Brexit hits hsbc. The ceo said some bankers may need to move out of london. Manus activities covered specifically by european legislation will need to move. Thats about 20 of the revenue. Ipo, thering up for an all tax will be cut to lower investors in all options are on the table when it comes to the listing. Looking at new york, looking ,t hong kong, london, the u. K. All markets are being looked at. And the rise of populism. Our debate on the crisis of the middle class. That is live on bloomberg at 8 00 a. M. Anna a warm welcome to bloomberg daybreak europe. , im annain london edwards. Manus i manus cranny. Is at the World Economic forum. Looking forward to banking with the big thing, hsbc, we will hear more from them. That will be a big theme in the next 30 minutes as well. Francine we will speak to the head of the Investment Bank at ubs and berries ceos to try to get the temperatures on how they see risk and what their most concerned about. What im looking forward to is our panel on populism. You can call it the angry middle class. Lagardeeak to christine , and radel lyons, who is a big fan of what donald trump is trying to do with the u. S. Economy. Really want to answer, do Central Banks have a say in this . Are they the ones that lay the foundation . If you are a politician nowadays, remember there are elections in france, netherlands, and germany. What can you do to reconnect with your citizens . We will be joined by the brazilian finance minister on that panel and the italian prime minister. Thank you very francine. Stay with us for a moment. This is a chip equipment maker, euv. All about future of how quickly can they persuade viewers to move on to that Newer Technology . Fourthquarter numbers look good. Its ahead of estimates. The net income level for the Fourth Quarter also ahead of ofimates against an estimate 419. The Gross Margins looking pretty much in line with the estimates. Talking about the backlog and First Quarter of 2017, saying net sales will be 1. 8 billion in that quarter. Analysts warning to get more clarity on the outlook in terms of these targets. Downgradede has been twice by couple of analyst. Goldman sachs forcing concern about the chip sector. That could hit the s p 500. Have a look at the risk radar. Dollaryen and gold moving. Lets break them down in terms of the data. Its all about the cpi in the usa. , you have the federal inerve, saying three hikes 2017. The wall street journal saying the dollar is too strong. A big move down in the dollar with those trump comments around the currency. You talk about the risk sentiment today. Down. 4 , snapping the longest winning streak since november. Increasing on speculation around state buying. You have that real move yesterday because the dollar was pushed down. The biggest oneday move since 2008. A little bit of pressure coming back again. 9 billion worth of options trades have gone through. The ceo of hsbc has said investors need to lower their expectations for bank profitability. Speaking exclusively to he said ain davos, 10 return on equity is probably as good as large universal lenders can do. Around we get clarity what the quantum is, the costeffectively comes down. How can you get . 13 . You probably cannot how can you get 13 . A dividend yield of around 5 , its probably your framework. Saudi arabia has promised to reduce the overall tax rate paid by International Oil company to make next years ipo potentially one of the largest in history, more appealing to investors. Ceo spoke lucidly exclusively to bloomberg at 2016, were able to execute one of our biggest capital programs and it will be a dividend for 2016. Going to the market, the regime will be changed. Deutsche bank has reached a final settlement with the u. S. Justice department over its handling of Mortgage Backed securities before 2008. The bank agreed to pay 7. 2 billion and admitted to misleading investors, resolving one of the biggest litigation risk. It will pay 1. 4 billion in relief to homeowners on the balance as a civil penalty. New home prices including governmentsubsidized housing gained in 46 of the 70 cities that by the government, comparing with 55 in november and signals a measure to deflate a potential housing bubble are taking effect. The Federal Reserve governor has said that fiscal policy could speed up the Central Banks rate increases. Fed may accelerate measures to shrink its Balance Sheet of Congress Approves a sustained increase in stimulus. Based on recent spending indicators, we might expect progress we might expect progress to be steady. But policy adjustment would likely be more rapid than otherwise, with the conditions set for cessation of reinvestment a principal payments on existing Security Holdings being met sooner than they otherwise would of been. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can find more stories at the bloomberg at top. This is bloomberg. Trade,brexit, global china, and donald trump are the dominating issues on the agenda at the World Economic forum in davos. Spoke to ourc ceo editorinchief about how the the banking affect sector, free trade, and mexican relations. I was in mexico last week and there is concern about president trump. But the team he has selected, both people being appointed into government and the advisory been put together all indicate a level of engagement at the business level which is reasonably encouraging. There will be changes to the way , but at thestructed end of the day, mexico will still represent an important many vectoring hope for u. S. Business. The balance has clearly got to be reconstructed in a way the president has said during his electoral campaign. Its not that hes against free trade, but the agreements that were put in place were not great deals for the usa. Theres a presumption that he only sees exports as good. , we wouldarly probably disagree on that, free trade and open markets definitely resulted in an awful lot of people prospering over the last 20 or 30 years. And by that i mean a lot of people being lifted out of poverty, and studies have proved that. Trade, global trade is regarded as a force for good, generally. Byt has happened is that narrowing the differences between countries, often what happens is within a country there has been a widening of wealth and so on. Hasally, globalization clearly benefited certain countries and lifted it and created more splits within countries. That is the problem with governments now that has manifested itself in the discourse weve seen around brexit. Hong kong shanghai is one of the great trading banks. Do you not feel somewhere as if when youre talking about the fact that the world seems to be units, into different that is against everything that the bank tried to set out to do . Toit probably requires us finetune our approach. Within those trading blocs, there are massive amounts of chain train supply trade finance to be done. Trade will move from trade and manufactured goods to trade in services. There is a change taking place structural he within trade finance before we get to that geopolitical point. Are stilltlements being discussed with american authorities. Do you have a more optimistic view under donald trump then you did previously . You are much more bullish about the Trump Administration met comes to these issues. I think the sense that we have from talking to our peers at the American Banks is that there is a more constructive attitude toward wall street. Weve seen strong rallies in American Bank stocks which partly reflects the probusiness attitude of the president elect and reflects an impact that will have on Interest Rates and levels of Interest Rates, and higher Interest Rate clearly benefit the Banking System. The shift in yield curve is going to benefit a number of the banks. The way the judicial process works remains to be seen. Quick you can talk to bankers who have worked for hsbc and other farm banks who think that the aim of the american regulators is close to extorting from foreign banks. You could end up with a Trump Administration that is tolerant of American Banks and much harsher on foreign banks. Is that something that worries you . It remains to be seen how that unfolds. Banks like hsbc employee nearly 10,000 people in the United States. We help finance u. S. Companies in their overseas operations outside the unique outside the United States which helps create jobs in the United States. We actually have a function or a role that is a benefit to the United States. It remains to be seen how that plays out. Manus that was Stuart Gulliver speaking exclusively to our editorinchief. Lets get back to davos. Anna francine joins us from davos. Printing im pleased to be joined by president of the u. S. Bank. Thanks for coming out so early. Degrees ally 20 22 degrees celsius. Give me a sense of the Investment Bank at uvas at ubs. The key difference is we have a different model from most everybody else. With focus on profitability and areas we know we can do good work. Beingfor us means shortterm or smaller in fixed income, but much more targeted and brought her in equities. Printing you dont feel that puts you at a disadvantage because this could be the year where you see the divergence place and also Interest Rates coming back higher . Clearly this year and last , we, given the resurgence have been lagging on revenues. The question is have we been lagging on profitability and the bottom line, because that is what we look at. Profitability in the first three quarters was 20 pretax. Clearly with the resurgence we will continue to be strong. Increasingwhether revenue that everyone will get fixed income greater than ours will bring handinhand increased profitability and profit margins. Trendton is it an upper francine is it an upward trend . Changingt think it is in 2017. It will remain practically the same, depending on the policies of the new president. We will have the u. S. Pulling wether ahead, and honestly, dont think the environment will fundamentally change for us. What has changed is we took a number of difficult decisions of 2016 the first part on cost, resources, repositioning of certain businesses. As 2017 comes in, we think we are a lot stronger to address it. Francine do you think the markets have overreacted in a good way . If you compare the two years, in 2016 we had a decent macro. Then there was some sort of a catchup in a certain way. Now we have a macro that is , meaningally the same it can be a little bit better, but we will have china to come off a little bit from a high base and europe still struggling with the uncertainty around a number of factors, politically, primarily. Dont think it is discounting any of the negative of the uncertainty in europe. The question is, either it is already priced in our we will have an adjustment down or up, itsding on how much disrupted. Rent seen are we discounting the bad news . Everyone knows whats going to happen. Question is, we dont have brexit yet. We have the expectation of what brexit will be. There are a lot of assumptions. Some people are more positive than others, but we dont know what brexit is going to do, besides the first reaction. Inflation is up. There are a number of issues there, but to a certain extent they were inspect they were expected. The main what will be drivers for this year for the Investment Bank . For us, i dont think it is the same for every Investment Bank. When you look at a market that is characterized more by risk, arey than bankers and economists good at predicting whether there will be of brexit or not . Clearly they were not. Are they good at predicting the Immediate Impact after brexit or a trump election . Obviously they were not. , as youthe issue is have that uncertainty, people dont trade. People dont act. Transaction out the and climate activity. Sheet, wemall balance dont have the value of that Balance Sheet. If clients are active and do business, we make money. If they dont, we are waiting for them to do that. So for us, 2017 will be important. If that uncertainty becomes less, then it will be a better year for us. Francine do you think that will happen . We are mildly optimistic. Just because i think we are a lot stronger and more focused than we were a year ago. We said last year, we pay for performance. We paid quite well last year, i think, based on very strong performance, and we will do the same this year. Francine at a time when the u. S. Make it significantly deregulated, wall street, do you feel you are on a level Playing Field . Regulation is an interesting topic. Was a look at 2016, there turn further of regulatory tightening. If you look at 2017, were all thatng for the application far. We have indication from the new president that hes going to regulate less tightly in the u. S. If that happens, it wont be a level Playing Field. I dont expect europe to loosen up. Brexit, we will have to move. The question is how many. It will depend on the agreement that the u. K. Will reach with the eu. But will have to move tankers bankers. We have an appropriate set up in spain. We still have flexibility to decide where to go, but we will definitely have to move. Francine give us a sense of how many people. Have you talked to them, or will you talk to them at a later date . The only thing we can do is to anticipate the worst. We cannot just the optimistic. We anticipate a demented miss agreement between the u. K. And the eu. We anticipate there will not be atransitory period, and such transition takes 1. 5 22 years. 2 years. How much do we move is very much dependent on what the jurisdiction will concede in terms of transitory or permanent u. K. On a with the backtoback model that we can implement. Francine i want to get your thoughts on what donald trump can do. If you look at markets, volatility, you think maybe they have priced in a bit too much and they are risk exempt, which is not on the market. Overall, is this a clear divergence play . That the fed tightens, the rest of the world cant. , heith respect to trump made it very clear what he wants to do. Assuming he delivers or executes what he is said, that is priced in, and that will be what we see. If he doesnt, then we will have an adjustment down. If he does better, then we will have an adjustment up. What is the fact is that the u. S. Economy is going to accelerates of the u. S. Will pull forward further. If you look at europe, with a natural uncertainty because of it and because of the election in france and germany and everywhere else, the economy that is still quite fragile i dont think is close to being able to keep up with the u. S. Acceleration in australia and japan. China is adjusting and the engine is not there. Anybody who has a sense of gravity that you ask will do better than anyone who doesnt. How much better will depend on how much and how quickly trump can execute what he is doing. Thecine better but at expense of others, or is it just better than the rest of the world . Question. A very good there was an interesting speech yesterday on the topic. Global trade has added value. The question is, has it left behind of very large part of the population that is pushing hard to be recognized and be addressed. And how do you do that, is quite tricky. Negating local trade can be very damaging for everybody. Francine we spoke to the hsbc ceo he said that banks are still quite complex. Is it different being an Investment Banker than it was 15 years ago . Banks are still quite complex, i totally agree. Look at the infrastructure of banks over the decades, it is incredibly complex. Same asnk it is the five or 10 years ago . It has changed dramatically. The job content and the way you perform your duties and what you are expected to do has changed dramatically. Havenk most of the people put up with it, but it is fundamentally different. Francine im going to send it back to you. We have some great interviews and we will talk about italian banks next. Then we have that panel on the angry middleclass and how politicians can reconnect with their citizens. He was reiterating what. Very other banker has said some highlights for you there. Theresa may will face prime ministers questions in the wake of the brexit speech before the u. S. Markets get underway. Anna the confirmation hearings nominee,d trumps wilbur ross. Manus president obama is set to hold his final News Conference as president of the United States. Anna we will bring a discussion on the crisis of the middle class. Francine was just referring to it there. Graphic for that you. Manus its 3 30 in the afternoon, a glorious day, 22 in tokyo. The dollar brexit sevenday trend and thats probably whats driving sentiment at the start of trade in the markets in europe today. A new edition of daybreak is available on your bloomberg and your mobile. The hsbc ceo with quiet, reflective contemplation. Anna on his brexit relocation thoughts, he said it will generate 20 of revenue for his Investment Bank in union in london. He may have to move to paris. We will also be monitoring developments lets talk about the other main story, theresa mays trade play. She has called on key eu leaders to sell her plans for a proposed brexit deal. The u. K. Would be leaving the single market, still one of the greatest possible exits in the form of free trade agreements according to an email. Be initial response seems to , is she going to be cherry picking . How much money do you pay . Its all being debated. The Deutsche Bank ceo apologized unreservedly as a 7. 2 billion settlement was finalized. The company admitted to misleading investors over its handling of Mortgage Backed securities before the financial crisis, putting a major legal headache to risk. Manus guy, what are we going to kick off with . The ftse 100, higher this morning by about. 4 . Clearly the focus remains on what theresa may is doing surrounding brexit. Setting usyesterday up, and then we will get into davos and what she will say to the global elite up in switzerland. Lets talk about whats happening with the pound and its technical indicators. This is the trend line we have in place, the bloomberg pound index. The trend line continues to lower, and yesterdays billy rick yesterdays big bounce doesnt do much in terms of breaking that. We are still heading down according to the trend line. Firmly onremaining britain at the moment. The currency story is significant for equity markets. Is what isown story happening with the nikkei. You been showing some beautiful pictures from tokyo. Let me show you a less attractive picture for Holding Japanese equities. The yen stories coming through, the 50 Day Moving Average has come down. That is a significant technical indicator as well. All very significant from a technical point of view. What is going on with the yen right now, covering just a little bit of ground this morning. From a technical point of view it still looks fairly negative. Lets talk about whats happening in the United States. August, thisecond channel that the market occupies , some people talk about consolidation going higher, but theres the option of going lower. What happens next is one of the key questions for equity markets. Anna im not sure i can read this in a straight face knowing that everyone who is in davos is battling 22. We are about minus one right now. Surging. , prices are joins us now with a chart of the hour. Yousef in dubai its about 22 degrees celsius. This is what is happening with the gasfired plants in the u. K. An increase in the amount of gas being exported to france, where as you mention, temperatures are expected to fall below zero. This is the chart you can pull out on your bloomberg on where the u. K. Production is going terms of natural gas. This goes back to about middecember 2016. Ive highlighted for you, circled in green. Increase that by about five years and you can see, i love the perspective of this chart. Let me tell you little more about this story. Int were seeing is france is that gas consumption has risen. Poweredpowered gas according to dr to gas, the rta grid operators seeking a voluntary demand reduction that may be implemented Going Forward with exceptional measures if the voluntary measures are not enough to curb demand. Anus thank you very much stay happy there in your 22 degrees. Make sure you have a hot toddy and a water bottle. Dont tell francine its 22 degrees. My guest harley needs an introduction. Claudio, just to put things in context, you have 400 billion in terms of Balance Sheet. You have been very active with a lot of the italian banks in italy. Is 2017 going to be an Inflection Point for the italian banks . The only Profitable Bank has been sold. 20 billion is more than enough to solve the problems. We are always talking about the italian Banking System. There are specific reasons for why certain banks are going to travel. Other banks are doing well. The two largest banks are going to be fine. Are out of the [indiscernible] they will have Additional Resources to put into the banks. Francine so to be clear, is cdp putting new money into it . We will see how the Bank Restructuring is going to go, but our focus is to restructure those two banks and put them together. They are both in a territory that is very rich, so they can survive. They have a very Strong Management Team doing that. Francine will you play any role in the state rescue . At this time, no. Francine why does it take so long to figure it out . Unfortunately it was directly tied to the result of the referendum. I think the market deal wouldve gone through without any problem and it wouldve been a market solution. Because of the referendum, the parliament intervened and they did it very quickly. Clear, buttill not theyre working on that. That will be the solution to the problem. Still a lot ofs fear in the market and questions from investors. This is just a recall schnur he precautionary reconciliation. I think we should just wait , and then we can have the discussion. Francine you think there are any banks that need recapitalization . There are few banks, for sure. One bank jointly made a bid for high near. That did not work out. Result of that transaction perhaps was that at least we put together [indiscernible] so they created a new vehicle which is pretty big. So we already reached a result. Francine so they dont necessarily need an acquisition, or do you think they need to buy something . They should go for it if they want to go. Great, but they would pay top price. Francine your part of the plan to invest in infrastructure, which is really what donald is trying to do in the United States. Banking system to pass money through to where it is needed. Francine so what does that mean concretely . We put together several platforms that we give to banks that they pass through to enterprise. That, the money goes through in the banks dont risk anything. We have done that several times. Together with the European Investment fund, were putting around 600 million in the area of capital. Theres clearly a market failure in italy so we can start creating a market. Francine but a lot of these Small Companies dont need lending, they need growth to expand. If youre small, its difficult to open up capital. A Growth Equity midsize Family Companies to open up capital, and help them grow. Francine what is the most exciting thing for the cdp this year . So, wehe next month or are keen to take over a bank. The capital area, and the Distressed Fund which were going , and thenright now the Growth Equity. Francine thanks so much for joining me this morning. Balance billion on the sheet, its a Huge Investment vehicle in italy. Anna thank you very much, francine, there in davos. Were back to davos to hear from the iea executive director. Manus then we head to seoul where the samsung heir apparent awaits a judges decision. Rests hisl prosecutor case. Anna and we talk to the ceo of the Kuwait Investment authority about trump brexit trump, and investments in 2017. This is bloomberg. Manus its 7 46 in the Beautiful Valley where davos is. Actually 16 degrees right now. It was 22 degrees. By the end of the week, it will get a little bit warmer, it will get to minus four degrees by friday. Something to look forward to. Heres the business flash for us. A special prosecutor in south korea is making his case for resting the heir apparent on suspicion of paying bribes for political favors from the countries president. Samsung has denied any wrongdoing and said it anticipates the court will. Ecide not to defame lee a former Deutsche Bank foreignexchange trader faces possible prison sentence in singapore. Pleaded guilty to 13 charges related to using the banks account to get preferential rates on the dollar in november 2009. The former trader was accused of unlawfully making almost 100,000 through false trade. Qualcomm shares fell in new york as the u. S. Filed a lawsuit accusing it of forcing apple to use its chip exclusively in return for lower licensing fees. The worlds biggest maker of mobilephone semiconductor said it would fight the claim, which it claims is based on flawed legal very. South korea find the company describing its preferences as monopolistic. That is your Bloomberg Business flash. Anna lets get back to davos here francine is joined by guests. Oil prices a touch higher. Francine thanks so much for braving the cold. 16 when you look at shale gas in the u. S. , do you believe there will be more production than expected this year . Oil think u. S. Shale production will react strongly. Oil is the first indication, activity is increasing. Int year we saw decline Shale Oil Production in the United States and i believe this year the trend will be reversing and you will see an increase of oil in the market. Francine what is the breakeven point . What is your base assumption . We have seen a lot of activity and the activity will increase and bring a lot of oil to the market. Not only in the u. S. , but other they willxico, china, all bring oil to the market. Francine are you concerned after the rise we saw on the back of opec, they will shoot back down because shale gas will come online more than expected . Some believe production cuts will only last six months. My colleagues to decide what steps theyre going to take. I can tell you that we are of price of greater oil price volatility. The itnergy but needs to be designed accordingly. Francine how much production cuts do you expect opec to do . They pledged 1. 8 Million Barrels a day. What does that mean for the price of oil and for shale producers . If the agreement is implemented francine but you have doubts on it . In the past couple of cases, which were different then expectations, if it is implemented, the markets can rebalance sometime within the first half of this year, pushing the price is up. Francine to what kind of level, can you give me the range . And what happens then . More tabs are being turned on for shale gas . Oil, brazilian, mexican, there will be a lot of oil, which would make perfect sense at those prices. We will see a greater volatility that the price is up and down. Francine this range for the moment until the summer, and then 10 lower . I will avoid making any it would make perfect sense to produce in the United States. Francine theres not really one entity. New in justomething a few years time. Now,weve understood up to its very price sensitive. If prices go up, they start to produce. If they go down, they stop. Say, the prices are determined by the market forces. Francine how do you see demand in 2017 coming from the emerging markets . , andmand is very hardy , theres no problem. I expect oil demand will continue to grow. We dont see an Oil Demand Peak anytime soon. Francine what is the trump effect on the price of oil . It is difficult to quantify the effect of the new administration. Effect will be pronounced in the shortterm and i expect in the longer term, u. S. Oil production will continue to increase in significant terms. All your thank you for insights, the executive director of the iea. We have some more great interviews coming up. Later we have a panel on the angry middle class and populism. There,a great interview hes saying expect more volatility in the oil markets for the rest of the year. Anna a special prosecutor making the case for arresting the samsung heir apparent. He appeared at a Court Hearing at the prosecutors request for an arrest for. Manus samsung has denied any and any wrongdoing and anticipates the court will. Ecide not to detain lee Stephen Engle is on the ground in seoul. Is expected they will actually put him in prison today . Stephen it could happen after midnight, is what we are expecting. We are in front of the Central District court here in seoul where the proceedings happened this morning starting at 10 30 local time and ending just about an hour ago. He walked on this corridor here outside the court and onto a detention center, where he will spend the next few hours until the judge in the district Court Hearings this morning will make his ruling. As i said, we are expecting a ruling probably between midnight, maybe 1 00 or 2 00 in the morning. It will have serious ramifications, because if you think about it, this is unprecedented. Others here and south korea have been convicted and jailed, but there has never been this special arrest warrant issued for them before the trial. This is what we are waiting for, to see if he will spend tonight and the next united in prison or if he can go home and away what is expected to be a trial for bribery and influence peddling, among other charges. Anna what are the implications for samsung . Stephen there are wide ranging implications. The chairman and vice chairman in this case do not have executive control of daytoday theytions of samsung but are a significant figurehead of one of the largest conglomerates here and samsung electronics, the maker of all those smart phones. You have to look at what the succession planning is going to be. Will the eldest daughter of the founder takeover . Evento be decided still, of the court has not decided whether to take him to trial. Much forank you very the latest on the samsung trial in seoul. Quick scolding in decline for the first time in eight days. Why the pound retreats after yesterdays surge following Theresa Mays Brexit speech. China home prices rising in a few cities. Signaling the government curbs are taking effect. The pboc pumps a record amount of funds into the system for the lunar new year. Companys heir apparent has left court as he awaits the judges decision on his possible arrest. J. Y. Lee is being investigated for bribery. Hits hsbc. Rexit shareo sets out to revenue that could have to move. We will need to move looking endare in numbers our numbers. The aramcos ceo said investments will be cut to investors. All options are on the table. Were looking at new york,ong kong, london, the u. K. Canada. All markets being looked at. Of populism. E joining our debate on the crisis of the middle class live on bloomberg at 8 a. M. London time. Welcome to bloomberg daybreak europe. Lacqua joins us from the World Economic forum in davos. Plenty on the banking sector. The oil sector in the first hour of the program. You have got more from the middle east and the great panel later. Francine i am looking forward to speaking to the managing director of the investment authority. We will ask his way into infrastructure, what he makes of the trend of reflationary push and the opportunities he sees in europe and around the world. We go on to the panel that is an hour from now. I will be speaking to christine lagarde, the finance minister of brazil and Larry Summers and the italian finance minister. How can we reconnect, how can politicians reconnect with the middle class . If you look at inequality and the rise of populism, was it should Central Banks have seen it and changed it . It will be an interesting debate whether theyack to were out of touch in the last couple of years. Manus we look forward to that. We have some set pieces for you. Some inflation data in germany. Coming incpi number as was expected. The prior reading had been 1. 7 or the initial reading. That is exactly what has been confirmed in this final reading. When you look at these in this series, they come through as were anticipated. When we saw that number it was deemed to be pretty strong and certainly took some by surprise. Of strongen a raft data. Yesterday we got the investment Investor Confidence numbers. Growth doubling and unemployment continued to drop. T extent does this move the ecb thinking . And suggesting it does make it a little more difficult for mario draghi to plow a dovish furlough. Perhaps more momentum to the hawks are you in the rest of the eurozone as well. The numbers for the Second Quarter have crossed the bloomberg. There were looking for 721 Million Pounds for the underlying retail sales. 4 in the Third Quarter. The market had depended 3 on the total sales and beat on them retail sales and when they talk about the comparable sales, almost like the like for like, that is pretty splendid at 3 . The market was looking for 1. 4 . There was a great deal of debate on how much sterling might bolster these numbers. And as far as burberry are saying to the market, they are saying they are sticking to the fullyear outlook and they have a boost of 150 Million Pounds. 11 5 Million Pounds. And the wholesale side of the business. There is a bit of a split in the camp, bernstein was saying it was not going to be memorable but it looks at the Third Quarter was a lot better than the market had expected. Morgan stanley focused on the pound savings. By back injuring 7. 7 Million Pounds and the Share Buyback has been dumped. Look at what is stronger at the start of the equity trading day. We had a decent session in asia. Little less risk off than we were yesterday. Futures suggest we will be higher. The dollar is a little more stable. We have less yen and gold buying that we saw yesterday. Markets in particular are being spooked by some of those comments about the strength of the currency but for the first time in eight days, gold and yen not showing that haven quite so aggressively. Manus keeping an eye on the pound. You have a splendid rally. A real turnaround, of euro and stir turnaround in sterling. Dateve tested the 55 moving average, we kissed it and said goodbye. Of options hash traded yesterday. That is three times the normal amount. Where was the interest, it is on the downside. Locke, reload, and short. War . He won the pound sterling is down. 501 . Anna lets get the bloomberg first word news. Investors need to lower expectations for bank profitability. Stuart gulliver said a 10 return on equity is probably as good as large universal lenders can do. Once we get clarity around with the actual point is the cost comes down. You solve this issue of heart how we can get 12 or 13 . You probably can. The Banking System for a bank with a custody the dividend yield of 4 or 5 . It is probably are kind of framework. The president of ubs bank has told bloomberg his organization will also have to move people out of london. We will have to. The question is how many and that will depend on the agreement that the u. K. Will reach with the eu. We will have to move bankers and frankfurt, and an appropriate up in spain. We have flexibility to decide where to go but we will definitely have to move. Anna Deutsche Bank has reached a settlement with the u. S. Justice department over its handling of Mortgage Backed securities before 2008. The bank agreed to pay seven point 2 billion and admitted to misleading investors resolving one of the biggest indication risks. It will pay 4. 1 billion in relief for homeowners while the balance is a civil penalty. Home prices increase last month in the fewest cities in the musty year. Prices including gained. G housing that compares with 55 in november and signals that measure deflating a potential housing bubble. They are taking effect. Governor saidral the fed may accelerate measures to shrink its Balance Sheet if Congress Approves a sustained material increase in stimulus that pressures inflation without lifting productivity. Is spending indicators we might expect progress to be gradual and study. With fiscal policy or other changes lead to a more rapid elimination of [inaudible] would likelyment be more rapid than otherwise. With the conditions the fomc has set for a cessation of reinvestment of Digital Payments on existing Securities Holdings being met sooner than they otherwise would have been. Manus global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. You can get everything you need on top. A little bit of breaking news coming through. This is the publisher. They are exiting random hikes. This is coming through from pearson and they are scrapping the 2018 profit target. They are taking actions to accelerate the transition into Higher Education and a huge education business in the u. S. And to manage the [inaudible] 47 ine selling exiting Penguin Random [inaudible] anna lets get back out to demos davos. Francine we have brought in some canadian reinforcement. Im so cold. I am kidding. Were pleased to speak to the kuwaitg director of the investment authority. You have so much under management, if you look at your assets of 592 billion, the worlds oldest sovereign wealth fund. Where do you see the main opportunities question mark you are interested in infrastructure especially in the u. K. Is that where you want to increase spending this year . Guest i want to compare our returns the last 10 years. I do not think we could beat the same returns. That is why we want to do something different. That is why we are expanding in the infrastructure and the credit. I think we have to take more risk in order to maintain [inaudible] thats why three years ago we started to invest in infrastructure in the u. K. , spain, australia. So far, we invested 3 billion in three different sectors of the infrastructure. And this is a portfolio of our infrastructure. It is awfully difficult to find alpha. Youre clearly looking for it. Guest i totally agree. Youre looking for it in infrastructure and credit. Where are you getting it today, who is delivering what performance and what strategies and asset class it classes classes . Mark guest where is the author. It is in credit. Risk to to take more make more in the public market. We have no choice but to take more risk. Francine does the election of donald trump change the appetite for infrastructure . If you are trying to reflate the u. S. By spending more, does it force other countries to do the same . What has been told. This is yet to be seen. This would not happen tomorrow. This is taking longer. Potential for change in Economic Growth to come with it enough to inspire or prompt you to allocate more geographically toward the u. S. . I look at the global economy, i would say the u. S. Is ahead of everyone in terms of growth. Also what is the attitude after the election, especially tax cuts. Enhancewhere oil will the growth. Also what we have seen is this appears to be the monetary policy. Of the u. S. Ine particular and the global economy. Eric are you taking money out of emerging markets, out of europe and reallocating it to the u. S. . Guest not really. Francine how much will you add to that allocation and how do you invest in the u. S. Right now, are you going after companies . Guest we are in the public market. We started to look into the west privatexpanding in the and small company. For to write a big check longterm investors, you need to see that project in infrastructure. Otherwise there is no [inaudible] publice are there companies that look attractive because what you were mentioning, deregulation and the trump effect . Looked tohave not anything. Eric you have looked traditionally to long only, active Equity Managers as a potential source of alpha. Given how much trouble managers have had beating the benchmark, is there any point in doing that any longer . Are you better off going into a passive vehicle . Guest you are absolutely right. Why do i have to pay extra fees for less returns . I would rather be passive and shift to the private. Eric are you all passive in u. S. Equities . Guest not really. We have active management. Eric are you headed toward 100 . You always have some exposure to equity active equities. Ofncine what are the plans converting dow chemical into equity . We will help for the common equity right now. Company will sell thecine this year or in next couple of quarters . Guest it has not been converted to common equity. Francine you increase your position . Guest i not sure. Francine how will you decide it . With the oil prices i think the company will probably do well. Francine if it will do well, when do you expect to make the decision on whether to increase your exposure to dow . Guest i do not think it will increase at the current level. Error since you brought up fees, lets talk about fees. What from your perspective is acceptable when it comes to long only equity active equity . And private equity, what is acceptable . Guest we shoot for the lowest. When wen we say save money and i would say outperform the index. Eric how much luck are you having . Everyone wants to negotiate with the general partner. Every limited partners should want to chisel the gp on phase but are you having any success . Guest that is why we buy the gp s five years ago. That is our hedge. Francine you have been invested in job own and there have been many rivals. What is your interest in Similar Companies right now or Technology Companies . Looking to the private. Three years ago we established a portfolio. In Venture Capital companies. [inaudible] after the budget cash flow. Eight orrobably now nine companies. Eric are you doing this directly . Yes. How much is direct investing becoming a part of what you do . Guest still is small. Eric what percentage of assets . Guest probably around 1 to 2 . Eric where would you like it to be . Between 7 and 8 . Eric that is a lot. Many billions of dollars you will bring inhouse. The s p. Look to the expected is 4 . Visavis volatility of 17 or 18 . 7 to 8 andit was 12 to 14 . I have no choice only to go for private. Private means the risk is so much bigger. In theare invested private company do you support them and help them grow by influencing where they should be . Guest still this 7 to eight 8 is a lump sum. Francine do you expect more volatility on the markets . Guest of course. 2016 . Ne worse than guest more volatility. I think so. There is elections coming again. In europe and it is yet to be seen. Eric before we finish i would love to ask you about a controversial topic create hedge funds. What are you doing about hedge funds these days . Guest we have a smart portfolio. I do not think we will increase to ourge Fund Allocation alternative investment. We would probably go to asset class more than hedge funds. Eric because they offer better riskadjusted returns . Guest i do not think there is a big alpha in the hedge funds. Eric the golden age of the hedge fund is over . Guest i do not want to be offensive against anyone. Francine we are in dallas. We can afford to. Will globalization be tested in 2017 through trade wars . Guest my biggest fear is if the u. S. Impose of imposes taxes with mexico or canada. This is where it is a war that everyone will lose. This is my biggest threat. Francine thank you for your time. I will handed back to you in london. Eric is taking over. I would am i am off to do a panel about the middle class and we will talking about this topic. Globalization and what comes next for the middle class. Thank you. A great interview. The biggest threat to the world is the possibility of a trade war in the u. S. Anna no one wins and we heard that line from the chinese. Saudi arabia is reducing the tax rate paid by its National Oil Companies to make a 2017 ipo. Making it more appealing to investors. That is according to aramcos ceo who spoke to john nichols weighed in dallas davos. Guest youre right. We have 20 royalty. In 2016any is able to execute one of our biggest capital programs. Different in 2016. Going to the market, the fiscal regime will be changed. A lower tax rate in some way. Is that part of the kingdoms aim to live more off dividends than off taxes . Guest we would like to bring that company when we look at fiscal and taxes for the company. It has to be aligned with other companies. We are looking at companies that have been listed in the market. And what is common and based on that the advice of different thes that we use during , we areof the ipo setting a fiscal regime that will meet the investors requirements. Theyre always be a big dividend paid regardless of the oil price . Guest i said we paid dividends. Prices in 2016 were extremely low. What are your priorities for investment in the next two years , is aramco going to put money into refining, where would you like to put the money . Guest in terms of our business, volumes claims are heavy on the upstream side. And oil and gas. Capacity ofining a 12 Million Barrels per day in terms of our capacity, we are at 23 billion over the next decade. We are happy in terms of oil and gas. Capacity, were looking to do 10 Million Barrels for capacity. This is global. And that is an area we are expanding in. In the kingdom and globally. The kingdom [inaudible] just finished last year our [inaudible] which is the biggest chemical plant. In the world. With dow chemical. Th are also executed wi germany. This is an area of interest to us, expanding finding capacity globally syria globally. You have the capacity to do 12 and a half million. Guest we have the capacity. [inaudible] to invest moreke to increase the oil capacity . Guest there is no sense to invest now. We have ample, Spare Capacity and we are maintaining and toare capacity expand that capacity is something that needs to be discussed later on with if you board, yourith your shareholder, and a decision will be taken at that time. 12 the this time it is billion. There is enough Spare Capacity. Did you have a number in mind about what the ideal target would be in oil, 50 billion barrels . Is no magic number to say this or that. Forecast, you have to have the forecast pinpoint the decision to decide. You look at the forecast for oil to 117. Goes from 78 and the base is 103. Manus that was the aramco ceo speaking exclusively to john nichols rate in miche kelthwaite. Anna bloomberg gives you full coverage of the Economic Forum in davos. We bring you a discussion on the middle class. Guy good morning and welcome. This is the european open. Cashfirst trade of the equity session coming up shortly. I am alongside matt miller. Matt miller is in berlin. The dollar finding from a ground this morning but for how long . Yellen speaks tonight. Donald trump remains firmly in focus for fx traders and the technicals look tough. Sterling. The pound turns south after yestda