heat . Fortunately, we saw that in paris. Now that 195 countries have agreed togned and take the necessary measures to modify the trend, 20 years ago when we started that was a dream, so now it is a reality. As i mentioned a few weeks ago, it is time to move from words to fact. It is moving in this direction, so today it is already saying isewables, supporting what being done to discontinue fossil fuels. Today, germany has already leaders,tween the two about not putting in doubt what has to be done. They agreed to continue things and said, perhaps the ambition ought to match. You are looking for 40 reduction by 2020. The rest of europe we are talking 20 . Probably, in 2020 we will move it up to 2035, but 40 . So for 2030 to look for up to 50 , that means the work is moving in the right direction. Francine what does it mean for your investment . Does it change the way you invest . Ignacio that means precisely, in this moment, the trend of changing, how things have been done is there. Electrification of the economy is becoming a fact. The electricity demands worldwide will increase according with the data by 70 . In 25 years, we need to make as much Power Generation as we have been making in the last century. Here is room for everybody there is room for all technologies. We need to change the trend. This power is the need behind this power is the need. The electrification of the transport will be a fact. The electrification of the heating of the effect. The production of electricity with Renewable Resources is becoming a fact. Francine how do you store it . Some people believe in batteries. You prefer pumped hydro. Ignacio when i finished at university, i was working from a 17 years in batteries. I am the battery man. I cannot go against it. 17 years, designing and manufacturing saline stationary batteries. Energy, for providing security supply, etc. , i am not opposed to batteries. They will play their role, but the massive storage today with existing batteries technology, they are much cheaper and efficient solution. Use the existing hydropower using for making already [indiscernible] you cannot only generate electricity when they need it. Francine how much investment are you putting in that sort of storage . Ignacio we are the largest in mega ofost 5000 storage. In portugal at this moment, we think investment of the range of 1. 8 billion euros. We have capacity for almost 5 million homes, which is a huge point. Batteries will play the role. But not using that one in the garage, but using the one inside the grid. It is part of the grid to provide security and certainty. Francine you have publicly criticized siemens and one of their joint ventures. What action can you actually take . Ignacio i am not criticizing. We have been invested in the wind sector from the very beginning. We need two fines. Investor. Ery big there are not enough supply chains for our need and we support already one of our subsidiaries for making this happen. I think we reach a moment, an opportunity to make it something bigger and i think we will reach an agreement with siemens. One is already more focused in offshore. Together, it fits quite well. My concern is how it has been performing, the shares. I think the company, we are not any longer managing the company. Francine are you worried about the management . Ignacio i worry about the performance of the company. The performance of the company are not just a consequence of many things. The performance of the company has not been good enough. Planhey will present the and we will see that things are changing, but the performance has been the Worst Company and the spanish ibex. It was the best of the best. Thisine last week, best said you bought some error generators to them, which is arrival. Ignacio we have been buying two fines vines. Fromve two vines investors, from general electric, from siemens, from everybody. I think it is something we are just not at all related. That is a Different Department and financial people take care of the financial investment. We look for the wind farm. Francine thank you so much. We will continue the conversation with the hubert iberdrolaman, chairman. This is bloomberg. Francine welcome back. This is bloomberg surveillance. Europes a bumpy year for. In spain, a crisis threatened to tear the country apart as the catalonian government declared independence europe. That led to the Spanish Government removing catalan leaders. The future of the region remains unclear. Iberdrola is based in the country and Ignacio Galan is still with us. Thes ago you came on program talking about the spanish economy and you were showing me charts. What would you say the state of the spanish economy is today . Andcio if you remember, one of those interviews we were in the middle of a crisis. Normally, we are never warm. We are hot. We move rapidly from the crisis situation to the growth situation, and that is what happened. , certaineasures changes have been made already in our regulation, and that makes spain continue the move into growth, eating all expectations systematically. Beating all expectations systematically. Every year, we are increasing and over half a million new jobs , so the unemployment has diminished over the past three years must then points. Almost 10 points. I think it is close to 20 million jobs. Things are going very well in all this sense. Traditionally spanish companies, because of the booming demand, was so they were not looking for International Markets and now they are more competitive. Things are going very well. Francine do you worry about politics . You do not have exposure to catalonia, but do you have the perception where there is a share price discount because politics are messy . Ignacio i was attending a brown who isgordon making some statements. I think it touched to me very much. We are living from an economic crisis worldwide but we are coming to a political crisis. The political crisis cannot really have an effect can have an effect in the economy, employment. What is the political situation in spain . I think we have been already living 40 years in a dictatorship. We already had a civil war in which almost one Million People died, and after 40 years, the , livingans in all areas inside the country with the defector reach an agreement to make the constitution. The constitution has been our main roles of how to live in the country, how to apply the separation of powers between the justice, executive, etc. What is happened has been very simple. This is making then the situation will happen again. I think this constitution [indiscernible] we have already suffered a civil war in the past. Somebody else, on the business side has artie broke the rules. Already broken the rules. The rest of the country is performing well. Themost important thing is country cannot live without the clear rules. We have clear rules and the rules have been applied. The economy for the time being is not that affected. The economy is going well. I think the country is performing well. Is continued at 3 over and im. Over and him annum. Francine i have two questions. I have about 200 mark questions. You are interested in m a. While you make an offer for energy . Know us i think you for a long time. We are consistent in our plans. We have a plan up to 2020 in which we will invest 25 billion euros. How many to britain, how many to the United States . This plan is not at all contemplated any kind of acquisition. Saying that, i think we are in the work and our people in m a are already opening their eyes all the time. We already made a merger in brazil. What we are planning at this moment is not to make any important acquisitions. Our people will continue looking at everything, but it is not in my table. Francine i also want to talk about the tax bill in the u. S. That could be a big plus for you. The because of our system of the taxes in the United States because of the think we are back in the range of 1. 2 billion euros, which in 2017 has been mostly applied. Wet is a noncash item, and are using that mostly for a noncash item as well. It will improve our results. I think this has been good news. The recurrent basis is going to have an impact on the range of 30 to 40 million a year. Most of the business in the United States is regulated as networks, and whatever improvement in taxes have to be passed through to the consumers. Renewables are possibly affected. [indiscernible] the second or Third Largest renewable country in the United States, 50 billion market cap, is an important business. Francine thank you for joining us, Ignacio Galan of iberdrola. Giant can it bring things back with its new galaxy model . This is bloomberg. Economics, finance, and politics, this is bloomberg surveillance. Reported fourthquarter that missed estimates by almost 1 billion. Chipwere impacted by low prices and the eroding yuan. , a rockyn almost 3 start after hitting record highs in 2017. Thank you so much for joining us. How big of a concern is this . Is it mainly some of the forex, or is there a concern the product will suffer . I think four q itself is mainly on the Currency Fund and at the same time, most of the people kind of talk about it, it is oneoff compensation. Electronics had a very strong year, they need to compensate executives with bonuses and some incentives. So i believe that four q in terms of memory profit continued inbe stronger, given that terms of memory prices, they did not actually start consolidating until the latest december on. Profit wise, the profit should continue to trend higher. It is mainly on the component side, affecting the component profit. Francine thank you so much. Bloomberg surveillance continues in the next hour. Tom keene joins me in the next hour. We will be talking to gilles moec and a little bit about brexit. There was a cabinet shuffle that did not go to plan for theresa may. This is bloomberg. Francine the future of the fed. President trump is said to be very close to choosing the vice chair and Richard Clarida is out of the running. North and south korea hold their highest level discussions in two years. Cabinet chaos, nothing goes quite to plan for the Prime Minister as mays reshuffle backfires. I am Francine Lacqua in london, tom keene in new york. We are off to korea where we speak to Stephen Engles. We have quite a lot of earnings coming up, and of course brexit with the Cabinet Reshuffle that was not quite as genius as expected. Tom i sent Michael Wolff to write on it. I have no idea what happened. David merrill will stop by and a couple of hours. I have no idea what Prime Minister may did yesterday. Francine this was a show of then from theresa may, and she basically tells all the ministers to come and see her and two say, no, and one ands up resigning. Ends up resigning. Tom are the cats ok . Ok. Cine the cats are still lets get to the bloomberg first word news. Taylor there was an early agreement as north and south korea began their first highlevel talks in more than two years. Kim jonguns regime has agreed to send a delegation to the winter games in south korea. The south wants to resume negotiations on removing Nuclear Weapons from the korean peninsula. Tom taylor riggs, thank you so much. Francine, why dont you start our data check . Francine there is a little bit there is quite a lot going on when it comes to yen. Euro area november unemployment, falling to 8. 7 . It points to the fact that we are seeing stronger and stronger news out of europe. I am looking at yen because we had the boj coming out with some of the bond purchases, and im looking at crude oil, 61. 94. Tom the 10 year yield out front with the headline at 3. 36 . Your 210 spread, not steepening. Equity futures up. This is two days after the jobs report. Under 10, 9. 40, so it is still a bull market even with the dow closing 13. There is the 30 year bond, 2. 83, and the headline is what it is not doing. It is not at 2. 90, 2. 95. We will touch upon that. Bloomberg, where we talk about these dynamics. This i have never done. There will be a quiz on wednesday. Two spreads, the white line is that two30 spread and the white line the yellow line is the 210 spread. Notice how they get wider when things are good and happy, and they get real tight at the bottom. Here is where they are right now , and you wonder if we will redux what we saw in 2000 just before the crisis. Never shown that chart before, the dynamics of two separate spreads. That is a pro chart. Francine my chart shows that not only are stocks at record highs but they are coming off their best week in a year and eking out a small gain on monday. If you look at the s p dividend yield, and still blows the two on to year treasury yield. On to the market, a different kind of markets. There is a lot of talk to talk about indices, but also, i hope we can bring the terminal chart up for you. We are a little bit in chaos when it comes to some of the charts today. When you look at what the overall Market Sentiment eanes, means, my big question is whether the breakevens mean something, whether we believe rosengren when we look at inflation that maybe should not be seen as a 2 direct, and what the next haven is. You see the closeness between south and north korea, but if something goes wrong is yen your safe haven . Tom it goes back to the Central Banks. I am looking forward to this conversation with gilles moec on the focus of the first half of the year, which is whether the ecb i know the fed will get a lot of headlines but i would look at a concentration on the european Central Banks. Lets redo it again with our first word news. Taylor there was an early agreement as north and south korea began their first highlevel talks in more than two years. Kim jonguns regime agreed to send a delegation to the Winter Olympics in south korea, but south korea wants to resume negotiations on removing Nuclear Weapons. Lawyers for President Trump are said to be discussing how he would handle an interview with special Counsel Robert Mueller. Mueller has raised the likelihood that he will seek to question the president in the Russian Election meddling probe. The president s lawyers are considering how to set limits on an interview. Administration regulators rejected a plan to bail out the coal industry. Rick perry has proposed subsidizing struggling coal and Nuclear Plants as the way to keep power grids dependable, but the federal Energy Regulatory Commission Said no and has asked operators for their own ideas. 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 let us begin this discussion on Central Banks, and im thrilled to bring in two. Steemed guest joining us in london are gilles moec with Merrill Lynch and elsa markets. T rbc capital all the focus is on chairman powell. What is the to do list for mario draghi just to get to march 31 . Ecb hasactually, the kind of frozen its Monetary Policy stance for 2018. They said they would not buy until september 2018 and they would never end it abruptly, so it probably means the end is december. It feels like plain sailing. They did not have to do or say much. At the same time, the cycle continues to improve a lot, and even if inflation is still far be, from where we wanted to the hawks are getting bolder and boulder, and not just the hawks, even centrists within the governing council want an early conversation on a change in language and forward guidance. I think quite quickly in 2018 and by the spring, they will have to revise the language. They will have to say that no matter where inflation is, qe will have to stop. They will have to depart from the openended nature of the program and the risk is that the market wakes up, and starts pricing more rate hikes, not for this year but for 2019. The problem for draghi is at this stage, the only thing he can do is slow down the process, try to win time, meeting after meeting, but down the road they will have to toughen up. , thrilled togos match you with gilles moec. You know this, the oneway bet on euro which is six standard deviations out. If i go back to 2006, it is real simple. We have seen an explosion of a bet on a strong euro. Are you going to push against that consensus bet . Elsa you know im going to, and in part is because there are a couple of things working against europe. The Economic Data are a lot better than expected and are improving, but we are missing the mechanism to get paid. Even rate hikes are not a question for 2018 but more for 2019, and we are starting from negative rates to begin with, so for the whole course of the 20 the euro will be one of the lowest yield theres. Yielders. Whatine at one point point does that become a problem for the eurozone . Elsa they are able to handle a slow and steady pace. The ecb pushed back, bringing the level of the euro into the opening statement. I think from a point of view of exports and so on, we have seen across countries that exports are a lot less sensitive to Exchange Rates than they were in the past. I am not worried about the eurozone handling a strong euro. For other reasons, the market may reassess its long europe positioning. Francine are you worried about a strong euro . Gilles normally at 1. 20 we would get to the stage where they would feel some pressure, but you have to balance this with the fact that we have a very strong domestic demand in europe. We are less dependent than usual to external traction, and at the same time, even if every day we expect some sort of slowdown from demand, so far it has not materialized. Addressed of demand to the eurozone remains ok. 1. 20 is a little bit testy, but we can probably survive for another few quarters. Tom i have been showing this chart. Good morning, radio london. This we have not shown in a while, negative Interest Rates on the twoyear yield. I just did it. Here is the 10 year yield up at a positive and here is the negative, down low. We have so far to go to remove the load of negative rate paper, dont we . Elsa absolutely. When you look at the relationship between currencies and rates, you can find periods of time when currencies take year, butfrom the 10 it is most often the front end that matters. As the year progresses, assuming we stay in a low volatility and risk seeking environment, that does not favor it. Tom this is a great conversation, a lot of dynamics particularly in europe. Overlaid on that is the italian election. I guess it is early march. Francine march 4. Tom thank you. Gilles moec with us and also lingos. From london and new york, this is bloomberg. Bank, a strong euro, 1. 30 call. Taylor this is bloomberg surveillance. Lets get the Bloomberg Business flash. Samsung electronics came up short in the latest quarter as they report lower than expected profits. They lost momentum in memory chips and were hurt by the stronger korean won. They plan to release their latest smartphones next month. Aston martin is seeking a 6. 8 billion valuation in a potential ipo later this year. That would put the company on par with harare. Ferrari. That is famous for its connection to the james bond movies. He willw hes spin off the cable providers u. S. Unit while he fixes the debt laden european operation. That would let him retain control of both companies. Altices stake will redistribute it to shareholders at the end of the second quarter. Tom what we love about Bloomberg Altice surveillances conversations with very bright people who agree to disagree. Elsaus are gilles moec and lignos. She joins us now. Later, george Sarah Bayless saravelos will join us from Deutsche Bank. Deutsche bank is up here with a stronger euro call and you were down here going maybe not. This is about rate differentials as compared to capital flows. Which is the dominant feature that gets you to a weaker euro, a more tepid euro . Elsa there is a number of factors driving it. I think i have a disadvantage his im going first and i am not really shortage what sure what george would be saying. A number of people have an pointing to the account surplus as a reason for being positive on the current. If you look across countries, there are several countries that have current account surpluses. What is critical is what happens on the other side of that ledger , what happens on the capital account, what happens when european investors send money over a broad. There was investment into European Assets and that was clearly one of the big stories of 2017. Can that continue into 2018 . This is a call based on a number of factors. If we have a big risk off shock the euro trades in somewhat of a safe haven. If we suddenly see a u. S. Recession or euro area inflation picking up, the euro could do well against the dollar, but in Current Conditions were volatility remains contained, carry trades are still doing relatively well, and the fed continues to deliver, i see fail to see how eurodollar will get above 1. 30. Dollar andop sterling dynamics play into that . Bit of anling is a idiosyncratic story, and there is a lot of domestic Political Risk which will materialize sometime in the next five years, or four years. We know that at some point we will have an election and when that happens we are likely to see a labor led government. I would not focus too much on sterling with respect to eurodollar. I much more interested in the relative dynamic of the two economies and Central Banks. The focus last year was on the turning point for the ecb, the fact that we are closely closer to the end of qe. Not so much even the start of rate hikes, but getting rates back up to a reasonably positive level. Francine could the ecb be the hawkish surprise of 2018 . Gilles i think it will end it has already started to be in a way, because we have a central bank which is very gradually moving away from its absolutist commitment. We are not going to move until we see inflation in the whites of the eyes. They seem to be moving to a sense of, we will not wait until inflation is really back in the data. We will do in a way what the fed has been doing, to look at the labor market, look at a lot of various measures of slack and pressure on capacity, and we will gradually reduce our stimulus. The difference i think between the ecb and the fed is that the fed can go either way, and you will find people in the market who believe the fed will not be able to deliver, where is the ecb is stock. Can go, only one way it and the only conversation about the ecb is at what pace will they actually deliver on this tightening . The picture for the fed is much more complicated. They have many more options than the ecb. Francine for the fed, does dollar move on who they pick for vice chair . Elsa i would find that surprising. Consensualelatively decisionmaking process at the fed and we have not seen that much change with the decision to appoint Jerome Powell. I could not imagine that we would see a move in the dollar. Francine do we need a more hawkish dollar . Gilles no, because the message we have from the fed is quite consistent. Believe my model, not necessarily the flow. The reality may be different. You can already argue that even without a lot of hawkish fomc, they at the are already taking some risks with their outlook. It is quite amazing actually that we have a central bank theh is so adamant that rules will materialize, even in the face of things not going their way. Francine gilles moec and elsa lignos stay with us. Coming up later today, we are live from the Consumer Electronics show in las vegas where we will be speaking to the york,eo 12 30 p. M. In new 5 30 p. M. In london. This is bloomberg. This is bloomberg surveillance, tom and francine from new york and london. We have to about the boj because central bank watchers have gone back and forth about what the announcement from the boj today meant. Not have beenould taken as an imminent sign they will turn to the exit for the current Monetary Policy, but there was a little bit of a blip when it comes to the yen. Lets get back to june gilles moec and elsa lignos. People are trying to figure out what the boj meant. Elsa there was relatively limited information content, because if you look at yields within a 10 to 25 year sector, they were close to the bank of japans targets, show so we should it expect them to taper the purchase. Qe on anot a taper of whole and to get that we will have to wait for the replacement or reappointment of kuroda. Francine do you think he will be reappointed . What does the market prefer . Elsa the market just wants an extension of the current policies. From a risk perspective, that is probably the best for the market. When it comes to the bank of japan, they are running into limits of how much they can buy, the availability of assets to purchase. We have a call for the yen to strengthen through 2018. Francine we will talk a little bit more about the pound at 1. 50 and the Cabinet Reshuffle. Theresa may was not expecting it to go as it did. This is bloomberg. Francine this is bloomberg surveillance with tom and francine from new york and london. Lets talk about exit. Brexit. First, we have to talk about health care, then brexit. Drug g to an american two spot suspicious shipments of painkillers, even after agreeing to do so. Bloombergs Erik Schatzker sat , whowith mckessons ceo says it was nonsense that the company willfully looked over shipments. Thatwould like to think mckesson was amazon before amazon was cool. We have been automating the supply chain for pharmaceuticals for years. Supplies our customers have a complete array of products to them online , at night, in the afternoon, or a walmart pharmacy. They are looking at what is available. They are placing orders. The next morning, 7 00 in the morning, 100 of the order shows up, usually delivered by one of our drivers. Machine thatkable does a lot of the same things that amazon has been trying to do with consumers, interns in terms of automating the web presence. Do thatat might amazon you could support or see a role in which mckesson might play some, but come some sort of a partner become some sort of a partner . John we are in the dish of fusion business. It is difficult to see where that intersection could occur. Surenk our job is to make we continue to expand the Value Proposition that we deliver to our customers. It includes data and analytics, and online presence. Erik they look like a foe . John i do not know what they will be, but we have to continue to evolve. This is different than shipping koolaid or google ishat point, also looking at health care. I do not know if they are looking at wholesale drug distribution, but they are taking a close look at health care. Would you take your data access and analytics up against those of amazon and google and win . John i do not know what their data and analytics capabilities are. We know the health care space. Our expertise in Health Care Makes a difference. When we come up against competitors outside of health care, usually our intimate knowledge of business makes a difference. Francine bloombergs Erik Schatzker speaking with mckessons ceo john Heather Graham john hemmergren. The first highlevel negotiations between the two koreas in more than two years has led to at least one agreement. North korea will send a delegation to south korea for the Winter Olympics. South korea is proposing temporary union of families separated by the korean war. It also talked about easing tensions on frontline areas. The president is host to making a decision on who will be the vice chairman of the federal reserve. Managingot be pimcos director. The vice chairman job has been whent since october, Stanley Fischer retired. A u. S. Military satellite spacexd by elon musks has not been spotted in orbit. That has created a mystery about the fate of its classified payload and doubts about whether the mission was a success. A u. S. Official and two congressional aides say the second stage of spacex failed. Secondne aide said the missile failed. And georgia came from behind to win the National Championship and alabama came from behind to win the National Champion ship against georgia. Alabama has now won five National Titles in nine seasons. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Tom is is so important. We have to hear this. Just for our global audience. . Uld you please go roll tide francine roll tide. Tom there we go. You are on board with alabama. Francine not sure what i just said. Tom roll tide, alabama. There is a heritage back to my youth. This is a true freshman, a child, throwing that bomb. I cannot convey what this is what Everyone Wants in american sports. This is fabulous. One more time, for bear bryant. Say it. Francine roll tide. Tom there we go. Francine are they paid more than european footballers . We should do a show the money of sports. Tom this is a sensitive issue. The college kids are not paid. Colorado, i was at when this was a raging debate. They are not paid. That is part of the act. It is an endless debate. Should the athletes be paid . Lets go on to brexit. Roll may. [laughter] francine roll may. The u. K. Prime ministers attempts or reboot was chaotic. Cabinet members refused to follow her orders. First, the Health Secretary, then the education secretary were locked in discussions with her after rejecting proposed moves. Eventually won his argument to stay on. Meanwhile, the italian Economic Development minister says granted video be with david davis. Canada plus plus plus will be the meaning we need to achieve. Beyond that, there is a problem we need to sort. Brexit is another piece of the is more andd that more fragmented. Francine last time we spoke with this italian minister, he said watch out, brexiteers, because you will not have enough prosecco coming from italy. Meant to showwas theresa may strong and stable. I have never heard of ministers saying i will not go, i want my job after two hours of negotiations . Asked ordinary. It went a bit pearshaped. There is a pattern. She built up momentum. She called an election she did not need, and it went horribly wrong. She did the same mistake. Ifly, this reshuffle you have not got all of those people locked in, then you see what happens. Francine what does it mean . Is a problem of leadership, and authority plot problem . Markets are concerned she will not be able to negotiate the next phase of brexit. Foria clearly a Movement Authority backfires is not mean well for her. The story of theresa may is her her strength. Does anyone want her job . I do not think anything has changed. Francine who does she need to watch out for . Flavia no one. Supposedly, Doris Johnson her s. Does anyone want her job . Has been given opportunities to mount a leadership challenge and has not done that. The talk is she stays the course until 2022. Not sure this debacle will have changed that. Having said that, all bets are off. Within a week, she went from humiliation to triumph. How she deals with this next isge of the trade talks where the rebel will hit the road or whatever the expression is. If brexiteers feel she is not getting the deal 40 billion people agreed to, that is when the status will fall apart again. Volumeread roy jenkins on Winston Churchill years ago. And we are all caught up with the movie about churchill. In the major scene of that movie is the chaos of the churchills 10 downing street. Is the chaos in the may 10 downing street, is it normal, or is this highly unusual . May, it has become the new normal. In british politics, it is unusual. We are used to being a functional, vaguely boring country. I do not know if you saw a tweet about churchills grandchild, being very critical of the reshuffle. Francine not looking great. , full this into how europeans respond after what they witnessed yesterday. Explain to me the incentives for brussels and all of europe to actually respond to the united kingdom. I see no reason why they have to play along with Prime Minister may. Gilles but the europeans recently have tried to be nice to theresa may. In december, they did everything they could to try to salvage this transition from days one to phase two phase one to phase two. Jeanclaude juncker went out of his way to sing the praises of theresa may. The europeans would like the rpms would like to have a strong leader in the u. K. They want to get a deal. Not the same deal the u. K. Wants, but they want clarity on the issue. Theresa may can further is not good for europe. But the europeans would like some clarity from the british side. You forget the little bit about the noise because it is funny that the reshuffle did not work well from the european point of view, the angle will be do we have the same balance in the cabinet between brexiteers and soft brexiteers . This is something she has achieved. She maintain the balance within the cabinet on this. Which brings us back to the status quo. The big issue for the europeans at this stage is they still do not know exactly what the british side wants of brexit. None of what happened yesterday is helping us understand what it is exactly they want. Because we have the same stalemate within the cabinet between soft textures and hard brexiteers andft hard brexiteers. Francine we have a chart it has been trading up nicely. At the same time, it has been a soft u. S. Dollar story rather than a strengthening pound. There was a period in september it did really well, anticipating the bank of england. It is not clear to me the bank of england can do much more. The current stage it is difficult to see how we get to 1. 50 short of the dollar collapsing. Not knowally, we will the answer to what will happen within the next year. Francine what does the boe do . Stay put . That is my expectation. This is not the good type of inflation that you want to raise rates in order to tackle. This is bad inflation, not accompanied by wage growth. Focused onre you through the weekend into the middle and end of january . Flavia what is the focus . My focus is getting through the next 24 hours, honestly. What will be interesting to look out for is this will be a u. K. Drive in germany. Davis will be going to berlin. Hammond is going tomorrow. Even though trade talks technically start in march, the informal moves and trying to cozy up to merkel, seeing where they can break up and cozy up to European Market partners, that is happening now. Tom thank you so much. Flavia krausejackson with bloomberg news. Elsa lignos, thank you to we will continue with mr. Moec as a move on. Coming up on bloomberg daybreak, nathan sheets with thoughtful essays on where america is in our international economics. This is bloomberg. Ics. This is bloomberg. Good morning. Withmberg surveillance tom and francine. Donald trump is at the forefront, not only because we are still trying to look at the fallout from fire and fury, but we have to talk coal. Tom let me cut to the zeitgeist of the morning. Mr. Mueller will interview the president . Anticipated for many months. Trumps lawyers have been waiting for this request to come down. There has been no formal request yet. We are still a ways off from him actually being questioned. The not think you are is at end of his investigation. I think most people expect he will not question trump until he is at the very end and questioned everyone else. But this does present legal risk for trump. He has a tendency to speak off the cuff. What they want to avoid is him being subject to a subpoena, to appear before a grand jury, where he would most likely be without his lawyers present. What they would like to see is responding to written questions. We would likely end up in the middle of him answering questions a la bill clinton. Tom for our international audience, are we going through a multiyear ballet, so any given president can pardon whoever whenever it is time to part in . Stephanie well, we do not know where the Mueller Investigation is going. It is safe to say that the vague the media is way behind where he is. I think this is the problem for trump. Is when he is questioned, what he says will be matched with what Michael Flynn has testified, what others in the campaign have testified. Jeopardyd create legal for him. We do not know where this is going. It looks like he is building a case on objection of justice. It does not look like it is a collusion case, per se, but we do not know what he is sitting on. Francine how quickly could he testify or answer questions . Stephanie we do not know that. They are negotiating the terms. There has been no formal request. I would be surprised if it happened anytime soon, because of the way these investigations go, they would likely want him questioned at the very end. Coal,ne when it comes to how does the latest decision go with the trump base . Stephanie its a blow for trump. He campaigned strongly on promising to save coal industry jobs. This proposal from the Energy Secretary was viewed as de facto an attempt to subsidize the coal industry. R federal regulators came back, saying this would just result in higher prices for consumers. Critics charged it would basically propped up on economic coal plants. They are back to square one. Francine i looked at a good documentary on coal called from the ashes. I highly recommend it. Gilles moec stays with us. We will get to his calls when it comes to Central Banks. In the meantime, if you are a bloomberg customer, log onto tv and ask difficult questions to tom or gilles. This is bloomberg. Francine live pictures of president xi with president macron, who arrived in china with a clear agenda. He wants to be friendly but talk tough. He said similar things to trump, who said we need to reset the agenda and find out a way to do trade better. Lets get back to zeal moak gilles moec. My question is whether president macron will succeed where trump has failed. Thatg to reset an agenda is mutually beneficial, but china has all of the cards. Startedyes, but macron from the point of view that globalization is good. He clearly said that just after the election, saying i am all for free trade, i won on free trade, but i am not for naivety. Which is different from coming immediately come in your face, i am not super positive about globalization. He embraced globalization, but he wants to change the rules. That is easier to pass the china. There are two areas that are essential. One is investment. Calling for more control on overseas investment in europe. And more reciprocity from the chinese side in terms of helping french investment in china to do better. European the biggest employer in china. It is not one way. It also matters to the chinese economy, to some extent. And given where the u. S. Is going, i think the chinese will want to find convergence with europe. At the moment, macron speaks for europe. Tom i had a meeting in beijing years ago the unique french relationship with china, going back to world war ii and back before that as well. How does that relationship change given the dynamics in washington . Macron,i guess that for it is opportunity. Macron isright now, otherwise engaged. The u. K. Is immersed in brexit. The u. S. Is having this fairly confrontational approach to china. So he can shape the debate quite nicely. And clearly, the chinese leadership is happy to help him go back to paris with some gains. Is important in terms of his own popularity at home. He needs to prove to the french population that globalization works both ways. Trade,ce embraces free it will be a gain for french consumers and producers. If he can come back with a few nice contracts, that will help them domestically. Of bank of moec america, thank you. Stay with us. Brian belski will join us on down 26,000 doubt 26,000 dow 26,000. This is bloomberg. Tom this morning, yields climb higher. The u. S. 10year touches 2. 50 . Ready for a bond bear market . Bill gross suggests to get ready. Brian belski on stocks and bonds in this hour. Perhaps mr. Mueller will interview the president. Meanwhile, still temporary with a capital t. The Trump Administration tells thousands of salvador he ends salvadorians to leave. Tua tagovailoa crushes georgia. Locker roomin the for the national anthem. This is bloomberg surveillance. World headquarters in new york, i am tom keene. Francine lacqua in london. I love the roll tide earlier. For brian belski, give it to was one more time. Roll tide. Francine roll tide. I am sure there is a parallel between brexit and what youre talking about. I an not sure whether theresa may needs to roll tide, but certainly her cabinet shuffle did not. Tom there was a big soccer cester, that is sort of what this is like. What a huge upset for alabama. Right now, with our first word news, here is taylor riggs. Taylor there was an early agreement as north and south korea began their first highlevel talks in more than two years. To jonguns regime agreed send a delegation to the winter Olympic Games in south korea. The south is hoping for more than that. Negotiationsesume on removing Nuclear Weapons from the korean peninsula. In the u. K. , risa mays attempt to reboot her cabinet turned into chaos. Several ministers refused to accept their new role. Lawyers for the president are now said to be discussing how he would handle an interview with special Counsel Robert Mueller. According to the Washington Post, mueller has raised the likelihood that he will question the president in the Russian Election meddling probe. And the Trump Administrations regulators rejected a plan to bail out the coal industry. The Energy Secretary proposed subsidizing struggling nuclear coal and struggling Nuclear Plants, but the Regulatory Commission said no. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Coal and nucleari am taylor riggs. This is bloomberg. Equities, bonds, currencies, commodities. So quiet after the jobs report friday. The futures going nowhere. Oil not part of the story. He will do yield dynamics through the hour. Screeng second showing 9. 24 on the vix. Would think you would be at 2. 9 0 . It does not have the dynamics that you get inside a twoyear, five year, seven year. What do you have . The upward march in global stocks are continuing. Toopean equities falling on asian fears. The yen the only currencies arise against the dollar after the bank of japan pared some bond purchases. And for good measure, i put oil 1. 68. R currentlye, at tom whether it was the cacophony from 10 downing street in d. C. , Kevin Cirilli gives us the rundown. A budget we have battle on capitol hill. Is everybody just too distracted right now in washington . Kevin it is a really good question. Here in washington, d. C. , it is a most like there are two tracks. The public track of what goes on and what dominates the headlines and the political volatility so to speak daytoday, with the investigation, the president s twitter account, the latest controversy with the fire and fury book. Then there is the second track, increasingly behindthescenes. But in terms of daytoday legislation on capitol hill, it is like they do not Pay Attention to the noise surrounding the Trump Administration. Tom it is january 9. I believe the 19th or so, it gets exciting. What happens in the next ciril li week . Kevin first, january 19th, passing the continuing resolution. The border wall, daca, the president s state of the union address. 31st is when his administration has to submit a budget outline for how much they want to have allocated to the various government agencies. Look for this to see how much he will decrease funding to keep landings. The sec, for example, to whether or not it will sit in line with the derogatory policies he has gulatorye a tort dere policies he has pushed in the past. Francine when will he talk to Robert Mueller . Kevin that is what Everyone Wants to know. His lawyers are trying to setup parameters of that type of interview. What i have noticed based upon our reporting in the Washington Bureau is that you have a situation where the president s legal team is really separated itself in terms of Public Comments we have seen coming from the likes of the White House Press briefing room. That is an interesting nuance point. Before, it was really dominating the types of briefings, not has peeled off. Francine when you look at what happened with coal, how much of a setback is it for donald trump . Kevin candidate trump really pushed all about the coal industry and said he would bring cold back coal backk. There have been interesting that all ms. And what happened any there have been interesting developments in what happened in the past week. Is in regards to coal, that a much broader trend that has continued in democratic administrations and now republican ones with how that industry has shifted. Wolff book old news yet . The news cycle nowadays is three hours. Is it old news . Bein now, it appears to somewhat old news. People appear to have moved on from it. Again, the fallout of the thening of the democrats seizing the book to question the president s Mental Fitness in office. Tom thank you so much. Kevin cirilli, our chief washington correspondent. We like to feature people who did the courage when you not, i did not have the courage to stay in the market. Ryan belski has been able brian belski has been a bull. Have you wavered . Brian no. Tom why not . Of u. S. He fundamentals stocks have continued. This bull market was almost 20 years in the making. He think about what happened in 2000, the Fourth Quarter in ,rms of the tech wreck assets leaving the United States, then the advent of commodities, bonds, anything but markets, emerging europe. Then, the financial crisis, then the contagion, then the double headed recession. The events we saw in 20082009 were once in every other generation, but we are still acting like it is 20082009, even though the market almost quadrupled. Tom so is your earnings behaviorbased . Brian we would like is that it is earnings based, but at the end of the day, a lot of it is behavior. That is why an hour year ahead piece we penned in november, we talked a lot about perspective. We firmly believe a lot of investors lack perspective. The majority of investors to run private have less than 10 years experience. If they had been a Senior Analyst for 10 years, all they know is the dollar goes down, the Interest Rate goes down, buy stocks anywhere but in the u. S. Tom lets dive into this. Francine has some really important questions on the global market. Brian belski with the moke Capital Markets bmo Capital Markets. Bonds may be able to compete with dividend and Dividend Growth as well. Bloomberg daybreak, look for a conversation of mr. Sheets of pgim. Sheets folding in fiscal america with his international economics. Stay with us. This is bloomberg. Rg. Taylor this is bloomberg surveillance. Business the bloomberg flash. Samsung electronics came up short in the latest quarter. The south korean giant reported lowerthanexpected profits. Samsung lost momentum, hut by the stronger hurt by the stronger korean won. In a potential idea later this year. According to people familiar with the matter, that would put after martin on par with ferrari would put aston martin on par with ferrari. And a french billionaires attempt to turn around lts has altice has a new twist. The plan will let him maintain control of both country companies. Tice usa will be spun off to investors at the end of the second quarter. Tom thanks so much. What we will do now is a smart idea from a smart economist. Then, we will go to the chart and brian belski. Kumal should come are bonds, not stocks have been the better editor of the two recessions in the toy first century. Treasuries are sending a warning. E growth remains a munich anemic. Reduce Government Spending on health care will discourage consumption five low income and elderly americans. Mar one of our most popular guests. The spread coming down as well. That chart says slow down, brian belski. That chart says we are slowing down as we go. You do not buy it, do you . Brian no. Come on. The answer is the bond says, as dr. Srikumar provide signals and what signals can you get from the bond market, or has the fed screwed up so much you cannot use the bond market . Brian that is part of it. Spreadld curve, the 2 10 that is all i care about as an equity guy. Seven addicted the last recessions. Also, as yield curves latin, the market can be positive, because as the yield curve flattens, the market can be positive. The bond market is trying to jam the spread as much as it can. At the end of the day, we will transition to higher yields. We will transition to higher yields. We start to see these bond markets selling. Tom bill gross says we will have a bond bear market, but we will not lose a lot of money. Does that translate to a trading range . Speak to that. Heres what i would say. Higher yields are indicative of what is happening in bond proxies. What we have told clients from a longerterm perspective, in terms of buying Dividend Growth, the equitymplistic growth, the more it tends to underperform. In terms of building and growing the dividend over time above the market, that is what outperforms. Dividend growth in general has underperformed, because we are selling anything with yield because we are reactive. Digital growth is a sound growth strategy. That is where we think investors should be. Francine what do you think of the flattening yield curve . Do you think the flattening yield curve continues to flatten . How much flatter can it go . Brian we wrote a piece in december, because we received pushback with respect to the yield curve flattening. Over time, the yield curve can posten and the rocket can double the results when the yield curve flattens over a long time. The key thing is if we see an inversion, that would have an impact with respect to fundamentals. We could see the yield curve latin more here. As economic with continues to improve them over the next couple of weeks, we will go into the Fourth Quarter earnings, which we think will be a surprise to the upside and even stronger. So we think the yield curve will actually begin to widen and we will see another big phase into financials. Francine if you look at Industry Groups, do you look at market and Industry Groups . Brian there has been a bit of a backon a defensive side into Consumer Staples. We think Consumer Staples be an area if and when the market corrects, investors will sweep into those areas. Those are seeing signs of being a structural short. Many Food Companies with high pes, their earnings happened, volatile. We also think there are strong positions in the yield proxy areas, meaning utilities and telecom. We do not think there is a froth or anything. Pensively because a lot of our clients are underweight apples principally because a lot of our clients are underweight apples. Talk about one stock we have not talked about for ages. Industrial america. Good morning, p oreo peoria, illinois. Brian belski still with us. We will look at the yellow and green of midwest america. Coming up, a conversation with senator gardner from colorado. Nuance with gop politics. Look for that on bloomberg daybreak. This is bloomberg. This is president Emmanuel Macron holding a press conference with the president of china, president xi. The visit serves three purposes. He wants to establish himself as the european leader that can make advancement with china. He is there to also sell planes. And i guess give a little bit of goods to the chinese in buying french products. On thirdly, the president has decided, like trump, to ask for a fair deal when it comes to trade. President macron both sides need to be restrained when dealing with north korea, for example. Tom very interesting. A very important point for 2018, when mr. Macron visits china. Make America Great again. Maybe that starts with a 93 mile distance from peoria. Green, john deere. Yellow, caterpillar. Brian belski is here to talk about industrial america. The lift we are seeing in the yellow. Bring up the charts. Very cool. Deere in front of caterpillar, but very similar. I will put this cool chart out on twitter for bloomberg radio. Brian belski, it is a moonshot recently, but you say much more to go. Brian we have been overweight industrials for the last couple of years. Many of the industrial holders and respect to mutual and hedge funds have been focusing on international growth. We have great domestic growth companies. Caterpillar, deere benefits with international growth. The next several quarters will be based on domestic growth. We have caterpillar and our top 15 list at bmo. We like it longerterm. Tom i have a bulldozer company the ought to make a zamboni. Trading at 26 times pe. Trading like Johnson Johnson in the 1950s. Brian perspective. You want to buy these companies when they grow into their multiples. When the multiples go down, that is when you want to start buying these. If you are selling industrials because of high pes, sell them to me. I will take them. Earnings will grow. Stocks will go up because of that. We are in an environment, especially on the industrial side, where companies are growing into the multiple. Earnings will outpace performance with respective price. That is how the math works out. Tom 9 Dividend Growth on caterpillar. Francine i like a good dose of perspective. Talk to me about animal spirits. How much of this is thanks to the tax bill . Brian well, we have, for the last several months, been talking about the tax bill, saying investors were not positioned for the tax bill. That is what happened. Then you have this buying exhaustion. Especially at the beginning of the year, you are seeing strong moves into those areas. Tom landmark announcement a single headline across the bloomberg last year was the idea of honeywell with better organic revenue growth. Is that your call for industrial . Brian if honeywell is ge. Comp these hallmarks real anies. Tom please, could you say it one more time . Roll tide. Francine roll tide. I disagree, but we will get back to that in a second. [laughter] belski, bmo Capital Markets chief investment strategist stays with us. Coming up here on bloomberg surveillance, more on brexit. And later on, the Consumer Electronics show in las vegas. We will speak with the sony ceo, mr. Hirai. This is bloomberg. Tom it is a spectacular winter day in new york. Tofinally get some warming all of you across the nation and worldwide. New york in an upper over the last four and five days at jfk. New york really studying what happened at jfk over the frigid cold of a few days ago. Say good morning. This is bloomberg surveillance. Francine lacqua in london. Im tom keene in new york. Heres taylor riggs. Is the first highlevel negotiations between the two more than two years. North korea will send a delegation to south korea for next months Winter Olympics. South korea is also proposing temporary reunions for families separated by the korean war. It also wants talks on easing tensions and frontline areas. President trump is close to making a decision on who will be the vice chairman of the federal reserve. According to a white house official it will not be richard cleared on. He was once seen as a contender. The job has been vacant since Stanley Fischer retired. The u. S. Military satellite launched by spacex has not been spotted in orbit. That has created a mystery about its classified payload. A Navy Official says the second stage failed. One of the aids says the satellite fell into the ocean. In College Football alabama came from behind to beat georgia 2623 in overtime to win the National Championship. A freshman through a 43 yard touchdown pass for the win. Won fiveas now National Titles in nine seasons. Global news 24 hours a day powered by more than 2700 journalists and analysts in over 120 countries. Im taylor riggs. This is bloomberg. Be lost in translation but i love what the Washington Post said this morning. There are two sports in the south america. Football and spring football. Thats the focus is the president visited last night in atlanta. In the wake of ecb policy and stimulus Deutsche Bank is targeting 130 for the euro by the end of the year. Still with us in new york, brian belski. Quite a lot going on why comes to maine currencies. Your call on euro is based on what . The dollar as having three problems this year. The first one is if you look at asset valuations they are basically the highest they have been in more than 50, 60 years. Struggle to see whos going to be buying u. S. Assets. The basic balance has already been trending down for the dollar. We dont really think the fed matters that much. This is very similar to 2004 when the dollar was weakening at the same time which brings us to problem number three. When Global Growth is doing well the dollar tends to weaken the cusp the worlds Global Funding currency. That is one of the big Drivers Behind our forecast for a stronger euro. Francine can the euro region sustain a stronger euro . Last year the euro did have a very big move but the impact on growth was fairly small and the reason behind that is if you look at the Drivers Behind European Growth they increasingly seem to be domestic. Businesses are doing very well. The answer is yes. Even if the euro does go up the economy should be able to survey them sustain that. Bring up the chart right now. This shows the differential down to those looking for weaker euro. Whats the ramifications for mr. Draghi if he enjoys a 130 euro . I am not sure he would enjoy it very much. The ramifications are that the ecb will continue to have to tighten very slowly. Thats what they did last year. Part of our thesis is that the euro will not be going up because bund yields are going up. People say the only way the euro can rise is if european euros rise. Her slightly because the euro will be rising the ecb will be forced to be more dovish in the moving bund yields will be very orderly. Of that leads to some form jump condition, some form of tipping point. Howdy you frame in your head the audio of all the ecb calculus persistently low yields and stronger euro. What is the trip point that we will see . The way we are looking at it is it is very similar to 20042006. Most Central Banks were tightening rates that at the same time volatility continued to go down. Global leverage started picking up again. Asset prices were rising. That helped feed into a stronger continuedich in turn to very benign financial conditions and in that world Central Banks even if they are tightening dont really matter that much. Markets get into this selfsustaining environment it stays low amounts of dollar weakening environment as well. Francine is there a danger that bunds reprice quite sharply . The danger should be relatively low. The euro going up keeps inflation pressures relatively contained. The ecb is going to be quite careful. Moveected to be an orderly and i expect the environment to continue this year. Francine is there any other pairing we should be looking at . Theres lots of interesting things going on. In terms of european currencies the swiss franc continuing to weaken. One driver behind that is continued outflows from switzerland. The swiss have not invested offshore for the last 10 years. We like that story. Japan is very interesting. Thirdbase line is for this very slow grind higher in dollaryen. The yen weakens. There are risks around that we are acutely aware of. Tom what does a 130 euro means italy . Mean to italy . They want a weaker euro. Italyoes 130 mean for given the march election . Perspectivelitical its actually the u. S. That cares a lot more about a weak dollar the in europe worrying about a high euro. One of our themes for this year is we worry the Trump Administrations focus aftertax is going to be around trade policy and thats going to be negative for the dollar against major currencies such as the euro and the yen. On the other hand if you look at europe stronger euro is a symbol of europe getting its act together again. I am not sure there is going to be as much pushback. Caterpillar, huge exporter. They want a weak caterpillar, e exporter. They want a weak dollar. Under georges thesis thats good for caterpillar. It is. Traditionally he is correct that we have had this big move in the dollar. When the fed starts to raise rates the dollar means to abate. I dont think we going to see a significantly weaker dollar. More of a solidification especially given how much the dollar on a relative basis has gone up since 2011. At the end of the day when you have an improving economy and a more consistent economy in the United States versus europe is going to benefit u. S. Companies in general. Francine does the u. S. Want a slower dollar . I think President Trump would be very happy with a weaker dollar. It helps his narrative on helping to improve trade. Big dollar at these cycles they tend to last anywhere between six to eight years. Pointlly the inflection centered around the lid than economic ones. We believe the election of President Trump marked the top in the dollar. Tom this is the bloomberg dollar index showing what georges talking about which is the recent rollover in the dollar. Do we go through the late summer weakness in dollar . If you look at the aggregate dollar over the course of the year we could potentially see lows. Llar revisit where it becomes even more interesting is the second half of the year where potentially European Forces start kicking in. This is a debate around negative rates. I dont think the ecb will raise negative rates very quickly but the key point is there is still by our estimate a very large underweight in European Assets. Europeans have invested huge amounts in on hedge dollar assets over the last three to four years so even the debate around ecb exit and the shift rates i thinktive will be very favorable to the euro. Francine rates what is your fae currency pairing overall in the market . I still like the euro against the dollar and the swiss franc. Francine there you go. Tom very good. And brianavelos belski. We will continue. From london and new york, dont forget bloomberg radio. Your morning brief. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. We must talk a little bit about brexit. The u. K. Prime minister theresa mays attempt to reshuffle her cabinet was marred by chaotic Cabinet Reshuffle as senior ministers actually refused to follow her orders. First the Health Secretary jeremy hunt and the education secretary were lost locked in discussions after rejecting proposed moves. The italian Economic Development minister says britain should be granted the canada plus plus agreement brexit trade deal. Think canada plus plus will what we need to achieve. Beyond that there is a problem that we need to sort which is the following. Brexit is another piece of the basicallyrld that is more and more fragmented. Now is whatining us bloombergs London Bureau chief. Still with us, George Saravelos and brian belski. We know that the Prime Minister of the netherlands have talked about these brexit talks. The Cabinet Reshuffle that was meant to show a strong premise or wasnt quite exactly what we were expecting. Does it weaken her significantly . Yes. It was an attempt. This was billed as a significant reshuffling. Its actually still going on today. We are seeing the jr. Ranks changing this morning. It went all day and into the night and very little change. You had people refusing to budge out of their jobs. Of course i can be impression that the Prime Minister doesnt have the authority. Trimester to first be unable to move people. Gordon brown really wanted to sack Alistair Darling as chancellor. The great david blair wanted to and wasof gordon brown unable to do that. This is a Prime Minister without the authority to do what she wants. We thought she was getting a bit stronger after getting the brexit breakthrough and it seems that this is a massive step back for her. Francine dont you speak to your ministers ahead of the reshuffle to feel out whether they are happy to be reshuffled instead of a public humiliation . These things are never easy. Youre talking about people losing their jobs. These things are never that soon smooth. We had tweets coming out from the conservative Central Office with the wrong person in the wrong job, misspellings. There was a general sense of chaos and it went on and on late into the night. Even the very conservative supporting press for the savage in their assessment. The telegraph called the night of the blood stiletto blunt stiletto. Tom does she clean house in her communication staff . Lets assume its not the dysfunction that mr. Wolff describes in his book. Does she clean house and hire David Merritt . Mr. Be my pitch for the job perhaps. My big break. This is a pretty calamitous pr event for this administration in the united kingdom. I dont see that shes going to be taking the broom. Part of it is on the communication side. Coming out this morning, we never meant it to be a massive reshuffle. Whats happening today that might bring in some fresh blood among the jr. Ranks. They are trying to spin it that all thishe optics of are what counts and we were told we were going to get a more diverse slate of people running the government what happened is jeremy hunt argued his way back into his job, justin grayling who is a younger more Progressive Side lost her job. Tom this is fabulous perlman gossip. Does anybody outside 40 miles outside london care . The bad headlines obviously mount up. Anyone outside the westminster bubble, whats important. Of theout the balance brexit negotiations. Everything in britain at the moment is being seen through that lens. What is the relationship of britain going to be like with the world. As these names came out yesterday and today we have been running a score carpet scorecard. She is clearly doing is keeping the balance intact. The people at the top remain broadly balanced between levers and remainders and as she replaces the ranks she is doing the same. The brexit direction continues. We have the first talks on the transition in the trade coming in just a few weeks. That is the most important thing. The reshuffle to change the game at all. Happene when its to from now until the end of the year to reach 150 . Is important to bear in mind that they are trading against the dollar. If the dollar is weak pound will be strong as well. On an aggregate trade weighted basis we are still quite concerned that the underlying situation is fairly weak in terms of growth and whos going to be financing the big u. K. Current account deficit that still exists. Tom George Saravelos of Deutsche Bank with us. Let me tell you about tv. David merritt, thank you as well. Let me tell youget briefed off g terminal in the morning. Come on over here. Particularly if you are at Deutsche Bank. You could steal the chart of George Saraveloss call to 130. How cool is that . Stay with us. This is bloomberg. This is bloomberg surveillance. Im taylor riggs. Intel has come out with a warning about computer chips in that recent security issue. Software patche was put in place to protect computers against packers will slow down machines. The Consumer Electronics show in las vegas, he says those patches have headed off illicit attempts to obtain data. The richest person in the world has only gotten richer in the first few days of the new year. According to the bloomberg billionaires index amazon founder jeff bezos net worth is now more than 105 million. Almostof amazon are up 7 this month. They have risen 57 in the last year. Lets do our single best chart right now with brian belski and George Saravelos looking for strong euro. This goes back to the courage to be in the market and this is a zoo men of the chart of 2000 with a huge move off longterm moving average and where we are right now compared to 1999. Theres no 1999 effervescence here. Its almost bull market cost averaging. Its the most reluctant bull market of my career. Probably of all time. We think the market continues to grind higher. Be trying tos to predict a correction. Stocks, find good companies, and see a pullback at your positions. Active portfolio management. Keep a 35 to 40 stocks and stay invested. Youve got the headlines from korea. Francine this is just on the back of our fantastic interview in the earlier shows with Stephen Engle based in the demilitarized zone. According to the National News agency in north korea they have now agreed to hold military dialogue with the south. First of all north korea earlier this morning agreeing to send athletes to some of the olympic korea. N a lot of people were hoping this was just the first step in some kind of dialogue for the military. Hold aorea agreeing to military dialogue with the south. Means buture what it that is really something to see given 60 years of tension. We are going to run out of time. Thank you to George Saravelos of Deutsche Bank for clarity on his strong euro call. And brian belski. Lets set up the next two weeks for all of our bloomberg surveillance audience worldwide. I am going to come over to london and see you and the beautiful new offices. I would say we go to a decidedly different World Economic forum meeting. I am focused on chancellor merkel. I dont know how she shows up given no government. Francine we will look at some of the other world leaders. We understand there is a big delegation from asia. Economic forum this year will field a bit different. One question that i would like answered at the World Economic forum is are we going to see more globalization or will the threat of the Trump Administration actually come to fruition in 2018. Tom i would assume President Trump will not show up. Stay with us. It is beautiful london. This is bloomberg. Good morning. 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 risk on. The pboc surprises the market pushing the 10 year yield up to a ninemonth high as u. S. Stocks prep for new records. Plus, u. K. Prime minister theresa mays attempt to restruggled reshuffle her cabinet falls apart as senior ministers refused to leave. And robots. Driverless cars, blocks chains. The global stage for innovation. David welcome to bloomberg daybreak. Im david westin right here with alix steel. Are set for another new high on the open. S p futures up by about one point. We are getting solid data out of europe. 10 year yield at one point touching 2. 5 . A ninemonth high backing off that level but nonetheless selling in the bond market continues and nymex crude getting a boost. The news over the night comes in dollar u. N