State of the nation address today. Welcome to bloomberg daybreak europe. They probably ensure your house and probably. Operating profit from pimco is in line. I do not think the opportunities of what to buy are they not think the opportunities of what to buy are they not seeing the opportunities of what to buy . Operating profit was 1. 3 one 1. 31 billion. The overall dividend is an uplift for this company. They are on track to deliver 3 year renewal agenda targets. For the Fourth Quarter you are seeing the income be on the numbers beat on the numbers. You had California Wildfires in the worst Hurricane Season in history in the United States. With all of those headwinds, this Company Managed to up the dividends. Promised histhere first repurchase in the first half of 2018. Are they looking at xl . That is the question. This is the picture over the last three months. The market was thinking that this was a tough time for the company and the rest of the industry. Allianz. The ceo of l he would join me very shortly. Ets talk about aluminum revenuefourthquarter 38. 8 billion, the market pencil in 34. 1. Penciled of what the bit shy market had estimated. This is what we have got for you. S p futures are giving back just a net nip. We are giving a little bit back this morning. There is a certain amount of asian investors that have departed the market. Profit, i think Everybody Knows that. Greed iss better better the track record for. Dollaryen continues to strengthen. Mr. Kuroda is reappointed for another five years. The yen continues to strengthen. Lets talk about oil. You got a little bit of a rally of their raleigh up there rally up there. Who are the brave and to are the frightened and who are the frightened . Credit calamity. Is and pulled the record ripped out ripcord and ripped out the largest daily redemption on wednesday from the third Biggest Bond Fund in the world since 2002, when it was intercepted. Incepted. Pted wipeout, 67 billion is gone. The people filling the most pain are the chinese. They have raised their holdings in u. S. Bonds in 2017 by the most in seven years. That story about divestment does not hold much sway. Lets see what the middle east buyers do. In the meantime, there is one man standing by to get you up to speed with your first word news. 4 the u. S. Senate has blocked immigration proposals, deepening. Tter bitter the plans included a bipartisan measure that would provide 25 billion for Border Security and a path to citizenship for the young immigrants. The white house has threatened to veto the measure. The Institute Director of the uks Business Group said britain should aim for a partial Customs Union with the eu after it leaves the bloc. It would help maintain the competitiveness that some of the uks of some of the uks Key Industries. Theresa may has said the country plans to leave the eu Customs Union. U. S. Secretary of state Rex Tillerson has met with turkish president in an attempt to ease tensions inflamed by american support for Kurdish Forces in syria. Tillerson told reporters that the countrys objectives are completely aligned, but there are some differences about how to achieve them. Dalio has ray amassed short bets against europes Biggest Companies. Bridgewater associates turned bearish last month and started shorting japan stocks around the same time. Riskys there is a rising of recession in the next 1824 months. Russia is not expected to sell more than 36. 5 million metric overseas. Eat russia is 36. 5ted to sell more than Million Metric Tons of wheat overseas. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. You can find more stories on the bloomberg at top. Manus he got up extra early for this morning. Lets talk about the Prime Minister of japan. He nominated governor kuroda to lead the bank of japan for another fiveyear term. He also appointed 2 deputy governors. It may mean an aggressive move, or not for stimulus. It is likely to stay in place for now. Joining us from tokyo is brett. Kuroda remains for another five years. Good news overall from a policy stance for markets . That is right. It is a sign of stability for japan. We should seek monetary stimulus here and japan continue aggressively here in japan continue aggressively. There will be a great deal of interest. The first meeting that we get with the new leadership in place. The two deputies alongside kuroda, there will be a great deal of interest there. All of the economists that we speak to said that we would see continued aggressive monetary stimulus. Propelled prepared to adjust policy if needed. He went from an initial big policy move with asset purchases. He moved onto negative rates after that. Perhaps moving into this new term will give him a chance to rethink and recalibrate. We will be watching with a lot of interest, especially for that april meeting. Manus the yen continues to strengthen. Is this really just down to the dollar weakness story . The japanese government certainly would have hoped that the reappointment of kuroda would have taken some pressure off of the yen. It means continued weakness in the yen, but the market is just not playing along with that. We saw the finance minister today, he is watching the yen. He appears to be somewhat concerned. He said the government could take action if it needed to. Tokyo is very disappointed with what is happening with the yen. A weak yen is fundamental for it to work. None of it is working for japan at the moment. Manus those headwinds are building up. Thank you very much for joining us from tokyo. Ofning us is the ceo principle Global Investors. Good morning. Help me, help kuroda. Please headwinds are building up these headwinds are building up. Does kuroda need to send a message to the fx traders . There is no doubt in my mind that that is a very uncomfortable level for the japanese economy. Japan is still a strong export economy. ¥115 to the dollar since them a lot better suits them a lot better. The bank of japan has been extremely successful in keeping the yen relatively weak for several years. A lot of credit to kuroda. I am very pleased to see him reappointed, however, there is two things that are going on right now. It is the u. S. 20 deficits twin deficits. Those deficits are really the reason for the structural weakness in the dollar right now. Furthermore, in japan you have tight fiscal policy. This has been the mismatch in japanese policy. Japan hase bank of done a really good job, but i think the administration in japan has been excessively tight and its fiscal policy in its fiscal policy. That is why they are finding it so hard to get rid of deflation in japan. Manus there is a new sales tax coming, does that need to be delayed . What needs to be done fiscally . James i think the sales tax can go ahead. They can think about other tax reductions. We have seen this with european economies in the last couple of decades. It can be less restrictive to an economy to raise tax on consumption, rather than on incomes. Japan needs that shift. A shift in the tax burden towards sales tax would be a good idea. The problem they have in the parliament in japan is that the very high level of Government Debt makes it hard for them to politically run the fiscal deficit. Back toets just circle the yen. Is. Dollaryen, its this dollaryen, and its current position in its current position. The market tested the vix parameters last week. Do you think you will get a test on dollaryen in the very nearterm . They could be in the next week or so it could be in the next week or so. It will probably pass the test, but there is no doubt that kuroda will be trying to use Monetary Policy to get the yen down. They kind of need to do it. I think this is one of the crosses that we need to be watching. Manus we will much more about the other side of the cross in a moment. Jim stays with us. He is the ceo of principle Global Investors. About junkg to talk bonds. I have an exclusive conversation franceklm, of air gagey. C he joins us next. How did you feel losing 70 billion of net worth . Somehow i survived. Manus live shot of Sydney Harbour there. The dollar is under pressure. We are at a fouryear low. Is that what is driving your aussie dollar higher . The reserve bank of australia is talking about the aussie dollar level on a trade weighted basis being manageable. Go can hop on to the tliv and see what they had to say in regards to the aussie dollar. From manageable currency, lets talk about that headwinds and tailwinds for air france. These are the breaking lines coming through on air franceklm. Theyre keeping their foot on the gas. Thats certainly the top line. Operating profit last year jumped 42 . That is a bit lighter than the market had expected. It looks like the dutch side of the business, the biggest contribution at air france was a little bit less. 8. 8 in terms of margin. What they have got here is fullyear operating income up 42 . Missing on the net income numbers, but i can tell you this. Theyre planning a major capacity hike. Probably about 4 this year to try to head off those lowcost rivals. 2. 6 ,ear they added about in terms of their capacity. They had some they have some huge issues to deal with. The north atlantic route in the United States is going to be very hard for them. We will speak to the cfo of air france there shortly, frederick very shortly, frederic gage y. What are investors doing . Bondsillion of u. S. Junk is being pulled over the last week, the secondbiggest demand ever. This comes as concerns over the equity market volatility starts to spread. This marked the fifth consecutive week of outflows. Over 15 is that billion. Mccaughan is still with us. Heavy ld me it was healthy. I caught up with the cio from ubs they said dont panic. When you see money being pulled of bondnd funds out funds, does that tell you it is the subplot of what is going on . Is it rounded two . Highyieldook at bonds, you can argue in 2 different directions. The spreads are lower than they usually are. However, if you look at any default andel of recovery, then they remain quite cheap compared with highquality bonds. That dichotomy needs to clear and resolve itself in the market. There has been quite a lot of flows into credit last year, and a bit of a float out because of the reassertion of volatility in equity market. I think it is quite healthy. I think it helps the market to clear anymore effectively in a more effective way. The daily profit says that the jeepers would be frightened out of the. You put it in context. 2 together for me. There is a highly technical position in the market. The people will glaze over technical forces in the market. There are a number of reasons why with the fed trigger in late january, the market had the behavior that had. That it had. There was too much of a short trade. That got unwound, it was a bit of a squeeze. When the vix goes up, our risk parity funds algorithm tells us to sell. That may not be rational. That was the farm number on that was the phenomenon that turned it 5 fall turned a 5 fall into a 10 fall. The reason i think another 10 setback is possible is that there could be a trigger, inflation or Monetary Policy or something, which causes a similar event. This tells me that volatility is back to normal. Manus lets talk about the inflation site. Capacity utilization is one of those things that varies various people look at. There you go. This is the memory fleeing. [laughter] everybody is talking about inflation, the inflation reflation. Sales in theruck United States of america when i was younger. That was my benchmark. I would be spooked unnecessarily are we being spooked unnecessarily . Where you used to talk about trucks, now it is probably weather applications that should be watched web applications that should be watched. [laughter] i suspect that it is an overestimate of capacity utilization. One of the things that technology does is create and expand capacity. It does not create and expand capacity in Mechanical Engineering and truck manufacturing, but it does in economic activity. That increase in capacity means there is a lot of capacity in the economy. Of deflationary effects. People now by online at a discount people now buy online at a discount. That does not make it into the inflation numbers. I think you are absolutely right about capacity utilization. The other side of it, of course, is that people get worried about loan employment low unemployment. I dont really see the inflation argument taking hold, probably not this year. Manus i started the show with bond markets, the exodus at the moment of the exit from the bond markets. Are you tempted to take money out of bonds, as we have seen with some of the etfs . I would be wary of highquality bonds. Itd not be taking at out of highyield bonds. Manus stay with us, we have more to get to. He is the ceo of principle Global Investors. You managed to put on nearly 6 on the s p. What are going to talk to air going cfo next we are to talk to air frances cfo next. News coming in. Welcome back to bloomberg daybreak europe. Lets kick it off in france. Ault is back for den d line with the estimates back in2017 revenue is line with estimates. They have done that deal in regards to , that was just the other day. It is the Probiotic Company in japan. Sales growth misses estimates, but they do raise the dividend. They say they are on track for in 2020. And 2020 the net income, 3. 54, and estimate was 3. 53. Renaults fullyear revenue is 58. 8 billion. They have an operating margin of the 6 . The carmaker will develop fewer diesel models. That is pretty important, given the hubris that we had over dieselgate. What else have we got for you . The cfo confirming that they are going to make fewer diesel cars. The fullyear operating income rises 60 . 20 theth in fullyear operating income rises 16 . They see growth. Nejra cehic has all of your markets in context. Nejra equities globally have been firmly in the green for pretty much all of this would week. Where are seeing gains on the msci asiapacific index for the fifth straight week. We are seeing some thin trading. We are seeing some Risk Appetite coming through in the equity markets. The yen is very much in focus. If we can switch to the next chart. We have seen the yen go past 106 for the first time in 15 months. It is headed for its best week since 2016. Market,at the options option trader fatigue could signal that a turnaround is near. The white line is showing that in the past four days or so, options traded have been pulling back on their bearish position positioningyen on dollaryen. Switching over and looking at the dollar versus oil. Dollar weakness has been a theme this week. We see the 10 year treasury yield hitting that fouryear high. Questions over whether the dollar weakness is down to the 20 deficits over in the u. S. Twin deficits over in the u. S. We had data earlier in the week that gave a little bit of a lift to wti. Finally, looking still at commodities. Gold has been up for everyday this week. These are a couple of technicals to keep an eye on. It has formed a Double Bottom over the 50 day moving average. The Directional Movement index the bulls. Of a few bullish signs for gold. Us theyhey have told are going to step up the cost cutting in order to defend their market share. They will boost seating by at least 4 . Now. Ric gagey joins me he joins us for an exclusive conversation from our paris bureau. Good to see you this morning. You are adding capacity. You are taking the fight to the run was of europe. That is a risky strategy. The risk the motion capacity risk demolishing capacity . Today you see that the market is not bad. Booking, it is increasing compared to last year. I think there is demand. We will continue to go growth in 2018 grow in 2018. We havebe developed many projects in 2017. Now we have to continue the profitable growth of the group. Manus where are you most optimistic . Ng lowcost offerings come in right there. Is that something that you would consider perhaps taking the fight right to that, and bringing in a low cost proposition there . Frederic we know that there is an extremely fierce competition. It is making it interesting. New challenge for our firms. White that is why last year. Commercialting more links with china. We are Offering Better Service for the clients. We are in a better position to compete. That is exactly the strategy we have developed. Do not forget that many are at a price which is totally comparable by what is affirmed by the locals. I say that we are also developing or the fair system through the fair system. That has affected for the clients that is effective for the clients. Ceos you and the ryanair were very different. He is a lot more cautionary. You dont strike me as saying the same thing. Are you confident that you are going to be able to pass on those costs, those fuel costs to the passenger . Ryanair will need probably 12 months. You will transfer the increase in the fuel to the ticket price. It is a shorthaul company, so does not exactly the same. So it is not exactly the same. That ournly indicated unit revenue is expected to be positive. We have not given any indication for the rest of the year. We have based this on the First Quarter of 2018. I think that we continue to be cautious. The competition is even more first fierce in the middle of the year. We have just given indication of the unit revenue for the First Quarter of the year. It is positive. It is mainly linked to what is happening on the longhaul network. Manus ok. With all of the changes that are going on domestically around europe, i suppose the question is are you interested in buying any parts of air italia . It is an old partner of air franceklm. It is also a partner with delta. Totallyt be uninterested, but what is by what is happening concerning air italia. If they continue to be a partner that will be great. We are interested in what is happening, but it does not mean that we will be involved with the company. If it is possible to keep them as a partner, it would be great. Can i push you in little bit a little bit . Have you had any discussions with them . Frederic we had some discussions last month. On not aally based joint venture. Dont believe everything that is in the newspaper. We have not made any offer concerning air italia. They are today a partner of delta. Manus lets just wrap this up. You had a good set of numbers. Youre adding capacity. In terms of europe, is there more consolidation . In your industry do you need to see more consolidation . Is there more to come . Frederic yeah, of course. Betweenthe difference america and europe and profitability in profitability. Clearly i believe that it will continue in europe. Air france took a stake into Virgin Atlantic. We believe in consolidation. We think it is very good for the industry, which has been too fragmented. We have participated. We will see what happens in the future. Consolidation is key. Much, thenk you so ceo cfo of air francekill them air franceklm. What did you make of what he said . I am quite reassured. Capacity isase in not overthetop, given what is happening to travel volumes. If he was over expanding, you would be worried, especially because the cycle is still fairly late. I think it is good news that he is not going to over leverage by a major take over for era tell italia. Ir they kind of have to be a premium airline. The comments that he made about cochairing and capacity chairing sharing with Virgin Atlantic and delta, that gives them a lot of transatlantic capacity. Manus hold that thought, because i just want to bring in a little bit of breaking news. This is the Italian Energy company. Fourthquarter net adjusted profit 975 million euros. The market had penciled in 577 euros. 577 million euros. We have spoken to a lot of the energy companies. They are all having a good run. They have had eight renaissance, a renaissance, havent they . How do you look at the oil and Energy Sector at the moment. These dividends are going to todayore appealing, are arent they . Yes. Oil has been has gone from being run by engineers to be run being runountants by the accountants. Opec did an excellent job in keeping discipline. They have managed to avoid overproduction and avoid a further slide in the oil price. I think it is going to get increasingly difficult. I think the u. S. Has become the low cost producer of oil in many respects, and technology is driving it. Dalio has shorted quite a substantial portion of the european economy. As shorted and holds enelt. Be disingenuous and ask you, would you do this. Do you think it is global growth, do you think it is the value of the euro . What would encourage you to join him, if at all . Bowlsic there are many stocks thateuropean say that the u. S. Is on 18 times its earnings. Therefore, switch to the cheaper market. I think that is a classic value trap. The Big Companies in the u. S. Are technology companies. Software,commerce, facebook, amazon, apple. Those are the Big Companies in the u. S. Europe arepanies in not the same. I would say that in spite of the lower valuations, i see european equities as a sell on strength. I continue to see u. S. Equities as a buy. Manus ok, long live the dollar. Lets turn our attention back to allianz. Last year was a record year for Natural Disaster insurance claims, but it was not enough to stop them. The company is going to announce that it was on track to deliver on its three your targets threeyear targets. Us, he isz cfo joins giulio terzariol. You have upped the dividend. What the market wants to know is that if youre raising the dividend, are you perhaps less interested in doing acquisitions in 2018 . Help me. Giulio good morning. We raised the dividend, as you noticed. It is also following our policy that we take 50 of our net income that we pay 50 of our net income. We are clearly interested in looking into acquisitions. As usual, we look at acquisitions, we want to have a cultural fit. In the case that we cannot take all of these, we go back to paying dividends in excess or to paying buybacks. Fundamentally, nothing has changed in our philosophy in a regards to capital management. Manus in terms of the kind of targets that you may be focused on, there is a lot of competition out there at the moment. There is a lot of distressed sellers. Just how picky and disciplined can you be at the moment . The market is pretty much on your site at the moment, isnt it on your side at the moment, isnt it . Giulio absolutely. The market is on our side because we have great results. We are looking into m a. Were also looking into acquisition in Asset Management, especially acquisitions that might add to the capabilities that we already have. It is definitely on the top of the list. Manus if that is the top of the list, do we have to wait if a shareholder looks at your stock, i have to make a balance whether i am going to get it share buyback, or wait for a big b raising from you real raising aising from you. 3o we did 3 billion billion buybacks in 2017. We are going to look at what is the best way to deploy the capital that we have. It is important to understand that we have capital to deploy. If we can deploy this capital at above the costa capital, above the cost of capital, then were going to do so. Manus watch this show a lot of people who watch this show tend to see a lot of your Business Front and center. I am talking about pimco. How has pimco done in terms of inflows in the last quarter of the year . Giulio when you look at the pimco inflows in the last quarter, they had about 40 billion of inflows. Will we look at what is happening right now in january, they have about 16 billion of inflows in u. S. Dollars. The flows are very strong. Not only the inflows are strong, but i would also add that the quality of inflows is pretty good. Manus you certainly won the inflows in europe, didnt you . How does his fund do in terms of info . Were have the funds where have the funds flown in from . Giulio in the case of pimco we get the inflows from asia and the u. S. It is very diversified come but clearly there is a lot of it is very diversified, but clearly that is illustrated in the u. S. And asia but clearly there is. T of manus im talking about the window of volatility in the bond market. Giulio we did not see this coming through, but we are clearly watching it. When you see some volatility in the market, this might potentially affect the inflows for a short period of time. I believe that if youre thinking about increasing Interest Rates, i think that is ultimately a positive. We might get some volatility in the shortterm, but fundamentally i would think that increasing Interest Rates are going to be a positive for our franchise. Manus we printed the story last week. I want a little bit of confirmation if i can get it from you. Are you in talks with xl . This will bolster your u. S. Side of the business beautifully with everything that you just said to me. Are they on your target list in the United States . Giulio we dont talk about speculation. Is always associated with all possible targets. What i can to you about m a, is that our thinking, were looking for companies that have a good withegic fit, cultural fit us. Thati can tell you is propertycasualty is on top of the list. That is all that i can say on this topic. Manus thank you very much. I would not expect anything less from a steadfast cfo. We wish you well with the trading near. America ceo says that the company is spending hundreds of Million Dollars on brexit for legal fees. This is that the legal club of washington with the president. Were spending hundreds of millions of dollars in the customers are not going to get anything out of it. It is really tedious stuff driven by the decision. It is the decision, so we have to do it. Manus it is tedious, brexit, do you know that . I think so. Manus it is going to cost. Were waiting for theresa may this weekend. Apprehensive about brexit. Like everyone else in the industry that has Asset Management based in london, we are putting our focus on the uses platform. We have already got offices in amsterdam and frankfurt. We have got our options, and i think everyone has to. I think when he talked about spending hundreds of millions of alsors, for his size, and the fact that he has activities everywhere in europe, you know, if you through in all the n alling if you threw i of the spending, it has to be that. It has to be hundreds of millions of dollars. Preserving your options is really what we are doing at the moment. We do not know the and resolution end resolution. Manus you are very clear to me about selling rallies. Go. I think so much depends on what comes out of these brexit discussions. They could be anything from very good, and other words, keeping the trade flowing. Two very bad, with some of the very bad, with some of the threats. Were hoping to see the politics resolved, hopefully favorably for business at some point. I think apprehensive is the best word that i would use to describe my approach. Manus we thank you for joining us. Show me the olympic winter games like ive never seen before. Xfinity x1, yeah, i always know the scor. Triple corks in 4k. Lookin so sick. Stream live on every screen, every win, every trick. 2000 hours of coverage, get your mind blown. 50 olympic channels, yup, youre in the zone. And if theres something that you want to see, pick up that voice remote and just say show me. Experience nbcuniversals coverage of the olympic winter games like never before with xfinity. Proud partner of team usa. Manus good morning from bloombergs new headquarters in the city of london, i manus cranny. This is daybreak europe. Nominatesime minister corona to lead the central bank for another fiveyear term. The yen rises to a 15 month high. Investors withdrew more than 6 billion from u. S. Junkbond funds last week. Meanwhile, the rise in yields, china increases holdings in treasuries last year for the most in seven years. South africas new leader, newly isrn in president ramaphosa expected to deliver his first state of the nation address today. 7 00 a. M. In london, happy new it is the year of the rooster. It is a sleepy lunar new year. Away from theors roulette table of the equity markets. They might be enjoying themselves in london. Investorses, global cautious on the u. K. He wants to buy the u. S. On dips, sell the rallies on europe. The dax futures are down by 49 pips. The market is absorbing what ray dalio is doing. Germanyserned about merkel, and also the ecb, you in macedonia. Eech paris futures up 10 pips. Futures are gaining. We had a dip at the start of the 6 00 show. We are back in the green. We have come out of the correction territory. Equities had their best fiveday run in the u. S. Since 2011. There is reprieve for the market. Jim making the point this is a market you could still buy dips. We are up for day six on the s p futures if it holds through. The daily profit, one line is that greed has a better track record than fear. You have to watch movies from the 1980s to understand that. Dollaryen, even though you have rising yields, good news is good news in the u. S. The yen travels higher. This is a dollar bashing story. Mr. Kuroda is back in charge of the bank of japan for five years. That is did nothing to stop the cascading dollar and rising yen. Principled Global Investors say you will see 100 to the yen in the near term on dollaryen. Nymex crude on the upside, dollar down, oil up. First weekly gain for oil as the dollar weakens. We have come off the threeyear low. Crude up over 4 for the week. Lets go to the bond markets. We had a conversation with the allianz ceo. He said we have not suffered. Redemptions on wednesday. U. S. Treasuries, the bloomberg , itx of u. S. Bond markets is worth 7 trillion, 67 billion has been taken off the value of the aggregate index. You have the bond market down by 14 pips. Europe will be put in context for us. Ed ludlow is with me. The u. S. Senate has blocked four immigration proposals steepening an impasse as the house protects 1. 8 million undocumented immigrants from deportation. The rejected plans included a bipartisan measure that provided 25 billion for Border Security and a path to citizenship to young emigrants. Following criticism by president trump, the white house threatened to veto the measure. Says. K. Business Group Britain should aim for a partial Customs Union with the eu after it leaves the block. The iod says processed oficultural problems with Key Industries while allowing the government to forge an independent trade policy. Theresa may has said the country plans to leave the eu Customs Union. Ceo cfo said the company wont launch yet. Speaking to daybreak europe, the Company Reported for your offer aiding profit up 4 , the air said is increasing. It plans a major hiking capacity with a boost of as much as 4 this year. U. S. Secretary of state Rex Tillerson has met with turkeys president in an attempt to ease tensions in flint by american support for Kurdish Forces in syria. The 3. 5 hour meeting came at his last stop of the five nation tour through the middle east. Earlier, tillerson told reporters the countries are aligned, but there are differences about how to achieve them. Has amassed short bet against europes Biggest Companies totaling more than 21 billion dollars. According to a person with knowledge, his company Bridgewater Associates turned bearish on europe last month and started shorting japan stocks around the same time. The hedge fund is long u. S. Equities despite the call that there is a rising risk of recession in the next 18 to 24 months. Areias weak exports connected to be higher than any countries in the last 25 years. The worlds top exporter is now at specter to sell more than 36. 5 Million Metric Tons overseas, according to consultants. More farm investment in the recent years has allowed russia to grab major exporters like u. S. And canada. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. More stories on the bloomberg at top. Manus Edward Ludlow with the very latest on the news flow throughout the day. In japan, you have shinzo abe nominating the governor kuroda to lead the bank of japan for another fiveyear term. He also appointed deputy governors, deployments provide stability for the economy. Monetaryans aggressive stimulus is likely to stay in place for now. Joining us is our reporter, bloombergs henry honig. He has given the market what it wanted. What is the next step . The next step, in the near term we can expect the boj to stay the course. It has been on Cruise Control for more than a year now and governor kuroda has repeatedly said they are going to stay the course. Of course, recently it was only a few weeks ago that speculation was heating up that the bojs next step would be toward policy normalization. Yen is ups year, the about 6 against the dollar. That has cooled the speculation about normalization and now, people are wondering if the boj will be forced to react to the yen. Manus lets bring you breaking news. This is one of those terrible moments where you dont have the bloomberg in front of you. The bank of japan picks have belief and an understanding of exiting deflation. Ge says it is best they leave Monetary Policy to mr. Kuroda. Very much trying to stand away in termsbank of japan of what they do, but reaffirming it is about exiting deflation. Deputy nominees caught my eye. Quitee some would say a reflationist protagonist. You have two bulwarks of reflationary trades in place. Henry thats right. You can expect a pretty unified team in those three and governor kuroda and the deputies. Katabe comes from outside the boj, and academic background. He is extremely dovish, very philosophically a reflationist. You also have an old hand at the boj, less philosophically inclined as a reflationist, but has worked with governor kuroda to craft current policy and will certainly continue to back him. Ists livee reflation to fight another day. Thank you for being with us, henry hoenig in tokyo. There is a moving, reassessment of risk and one of those markets is where you are seeing the drawdown of 3. 6 billion, the u. S. Junk bonds market over the past week. The second biggest amount ever. He says you have concern about equity markets, could the volatility spread . The fifth consecutive week of outflows bringing a total of 15. Illion lets put some of these things together. We have a chief economist with us. Start with japan, because we have these breaking headlines. The question for markets is, they wanted kuroda, theyve got kuroda. Dialsnt even pushed the on dollaryen. Where are you with the bank of japan staying the course, continuing its current trajectory . For now, yes. We would be very surprised if there were announcements in the next few months, but we have been hearing for a while that this year, there could be some rearrangement of the Monetary Policy, some increase in the target on the 10 year yield. Nothing dramatic. One of the reactions one way to understand monetary reaction on Central Banks, we can have no direction of trouble everywhere. Some Central Banks will take more time to start normalizing. To bucks really going the trend. Manus by the way, more from suga. Marketstching the fx with a greater sense of concern. Fx aware of onesided there is the important line. We are aware of onesided fx moves. It is important to watch the fx. You thatised are christine lagarde, mario draghi recent on the pronouncement in terms of the fx market, which had the direct impact on the world uss, which is europe. There was a deal within the g20 seven that, lets not talk about the currency. A super boring view on fx, then we have this statement i mr. Mnuchin that was immediately contradicted by president trump. But i think everyone is unusually sensitive to any moves in fx strategies not fx it self because in the context of doubts on trade volatility in general, the notion we could reengage in some currency war is something Central Banks are happy to condone. The ecbntral bank like or boj, it has become central in that controlling fx, even if it hasnt been there initial target, has been central. At this stage, in the european case, they are probably relaxed have is what we weakness in the dollar, but no big appreciation in trade terms of the euro. One of the lovely stories that has been written about the phillips curve many decried it as dead, you say we are in a new direction. I suppose the velocity with which we have seen readjustment of hikes from the fed, the ecb, from the bank of japan you say there might be a minor tweak will that gather pace as the year continues . Is this the defining year of rate reassessment . Gilles that is what we believe and have been saying for a while. Something which is a bit pedantic, but the phillips curve is often commended as if it was a line. It is a curve in that you spend time with declining unemployment, which has no in fact impact on inflation and then you get this weird convex convexity moment. It has happened sooner than normal, but it doesnt mean it is not going to happen. Seeing the first signals of that in the u. S. , which has been indicating it. Feds preemptive approach to Monetary Policy. In europe, we are a bit delayed. We will think think it will take another year or two to trickle down, but it is happening and will happen. Central banks will have to react to this. Manus you stay with me, gilles americam bank of merrill lynch. 7 14 in london, 8 14 in central europe. This is the state of lay on European Equity futures. Seeingmarkets, you are the s p 500 managed to put a fiveday run together, which we havent seen since 2011. Over the past four days, we have europe, we have a nice turnaround. London is up. 4 . That plays out. A couple of big stocks on the day, one is allianz, the other is air france. 141. 43, the dollar is getting pounded. Cable is getting arise. Italy, you will head to the polls in two weeks. Expected. Inner could they be right to back where they started a year ago . Does our guest concur with the cfo of air france, which is at capacity add capacity, and will. It is the year of the rooster, happy new year. Stocks are on the move, if you have european stocks in your portfolio, a little bounce. Nice tailwind coming through from the lighter asian session. Some of those sessions are closed. Fiveow the 500, best days since 2011. Jim said he wouldnt be surprised if he saw another 10 drawdown in the u. S. The big issue is if bond markets made it to 4 , what would that do to your equity trade . Say you demolish it or have blooming good growth . Greed overtakes fear, according to the daily profit. Pips. Toxx 50 up 15 two week still italy heads to the polls. A survey indicates a Hung Parliament. That is the most likely outcome. And reward has the latest on the runners. A Hung Parliament with interesting characters. Annemarie a1 in four chance, 8 chance of a Hung Parliament. That ince you could see the pie chart, of a grand coalition. This would mean the ruling Democratic Party, led by the former Prime Minister, joining up with a more conservative party. That scenario in terms of economic, business investment, relations with the eu is seen as a best case scenario. There is 22 probability of a centerright majority. That includes more rightwing party. Parties. The purple line, and 8 chance of them winning outright. In terms of polls, they have been leading in the polls the last few months. That is the party that was started by the comedian, a and finally,acter, the governing party. Matteo renzi. Has a chance to form a coalition with the Democratic Party or the more conservative ones. He has a chance to be a kingmaker. Forcealian election laws alliances between parties instead of one party ruling out right. Manus how do markets position for this . If anything will pop with risk, it will maybe be the btp market. Traderscb how are positioning themselves going into this . Italys benchmark index has done well for the year. But we have seen a bit of jitters. You can see toward the end of the chart, it is lagging, the stoxx 600 over the last week. Annemarie with the two weeks to go until the italian elections. Bloomberg will cover those. Bank oft is from America Merrill lynch. This is a bit like a moderately sized hurricane no one saw hitting them, or not. How does it rate for you in terms of risk to europe . Gilles i dont think it is an immediate risk. This is probably why the market is not treating this as a major concern. I think six months ago, the market was treating italian elections like france last year, where you had a clear binary race between proeuropeans and antieuropeans. Italy changed probably because the antieuropeans failed in europe. Resultst as if the would come out with a binary moment. The issues are more for the later part of the year. There will be a moment where investors look back, turn to their investment and look at the fair value of what am i holding. They would probably come back to the usual, which is what are their longterm growth project prospects . What is the fiscal plan . All the parties are saying, veryfiscal policy expensive promises and at the same time, not a lot to say about Structural Reforms trying to boost potential growth. I understand why the market is not focused on this as a problem, however, it is still going to be an issue by the end of the year. Not a dramatic one, but given where spreads are right now, there is room for reassessment. A lot of people have said the nonperforming loan market is one of the biggest in debt in italy. I want to show you this chart because it plays very much to your core area. This is 3611. 10 year Government Bond yields, marching to the tune of the economy. Or to this pregnant moment of the end of qe. You talked about rising rates around the world, the paradigm shift in 2018. Do you bring forward your ecb views in that context . Everyone is talking 2019, du shift on your qe ecb view . No, i changed that in november and im sticking to it because i think the ecb has done a good job at steering the markets around a pricing with which they are probably ok. Qe will die by the end of the year. But manage to focus minds on policy rates and i have about a the secondrease in quarter, zero by the end of the year. We have had several members of validatinglicitly Market Pricing by saying what the market is pricing is normal. Make a senseng to that there is going to be a gradual normalization of Monetary Policy. Isus thank you, gilles moec with us from bank of America Merrill lynch where he is the chief european economist. That is it for us on a break here code keep an eye on dollaryen. This man is next on the european market. Guy good morning, welcome to Bloomberg Markets the european open. In london. Nson matt miller is in berlin. The cash trade less than 30 minutes away. Guy the bank of japan governor mr. Kuroda will lead the central bank another five years. In pushing higher after the nomination. Will it break 105 . Suga is getting concerned in tokyo about the change. The numbers