Implosion in data in the last 20 minutes. As we open surveillance, what we see is, look at the yields come in. Francine look at the yields, we are in a riskoff mood. Great speech by the anglo gold ceo. Ths saying there is no good out there. Ing tom i would go to the bloomberg terminal and look it up but i have to pay my bill. Francine lets get to the bloomberg news. Heres a funny heres vonnie. The yuan has condemned north koreas launch of a longrange rocket. The Security Council has pledged new sanctions. Taiwan, two survivors from the killer earthquake were pulled out of a toppled highrise building. More than 100 people are still believed to be trapped. Saturdays quake killed at least 37 people. German chancellor Angela Merkel is feeling the heat as she travels to turkey. Merkel plans to urge the turkish government to do more to halt the flow of refugees bound for europe. Theres pressure in germany for merkel to follow other eu countries and turn refugees away. New hampshire votes tomorrow in the first president ial primary. Former president bill clinton cant hold back. Mr. Clinton accused Bernie Sanders of misleading voters. Polls show sanders leading among them aquatic voters in New Hampshire. In super bowl 50, denver shot down carolinas cam newton giving the broncos a 2410 win. It may have been the last quarterback for denver last game for denver quarterback Peyton Manning. Day. Ll the news 24 hours a im vonnie quinn. Tom weve got to do super bowl chit chat, but we cant right now. Markets are on the move. Francine lacqua is looking at this. Twoyear yield in germany moves to new weakness. Know,s were like, i dont negative five, negative six. Forget about that. The 10year yield comes in with a solid move. Eurodollar stable. Oil, oil, oil, im watching. Screen. E next it shows you the yields move that we are seeing right now. To german 10year yield goes 0. 25 . The twoyear yield, check me on this. I believe it is a new low, negative 506. Francine it is a new low. Weve had a reversal. Lowest since, the 2014. Theres a little bit of market angst. They are trying to figure out the next move for Central Banks. We also had the Anglo American ceo, saying we cant rely on a reversal of this price slump anytime soon. 2016predicting a tougher for commodities. Earnings arent great. That is your data check. Tom there it is. Well, thes as peripheral spreads in europe are wider this morning. Will join usroso in the next hour. Lets look at the bank index. Just very quickly, down we go. Heres your 21 bear market. I had a cup of coffee this weekend with two stars from berkeley and jpmorgan. They make like 20,000 a year. These kids are out of smart schools. They bring them in and they are entrylevel. They are not going to lose their jobs because they are lower paid. They were talking about the overall slowdown in banking. Vonnie this includes all the banks from j. P. Morgan chase, a great story on bloomberg about currency traders and how their jobs are gone. Tom theres the bear market to start. Weve got to show this. This is a gorgeous chart. Brings a tear to my eye. Francine . Francine thank you so much. European stocks heading for their longest losing streak since june. You look at those s p 500 futures, feeling the pain from friday. Lets bring in our guest for the hour, kit juckes. You are pretty confident that we are not seeing anything too ugly. You look at the market selloff and theres something ugly. Kit i came in this morning thinking, chinese new year. Francine quiet, go on surveillance, it will be a fun day. We see some people trying to pick up some cheap equities. Here we go again. Francine is it earnings, policymakers, all pointing to nothing optimistic . Kit it is coming from lots of different angles. About europelked for about three weeks, and here we are worried about the equity market, weakness in the banking sector. We are still worried that even if oil is not making new lows every day, we dont think it is going to bounce. We cant get out of this negativity at the moment. On friday, after a perfectly report,. S. Payroll maybe we would get a pause. This is the stuff that makes you nervous, that it is coming from too many different directions. Francine tom kit juckes, theres a correlation in other markets. Anthony, bring it over here to bloomberg again. We are going to show futures down. Heres the flattening of the vanilla yield curve in the United States. Twoyear and 10year flattening out. How correlated are the markets . Kit they continue to be very correlated. The dollar is going up against the other currencies. The first piece of relief i got this morning was, either equities were higher in asia or the yen was weaker. We are driving this through with this flat u. S. Yield curve. Weakness in equity markets, weakness in commodities, and you are choosing between the yen, the dollar, and the euro to be the strongest currency. Were still doing that day today. Do we feel a little bit less frightened of these new headlines coming out . Tom is euro strength a stronger etc. , realr economy, rate differential, etc. , or is it about dollar weakness . Kit almost neither. Euro strength at the moment is risk aversion. Europe is more and more like japan. Accumulates foreign assets at a huge case, so is inclined to strengthen when european investors are putting their money in negative yielding german securities rather than on assets or turkish assets or russian assets or looking for something more exciting. It has become the yen in that sense. Francine what does it mean for the Federal Reserve . Two notes from jpmorgan, bank of america, saying they may go into recession. How is that impacting psychology in the markets . Kit the fed isnt going anywhere right now. It could almost get more complicated. Only last friday, we saw another acceleration in wage growth. This could get quite complicated if you get a Global Environment that is bad enough. Yet someone says, theres the phillips curve, still more or less alive. The fed is going to be walking something of a tight rope. If the economy is not doing terribly well, they will just go negative. Francine coming up next, the conversation with tom albanese. This is bloomberg surveillance on bloomberg tv. We will quiz mr. A lbanese. More on that, coming up. Good morning, everyone. I thought it was a quiet monday. Forget about that. The german twoyear and 10year, a new low. The german 10year grounding down to recent low yields. The yen was a 117 and we are strong. Worthwhile to watch markets suddenly weaker this morning. Francine . Francine we talk about commodities every day. This is mainly on cutting cost. Today, we have the Anglo American ceo giving a brutal assessment of the industry. Who better to talk us through then tom albanese, talking to us from cape town. Great to have you on the program. We heard from Anglo American, giving a very frank and brutal assessment of what will be a very difficult 2016. Do you share that assessment . Mr. Albanese if i look back over the past year, we all thought that 2015 would be the worst of it and we would see a recovery in 2016. The past couple of months has been more of the same. We are all hesitant to say the bottom is here. Weve had a little improvement over the last couple weeks. Zinc and copper, maybe gold, looking a little better than they would have a couple months ago. We all need to be cautious. We need to focus on our cost structure, batten down the hatches, protect our Balance Sheets. We could be in for more of the same. The longer prices stay lower like this, the more difficult it gets for suppliers to stay in business. That means the more improvement we will see when demand again except. Francine what you are saying is the turnaround in Commodity Prices is going to happen slower than you were expecting . Do you push that back to 2016 at the earliest . Mr. Albanese weve seen a nice rally over the past couple weeks. This might be a relief rally. We may beginning to see some supplydemand fundamentals picking up. The surplus in copper production this year is probably more haveive than people would assessed a couple months ago. Im hopeful over the course of 2016 we will see some improvement. Probably, we wont see any big move. Mr. Albanese great is do tom great to speak to you again. You were at rio tinto. What a train wreck that was. You go over to your company now, which is the familyrun indian firm. I want to know the advantage you have, working for a quasi private Company Versus the show, the zoo that you were working with at rio tinto. Going toese im not say anything negative about rio tinto. I had a great time there. We went through an exciting time, when china was growing the on anyones expectations. It has been a really exciting period in my life. Ive been able to live in india. Ive been able to absorb myself in indian business. We have an owner, chairman, founder, who owns 70 of topcoat in the u. K. , who is very bold and assertive about what will be the future for metals in india. That keeps us on a positive face. We are in the Public Markets in india and the u. K. We are cognizant of complying with public requirements. I see ourselves representing a groundfloor opportunity to invest in india with some of the best assets in the sectors we are in. We have 10,000 engineers in the business. The company is hungry. If i want to have something happen, it happens. We dont go through long periods of debate. We make it happen. Tom ill go with that. I read two years ago, a 24page powerpoint from bhp billiton, on their confidence they could clear the Balance Sheet. You had that challenge at rio. You are taking advantage of it with your indian company. How far through the process are we of clearing mining Balance Sheet . Mr. Albanese i think its still going to take quite a bit of time. Recently, all businesses are Generating Positive cash flow after capital. We are putting our efforts into refinancing where necessary and recognizing the Balance Sheets are king. Our other competitors are doing the same thing. It is very difficult when copper would be around two dollars a pound and oil is down less than 35 a barrel, but the businesses are hunkering down and getting it done. Those businesses that are best at it will be best at recovering. This is where we were in the late 1990s. People thought copper was dead. People thought oil was dead. The survivors were the ones that enjoyed the benefit when china kicked in. Im not saying we going to see a china story again, but those that can manage their Balance Sheet the best in this time, stay opportunistic, we can be ok. Francine should minors be more proactive in cutting output instead of focusing on costcutting . Mr. Albanese cutting out what . Francine output. Should we be focusing on getting some of the stuff out . Position,se in our where we are Generating Positive cash flow from the production we make, it makes economic sense to generate more production. We are in an environment where it is in our best sense as an individual company to make the most production that we can. I recognize that does create more supply in the market. We have to recognize and be grownup about that. From a perspective of increasing our volume is king in this market. Tom just because of time, ive got to be quick here. Is the model of a Mining Company with an oil company wrapped into it, is that conglomerate feel over . Are we going to pure mining plays . Mr. Albanese after the past 40 years ive been in the sector, it has been in fashion to be diversified. It has been out of fashion to be diversified. Now, that portfolio gives you more protection through the cycles that are going to still continue in the future. If you have good quality assets, i still believe it is a good model. Tom thank you so much. Im never going to get over that deal out of cape town. It is absolutely gorgeous from our bloomberg facilities. Coming up in our next hour, Anastasia Amoroso will join us. We will look at the other nations. We will look at Eastern Europe and russia as well. Futures deteriorate. Stay with us. Welcome back to bloomberg surveillance. It is the new lunar new year, so asian markets are closed. Germany down 2. 4 . The stoxx 600 is down 2. 4 . The u. S. Looking at a lower open. U. S. Futures for the s p down 1. 24 . The euro is holding below 1. 12. , the metrics are diverging. Nymex crude down 1. 7 . Brent at 33. 43. Tom i cant emphasize how quiet it was two hours ago. It has turned into some challenges here. Francine . Francine the selloff is continuing, especially on the dax. You were looking to the vet into ceo, saying everything seems to correlate to oil. It explained his strategy of having oil and zinc. Are the markets going a bit crazy . Kit yes, but we have been over correlated for a long time. The problem in nonoil commodities is that as costs are held down, currencies are weakening, which helps reduced costs if you are not based in dollar land. We are not cutting supply. It makes you terribly worried about another leg down in Commodity Prices. Not the same in oil, yet the prices move at the same time. I cant avoid being relatively bullish of oilrelated currencies. Reacted, weu also were asking him about china and he said, it brings us back to the 1990s, and china comes back. If it comes back, it is not going to be what we saw 10 years ago. Kit china is rebalancing. It is not the slowdown that is the problem. It is the shift away. Boom, we blewasia up my industry in 2008, and now we are blowing up some of these other industries. That is not coming back anytime soon. Tom you know that when markets move, you never see it coming. What is the thing that is exogenous to the system that you are worried about . In the commodities space, what it is saying to me is, we havent solved the excess , inly, the excess capacity the resources industry, which boom that came in 2003 when the fed was at 1 at the same time as we created all the booms. Tom we have to leave it there. We will come back with kit juckes and take a look at the euro. Coming up in our next hour, we bring you Luigi Zingales us. We will talk about New Hampshire, the primaries, the spirit of our animal spirit. Stay with us. Francine welcome back. This is bloomberg surveillance. Tom keene, this is your data check. The route has deepened over the last hour and a half. We opened flat. Now we are significantly in the red. The stoxx 600 down 3 . I want to show you Deutsche Bank, also commerzbank. We are getting a little bit of concern out there. We are trying to get to the bottom of it. We seem to have a lot of regulators saying Credit Demand doesnt compensate for low interest rates. This is interesting to be put into context. Lets get to the bloomberg first word news. Vonnie the un Security Council is promising to retaliate against north korea for launching a longrange rocket. North korea is celebrating. There was a fireworks celebration in pyongyang today. Says this is a test of Ballistic Missile technology. Meanwhile, the u. S. And south korea will have talks about deploying a Missile Defense system. The president of turkey is signaling the country is prepared to join the war in syria if needed. Turkeynt erdogan said shouldnt repeat the same mistake it made when it turned down a u. S. Request to join the coalition against saddam hussein. Finlandnce minister of is urging the European Union to keep its borders open while it tries to resolve the crisis. Another dispute between industrials between israels Prime Minister and the obama administration. There is no progress on a new military aid practice. The newspaper says netanyahu is willing to wait for the next u. S. President to take office. The u. S. Has warned israel will not get a better deal. In New Hampshire, Chris Christie kept up his defensive against marco rubio. He said the florida senator would crumble in debates if he runs against Hillary Clinton. Rubio is hoping to take second in the primary tomorrow. Get all the news 24 hours a day. Im vonnie quinn. Francine . Francine thank you so much. Chinas Foreign Exchange reserves trying to the smallest since 2012 as beijing continues to sell dollars. For more, lets bring in keyu jin and kit juckes is also with us. Thank you for joining us. When you look at the chinese economy, this is very clear that it takes time for the economy to get rebalanced. The pboc has many challenges. Will they have to devalue the yuan . Keyu i think expectations of a major devaluation is going to be unlikely. They prefer gradual depreciation. They want to give companies with dollar borrowing more room to adjust. I think it is unlikely going to be credible, even if they make a major devaluation. It is a signal that somehow the chinese economy is doing even worse. That would lead to greater capital outflow. I think it is a big risk. I think there is going to be pressure. It is a loss of confidence. Weve seen that in the stock markets. A lot of wealthy people are simply trying to move assets abroad. Companies have acquired foreign assets. Legally or illegally, capital controls are leaky. Tom let me ask you the question we as market types measuring the landing, whatever, what drives you nuts about china coverage . ,ou sit in a vaunted place looking at International Relations in china. What drives you nuts about the recent coverage of china . Keyu this is always driving me nuts there is still a bit of difference in interpretation between what is actually going on and how it is perceived from abroad. In terms of the economic issues, i think the biggest misunderstanding is they are no longer just economic issues. They are also political and social issues. What is stopping economic reforms, and we need that, is a lack of political reform, and concerns that social instability is at risk. Tom how do you have political form within a communist regime . , developing good institutions, is going to be critical for the next stage of Economic Growth in china, which is going to rely on innovation, efficiency, and competition. In the current political system, theres so many different layers of bureaucracy, so many conflicts of interest among the different parties in the central government, that it is stopping reforms. There are major vested interests. The stakes are much higher than the first wave of reforms. What have we learned from the pboc and china in general . Were still trying to figure out the endgame for china. I wonder if they are trying to figure it out as well. Kit it is very difficult for them to get what they want. The question that comes out of this is, to try to manage this slow crawl devaluation without having really really tight capital controls. It is going to encourage capital outflows. The numbers yesterday werent surprisingly big, but they were still huge. You cant help but think we will continue to see capital outflows. They dont want a big devaluation, but the choice of this slow crawl devaluation with some capital controls looks to me textbook injuries. Textbook dangerous. Take intoeed to account how the government thinks. I think for 2016, they have the arsenal to hold it down. They engage in so many different parties to intervene in the rmb offshore market, tightening the screws on outflows, but also relaxing the regulations on capital inflows. They are picking up major efforts. Tom let me look at the inflation chart. Francine, i want you to pick this up at the desk. Heres inflation. I look at that and i really wonder where the animal spirit can be if they dampen price change. Francine you make a very good point on china. There doesnt seem to be any inflationary pressures from anywhere. If you look at this inflationary pressures, they come from china. Can the pboc fight it out all . Kit i dont believe they can fight the reality of access supply in commodities and goods markets from the post china era. I think there are good disinflationary pressures globally. This currency war just shuffles the deck around. You cant get it to go away. Keyu in china, we have excess capacity. That is going to lead to a lot forces. Tionary also, people are not spending that much. They have expectations of a confidence issue in china. Francine when you look at that chart that tom brought up, looking at china, there seems to be a couple of positive or optimistic views on china. When you look at services, consumer spending, which markets sometimes miss. Keyu this is being too as a mystic about china. Services will be a major force of growth. Urbanization is only halfway done. Consumer spending is picking up. Can china develop the right environment for these companies to be in a more competitive environment . Tom from your purview, can you explain to me what a china depressurization or evaluation of the renminbi would signify to the people of china . Keyu i think theres a major problem with confidence issues in china and how the government has been dealing with the stock market is a signal that, first of all theres huge miscommunication, but also, because china cant produce believable data, it is possible to believe that economy is doing worse than it is. That is why the government has been putting so much effort into stabilizing these markets. A further loss of confidence would be even worse for chinas economy. Tom professor, thank you so much. Keyu jin is with the London School of economics. Bloomberg has adam pozen of the Peterson Institute. That. L speak to him about janet yellen will migrate to capitol hill. We will migrate to a data check. 21 on futures. Stay with us. Tom markets on the move. Futures deteriorate. We went down to 26. 21. Oil didnt get to a 29 handle, but we cant remember the intraday on brent crude. We are watching german yields in europe. Really more of a focus now than the Early Morning u. S. Francine . Francine we are seeing a selloff in european stocks. That has deepened in the last hour and a half. The banks are taking a lot of the flock from here. Lets get to nick in frankfurt. When you look across the board, if you look at the stoxx 600 banking index, commerzbank down, Deutsche Bank down, what is going on . Nick the banks are always going to be a proxy for the rest of the economy. ,hen things are doing badly investors pull out of banks. They are so exposed to lending volumes and souring loans. It is a question of people saying, the economy is going to suffer and these guys are on the front lines. Francine why is it european banks, but also a lot of these german banks . Are we concerned about liquidity . Are we concerned that there are people at the top going through a massive overhaul of strategy . Nick precisely. It is the strategy factory here. Weve got Deutsche Bank which is in the throes of its overall. The last thing they want to see is for the markets to sour and reduce the revenue they can be using and setting aside for paying down their legal bills, paying their overall charges. It is making a bad situation worse, making the overall tougher for Deutsche Bank. Tom one of the great issues here, and the distinction between the United States, is the ability to merge. Is there any idea that the european banks can rationalize their future . Witness what we saw from Credit Suisse. Lets go over the chart. This is Credit Suisse with the implosion. Where is the m a story on this monday morning . Bankers,ly for the m a still pretty minimal. Theeard from john cryan, coceo of Deutsche Bank, saying he doesnt see any big m a on the cards. The regulators of all the european banks are saying, complex institutions getting more complex, no thank you. I would downplay that one. Individual portfolios up for sale, people selling off assets, absolutely. We may see unit 10 portfolios alone sold, but a big crossborder merger, i would be doubtful. Francine thank you so much, nic comfort. Kit, it basically points to the fact that sentiment is low out there and theres very little visibility. That is impacting the banks. Are you concerned about liquidity for banks . Kit it has been the danger for a while now, what happens through the highyield market. If you took the chinese numbers, if china loses 400 billion worth of Foreign Exchange reserves, that is Something Like they get bought by an investor who was forced into corporate bonds, high yield bonds, emergingmarket assets, that hes now selling. It is that stuff that gets sold. What has happened in the banking industry, in the drought of weity, we dont know dont know how we find the clearing price. Tom exactly. You absolutely nail it there. If we dont know where the riskfree write is, and we know the theory behind that, what do we use to score and measure liquidity . Do we even have a clue what the liquid is in liquidity . Kit i think it is difficult. Spreads,o use bitr but that is kind of a theoretical concept. You ask me to find you a buyer or something and i shuffle around my contact list. I think a lot of the measures that people use, using things like volatility, things like bitr spreads, they look inadequate to the task. Tom what i focus on here is, futures 25, and yields in the serman twoyear, what mr. Jucke is talking about is trust. Where is the trust from the continent over to london . Where we are confident, which is why we are overpaying by any historical measure for government debt. The rest of it, we are uncertain why i would be buying a highyield bond instead of having a company to company loan. I bought something that i can have a valuation of. We are getting used to the fact that you cant trust that, so were figuring our Investment Strategies around this new reality. Itsis happening now is, being tested for the first time in earnest. Tom well done. Kit juckes from societe generale. We are to show a chart in our next section and bring the chart over to the 6 00 hour as well, on the confounding euro. One of the indications we have in our markets this morning of lower yields. Coming up in our next hour on bloomberg surveillance, Anastasia Amoroso will join us. We will talk to her about the strategy of Eastern Europe. Stay with us. Tom i did not think we would do this this morning. I was wrong. Look for a higher vix. Beloww futures now 16,000. What francine and i are watching is the yield market come in, lower yields, higher prices, particularly in germany. Francine germany, those yields the lowest since april. It is clear that there are signs of distress in financial markets. I want to show you the european markets. These distress signs are gathering force. You can see the stoxx 600 down. Deutsche bank in particular, with commerzbank down 5 . Lets get straight to the Bloomberg Business flash. Vonnie volkswagen may have to plead guilty in the u. S. If charged with criminal conduct in the emissions scandal. That is according to lawyers who specialize in environmental law. Apple is on track to win government permission to open its first Retail Stores in india according to a person with knowledge of the matter. Ceo tim cook once the company to grow in business with a nation that has 1. 3 billion people. The Worlds Largest independent oil Trading House forecast a decade of low crude prices. Ceo ian taylor tells bloomberg prices will stay low because of slower Economic Growth in china. Taylor says the u. S. Shale industry will act as a cap on any rally. Tom thank you so much. Futures 21 right now. Lets look at the euro. It is a proxy for a discussion with kit juckes about where we are heading. The consensus was that blue rectangle. Weaker euro, we are going to go to parody it hasnt happened. Theres been extended stability. Francine, its really been confounding. Francine it has been compounding. When you look at ben bernanke, five or six weeks ago, saying it is probably the end of the dollar rally, weve seen that not to be true. We talk about currency wars. Lets get back to our guest host, kit juckes from societe generale. Where does eurodollar go from here . Kit right now, it goes higher. Eventually, the winter ends. The spring comes back. We get back to phillips curves, falling unemployment, and stuff like that. It all feels terribly far away this morning. Right now, in this low yield, riskaverse, money that wants to invest in german securities, right now, the euro and the yen are the winners. I wouldnt be surprised if eurodollar makes its move toward 1. 15. Francine what does mario draghi have left in his toolbox . He surprised the markets, but it seems that everything has been priced in. He will do whatever it takes. Kit i think he will find ways. You can go more negative. Once weve got used to it, you can come in and buy more assets. That will make a difference. You get diminishing returns. We saw from japan that the jump into negative territory from the ecb a year ago really drove the euro down. Itn the japanese tried that, had a much smaller impact on the yen. It gets harder. What he needs his help from the fed. Spain, onyou are in one of your 14week vacations, and you are ensconced over a good cup of coffee, tell me what you think about global reserves. We saw the china dance this weekend. Is that a real statistic . Is this all funny money when we talk about reserves . Kit two things about reserves. The more i think about it, the more convinced i am, that when people say, how many reserves do you need to defend a currency . In todays world, given the size of capital reserves, almost no reserves are big enough. I dont believe theres a number that solves the problem. The second thing that i think is relevant is, the accumulation of these reserves was accumulation of assets. The single biggest asset held by the reserve managers is u. S. Treasuries. We run this town. They sell treasuries. Someone else buys them. They have to sell Something Else to buy them. That, i think, is a real reserve story. Tom terrific briefing. Kit juckes is with societe generale. We are going to continue this discussion. Will joinales us and we are thrilled to bring you Anastasia Amoroso. She has a unique perspective on Eastern Europe. We will speak with amoroso. We will go a to z. I love that. Gales. Moroso to zin , weoomberg surveillance look at a dark churchillian view. The skies are dark and stormy. Stay with us. This morning, markets recalibrate as captains yellen, druggie, and kuroda yellen, draghi, and kuroda are manning the helm. Coldplay and carolina crashed and burned. Payton gets the job done. Good morning, everyone. This is bloomberg surveillance , live from new york. Im tom keene. With me, france in the quad. Michael mckee Francine Lacqua law. Michael mckee is not with me. Michael mckee is resting from the Denver Broncos hangover. So we are mckeeless. Francine he is missed and is probably missing this market rout. It opened in europe about four hours ago and we are trying to get to the bottom of it. All the psychology and the ouriment we talked about probably coming to a front. Tom i like how you focus european banks seeming to be unusually fragile today. We need bloomberg first word news. She plays defense like the broncos, vonnie quinn. Vonnie the u. N. Security council is promising to retaliate against north korea for launching a longrange rocket. It carried a satellite into orbit. The u. S. Census launches are a for been test. There may be new economic sanctions. German chancellor Angela Merkel is headed to turkey under pressure back home. She plans to urge the turkish government to make good on pledges to do more to halt the flow of europes refugees. At the same time, theres pressure in germany to turn refugees away. Former president bill clinton is not holding back. Yesterday on the campaign trail he accused Bernie Sanders of intentionally deceiving voters. And he went after sanders supporters for attacking his wifes backers. Leads among democratic voters in New Hampshire. Those two the senate husky voices on the fence says the u. S. Navy should consider delaying deployment of a new combat ship. Until they successfully complete more testing. In super bowl 50, carolina m. V. P. Cam newton was defeated, a 2410 winning. Peyton manning is 39 years old, and this is his second super bowl victory. Some time will take before deciding to retire. Global news 24 hours a day, powered by 24 hundred journalists in more than 150 news bureaus around the world im vonnie quinn. Last game for coldplay as well. What do you think . From the new york times, terrific summary of the halftime extravaganza. Wasst thought it was i yearning for earl smith. Markets on the move. Before we get to our wonderful guest this morning. Therancine mentioned, change zero still. Migrating toward a 29 handle on oil. I hope we are doing a second screen. 10year, 0. 1 if 5 with the swiss negative yields to 15 years as well. Stronger yen in the recent two hours. Francine . European stocks are tumbling to the lowest since 2004 because they are concerned about growth. There is something worrying the markets, the prospect of negative rates, the prospect of more deflation, and that is spooking the markets. Look at the banks. There is concern about liquidity , down 3 for the industry group. And i want to show you eurodollar, 1. 1161. I am going to mix this up. This is credit suites. We showed the bank index in the United States this is Credit Suisse wecredit showed the bank index in the United States or there is my audible, and there is Credit Suisse ruling. That was my Peyton Manning imitation there. , Luigi Zingales. Anastasia, let me start with you. The wall street journal this mornings the world sucks. Does it . if i look at the balance of risk, it is very fragile and probably skewed to the downside. The issue i have with the market is the economy is poised for consumer strength, but sometimes when the economy is looking so great, the market is not because its a consumer is benefiting from higher wages, corporate margins are not. From columbia university, there is the chart. It is that complicated. Luigi zingales this is i slm i fln. Wasi the latest job report wage front. E on the there are significant wage increases. So i think the consumer in the United States is growing. Francine it would seem that the man would help corporations. I think with some corporations that is true. But for other corporations, if they are not able to keep up the average selling price with the costs that are rising, that is what hurts the bottom line. So if i look at the earnings landscape right now, you have a top line that is uncertain because of the strength of the u. S. Dollar. Increasingly, the bottom line could get squeezed because companies actually have to shell out more to pay their employees. Airlines could be a different story. Just fuel is down 30 yearoveryear, i should say. Francine luigi, it is clear when you listen to anastasia that there are signs of distress in the market. Do we need a crisis or something happening with china . Luigi first of all, we need to whatthere is not a is the transition from an investmentlet economy to a consumptionlet economy. Of course there will be some bumps along the way, but it seems they are doing that well. The other problem is to face for the first time in their history, the low down in credit and potentially credit losses, and the question is where they are and how they are managing those. That is the number one problem. In europe, i am still worried about the banking sector. It seems i am not alone. And particularly i am worried about the italian banking sector. The european i did not think people paid enough attention to the fact that italian banks financed themselves with bonds they sold to households. It is a different all game if you want bailing Large National institutions. That is creating some distress with italian depositors that might translate into a crisis. To keep you out of bed banks in europe. I do not want to get you in trouble. This is the single best chart. I just want to touch on it. This is the rollover of animal spirit in the economy. Boom toom the 1960s the 1980s ok, 288 happening in italy. Two it aint happening in italy. Cine vonnie there is speculation this morning that greece might be in trouble again. Luigi but it is clear that growth in italy is in trouble because the banks do not land because the banks are in trouble. In a difficult situation. Tom how can you give me a oneword answer, and vonnie kills it with a beautiful insight. Help me here. Ask another question, please. Vonnie you said contagion. Where would it migrate to . Luigi portugal, as we know it, probably are with the banks, too. The entire sovereign europe is going through a difficult period, and the war does not seem to be over. We do not talk very much about greece because they do not need new money. The country is not doing particularly better. Tom anastasia, we have to bring someone else in from italy. Francine . Francine i remember coming in on january 4 and reading a piece by Nouriel Roubini talking about china and russia. When you look at portugal saying they do not want any more austerity, brussels has rules, they do not want those rules per it how concerned are you without we are looking at another how concerned are you that we are looking at another eurozone implosion . Have some german rules but not all of the rules that we need. Strictestmans are the but not the strictest on implementing a Banking Union in with european insurance from the parliament. That is one of the reasons why the banks in the southern part of europe are so weak. Yes, we do have a political crisis in europe because we are not willing to move forward. Nobody is talking about going backward except england, and now we are stuck in the middle, which is not pleasant. Tom this is when you get lucky, folks. We put Luigi Zingales and Anastasia Amoroso we are going to give you some real perspective on peripheral europe in the next hour. We are going from europe to asia , and the events of the weekend. Next, james percent with the Wilson Center. Were really looking forward to his perspective on north korea. Stay with us. Bloomberg surveillance. Vonnie welcome back to bloomberg surveillance. Seearkets deteriorate, you the dax down 2. 6 , futures lower as well. Of 1. 3 . P by the tune 1. 1132,lar trading at weaker euro in the last hour and a half alone. We have to look at the german twoyear yield. 51 basis points this morning, tom. Tom it is something. The intraday, west texas, we are there right now, 30. 12. James person is young but has made a Cottage Industry at the Wilson Center of looking at north korea. With the events of the weekend, we would catch up with him. Pointed . The missiles are they pointed at japan . Are they pointed at taiwan . Are they pointed at beijing . James thanks for having me on, tom. Right now what we are talking about our there are not any mobile missiles. North korea directly testing, it is something they are putting out on the platform well in advance and fueling it. We cannot say that anything is pointed at a specific country at the moment. And they really do not have the to really point it at a specific country. Very much in the development stage. But the danger is not doing anything now, a policy of strategic patients is enabling them to continue to develop this technology. This is another provocation from north korea defying the outside world. Is the closest ally to north korea. It is only by china losing patience that this will be dealt with. Am i right . James i really try to discourage the thinking that china holds the keys to solving the north korea problem. Theou go back and look at we have gotten so many fantastic materials from the communist bloc, and they suggest over the decades, over the longterm, there is a profound sense of mistrust between north korea and china. Clearly china has more access to north korea than anyone else. They also have more leverage because of their economics, their support to north korea, that does not translate to the political leverage that we have seen. The North Koreans have been bristling for years, for decades, over what they consider chinas interventions in north korean politics. They are so hardwired to the idea of sovereignty, the concern is that by asking china to use its economic leverage, it will make north korea it is precisely what were north korea what north korea resents most over the years. Tom with two missile events over the last number of weeks, what if we get a hat trick . What if we get another missile event in the coming weeks . How does that adapt and adjust the asian nations the adjacent nations . Be test from january 6 the testea james from january 6 north korea considered a hydrogen test. There is clear concern among neighbors, we see south korea with some hesitancy before. They seemed to be moving fully in the direction of working with the United States to deploy that. We have to demonstrate that we have credibility. Tom james person, thank you so much, from the Wilson Center. Us onsia amoroso with northern asia. I guess it is part of jpmorgan global strategy to look at northern asia. How do you make the political economics at reality that we have in northern asia over the broader asia sphere . The geopolitics of it are always going to be concern to be a concern for us as citizens. We talk about new sanctions, but do sanctions historically work . I am not sure that is actually the case. Something else probably needs to be done there. When you also talk about northern asia, the thing i focus on in china right now i think there is not necessarily geopolitical but economic instability emanating from china right now. It is fighting two battles, and not geopolitical battles. Korean won will be stable off the news, pointing out with what anastasia just said. Futures 25. Bloomberg surveillance. Tom thank you for joining us worldwide. Markets on the move this morning. Higher would be the angst of the moment. Negative. 26,the negative. 27 area. My morning mustread, i picked something out from Larry Summers that he wrote this morning. He is talking about economics but also some policies put in place. Francine i want to ask Luigi Zingales about this. We talk about free lunches, we talk about cheap lunches, but if you look at the market meltdown, it seems there is an end to what Central Banks can achieve, and we are starting to realize it right now. Luigi first of all, i do not think we are at the end of the tools of the Central Banks. Drop createsarket more opportunities. But there are not so many free lunches out there. This is where i differ from Larry Summers. Francine do you see any free lunches . If you look at a stock market, its thousand like they were having a free lunch for a couple of quarters. Luigi it is very easy to see that ex post. I do not know that we have had a free lunch with the markets right now. Havehat we do not confidence rising, the market is struggling. We are not always going to lack catalysts, but we are right now. The one thing i wonder about, and maybe i will toss it back to luigi maybe it is interest rates. I am not sure they are working out all that well in europe. The target of refinancing the Operations Program is working out great. Really are negative rates boosting that . Maybe that is making rates in europe go even more negative. Luigi i think you do need some aggregate demand. Germany is running a gigantic notercial surplus, and is expanding from a fiscal point of view, so demand in europe is down and there is only so much if can do on the rate front you are not going to do it on the fiscal front. Tom interesting. We are going to come back. We have a bunch of cool charts to dovetail in what we see with the markets. Dow futures 1. 92. What about the stock market . Tomorrow, john dollar will recalibrate after the jobs report. You heard Luigi Zingales talking about a better than Good American economy. How does it filter into your depleted 401k . Jonathan will be with us tomorrow Jonathan Golub will be with us tomorrow. We are not there yet. In washington, they are focused on manchester and concord, New Hampshire. Stay with us. From new york, from london, it is monday. It is bloomberg surveillance. Vonnie signs of distress in financial markets. You can see it on your screen. The stock 600 down. Banks down 2. 5. Yieldswant to show you under the 10year, lowest since april. Lets get straight to bloombergs first word news with vonnie quinn. Vonnie another dispute for Benjamin Netanyahu and the obama administration. After three rounds of talks, there is no progress between the sides on the new military aid package. Says netanyahu is waiting for the next president ial cycle in order to make a move. The u. S. Is warning that they will not get a better deal. Iran is honoring their negotiating team on the nuclear deal with the west. Theident rouhani awarded nuclear chief and the defense minister. Taiwan, two survivors from the killer earthquake were pulled out of a topless highrise building. Pled highrise building. The european minister of finland Alexander Stubb says refusing to increase funding are leading to suboptimal results. In New Hampshire, Chris Christie is staying on the offensive against florida senator marco rubio. The new jersey governor went after rubio hard in saturdays republican debate. Yesterday he said rubio would crumble in debates against Hillary Clinton. Global news 24 hours a day, powered by 2400 journalists in more than one hundred 50 news bureaus around the world, i am vonnie quinn. Tom one of the great themes in New Hampshire is the anger and the fury in the middle class of america that struggles for a decade. That brings us to a fabulous chart on america, and the distance from evanston illinois. Michigan,re of lake it is notchicago, Luigi Zingales economics, but there is the aspiration of nominal gdp and the illusion out of the war, they green, the joy out of 1980, and then we rollover. Where is the animal spirit . Luigi i think that he is too pessimistic on technology. He thinks the low hanging fruit has been caught, and as a result it is more difficult to progress from a technological point of view. I do not think so on the technological front. I think we are building ladders so that we can catch the other fruit. , do nothing from a technology we have to be condemned to a lowgrowth war. My concern is from a political beingion, and we are positioned to cash those fruits. I go another 20 miles around the lake again to gary, indiana. Of gary,rs out indiana, that was manufacturing. The progress only helps a select group of americans. How did this how does it diffuse south to a Greater Group . Luigi i do not think it only favors a few americans. If you think about the cell phone, the cell phone benefits everybody. There is not enough competition in the market to diffuse these benefits to everybody. The cost of the cell phone is too high because there is too much concentration in the cell phone business. More competition, prices are lower and everybody benefits more. Francine im really enjoying the geography of ms. West america. When you look of midwest america. When you look at the fed, do they even have a chance . Is it possible that they raise rates twice this year . Anastasia it is possible that they raise rates twice this year, but i think mark is too soon. But i think the fed has to a knowledge that but i think march is too soon. But i think the fed has to the they also raise rates in what is probably the tightest monetary conditions since 2008 or since 2012. So the fed, knowing this now, has to back away from a march rate increase. But what will increase thats what will keep the fed on this rate hiking path is the fact that wages are rising at last friday we saw wages rise at 2. 5 , and it is being determined, and of course from cpi inflation, the fed will most likely have to outrun that. Luigi i think we are approaching full employment. That unemployment is so low is in part due to the fact that people retired from work. The question is whether these boomers whohe baby decide to retire early, so they are gone forever, or if they are discouraged from entrylevel force. Francine so will rates continue to rise, or if this or is this a oneoff . Wages willope that rise. Yes, we will see it. Anastasia i was just going to say that we are definitely seeing the conditions that are primed for wages starting to rise. The Unemployment Rate is at 5 , 4. 9 . The rate of the Unemployment Rate declining is slowing, but the pressures for the wages to rise have been built up. Vonnies point, it is a trend that is becoming more firmly entrenched. Francine talking about domestic demand, which growth, and full employment or unemployment in the u. S. What do you make of china . China is a big unknown. A had mark carney painting bleak picture. Luigi as i said earlier, my major concern is on the credit side. I think from the real side, we should not be that concerned, even if china slows down. It is a much bigger economy now, a 5 growth over a larger number in terms of the man from the west, it is a much larger number than 9 growth of a small economy. I am not too concerned unless we have some Serious Problems on the banking side. Francine and that is a probability of, what, the fact that we see a credit crunch in orna is a 20 possibility, 30 . Luigi i would say 50 . Anastasia the credit cycle there, if it is not over, then it is certainly on pause. One of the big catalysts for growth in the last 10 years has been this china boom. The fact that chinas construction and infrastructure spent has driven 75 of the islds capex now china not doing that because the infrastructure for fueled investment has slowed materially, so it is a big drag. Tom Luigi Zingales, do we need Public Policy to jumpstart investment in america to sustain our betterthangood i cannot believe i am saying this less than 4 nominal gdp . Do we need more than Public Policy to get infrastructure going . Luigi we need infrastructure because the United States tom even someone from chicago . Istanbul, the airport is stunning, much better than the ones in new york and washington and chicago. Tom a great observation there. Turkish airways was advertising in the super bowl. That was very cool. Vonnie chicago recommends lots of government spending, right . That government should spend more money per we will bring up that banner in a moment. It was something to see in the economist, the article, the symbol, maybe to buy becoming the new airline. David stubbs will join us. Very sharp, from anastasia and a amorososastasia jpmorgan. Stay with us. Bloomberg surveillance. Tom markets bounce off a very difficult two hours. Lets let you know where we are. Futures they do better right now, 21. Dow futures, negative 1. 75, under 16,000. But the rate is the story this morning, with some real fragilitys in europe. Ae yen is on a tear to see 1. 15 is on a tear. Lets get to mondays Bloomberg Business flash. Chipotle restaurants across the u. S. Are opening later than usual today. Later this week, to public its its Biggest Marketing Campaign yet. Former treasury secretary tim will use money from jpmorgan to finance personal investments and fun started by his current employer, warburg pincus. The Worlds Largest independent oil Trading House with a decade of low crude prices. Ryan chilcote from bloomberg was told that prices will stay low up because of Economic Growth in china. The brent price at the end of you can come back and kill me because i am sure i will be wrong. Vonnie that is our Bloomberg Business flash. Tom vonnie quinn, thank you so much. I do not know where to begin. Hoursmor is she got four of sleep three days ago. There are two candidates worth focusing on and one idea total chaos. Megan murphy joins us, Washington Bureau chief, from manchester. What is the todo list today for the candidate you are most focused on . Megan look, here in New Hampshire it is a big deal now for marco rubio. It is his day to show he is not going to fade out and lose his secondplace surge that he had. People expected him to do very well here. The thing to watch is the governors. Kasich stie, john can they close author a major can they close off of their it amazingly strong debate. He still has a 12 point lead. It is his to lose. It is going to be a crazy day, crazy snow. It is manchester. Tom crazy snow brings me back to something you do not remember because you are too young. A senator getting crushed in New Hampshire. Are they going to be any tears tomorrow night or wednesday morning . Megan there definitely will be tears here, because some people will be forced to drop out. Whether it is Chris Christie, jeb bush, john kasich, who do not have the performance here. Side, hillarytic clinton is trying to close, trying to make it a tight game, bernierything we see, sanders is emphasizing the lead, growing that lead. That will be a big problem for here i such ast huge margin, showing a lack of energy in the base. Tom we have some technical difficulties there in the snow in New Hampshire. Vonnie one megan was saying is fascinating because she is saying that it is trumps to lose and marco rubios to win because he did not do so well in the debate. Before the iowa caucuses, it was trumps to lose, and he lost. Marco rubio was not hurt by his gap in the iowa caucuses. It will be very interesting to see. Tom my take is that it has been painful. is a student of american society. , really itul book was a wonderful summer beach read. Help us here. Give us the italian analysis of the madness of america. Luigi what we are observing here is that the American People are really worried about the power of the vested interest in politics. Withig message is sanders a 21 lead with Hillary Clinton. Are completely different politically, both sanders and trump they do not get financing from large interest groups. Basically, sanders is not taking any money above 100,000. He has 99. 9 of money coming from small donors. Observation,ood and you put in a lot of academic recently. This Hillary Clinton switch down the road into a big party, bigmoney candidate . Not down the road. She has always been, and she is today. 35 of her money comes from large donations and she is dependent on large donations. There will be a switch. She has always been that way. Francine where still struggling to understand who the big establishment challenger on the republican side to mr. Trump and ted cruz is. We are seeing it translate in europe as well. Will this political race leave a mark on Politics Around the world . Luigi i think absolutely. In the Republican Party, it is difficult to see who is the challenger. Ted cruz is considered antiestablishment, but if you look at the statistics of his donations, he is very much in line with marco rubio and a little bit behind jeb bush. So their money comes from big donors, and they inevitably are dependent on the large vested interests in their policy. I think paradoxically, trump is not. It is creating another is the onlyut he form of independent candidate the Republican Party can produce. Bernie sanders is really revolutionizing, can pay financing, because he is not he is the first candidate that cannot be reached. 100 million from small donations. In chicago we are always concerned about the fact that the public at large is not well represented. Bernie sanders for the first bringeems to be able to his coalition. Tom Luigi Zingales and Anastasia Amoroso a report tomorrow, with all due respect, a terrific perspective on the candidates as New Hampshire votes. Stay with us. Tom Foreign Exchange, part of litmus paper on global nevertheless, 116. 67, is challenging. The view of a troubled market dow futures down 1. 87. The german 10year says it all, a huge four basis points. Francine . Francine we have been talking a lot about oil, the fallout for the oil producers. With saudi arabia saying they will cut production as long as russia plays along, there is no sign of that anytime soon. Lets get back to our guests in new york, Anastasia Amoroso and Luigi Zingales. Anastasia come when you look at russia and the plight of the country because they are dealing foodstrong inflation on prices and oil prices, which dense the treasury, what is the end game for Vladimir Putin . Pain they ares experiencing on the fiscal him and hisorcing government to make some good market friendly reforms. One interesting thing is that, first of all, oil is down 50 since june. However, in russian ruble terms it is down 27 . The best thing the russian government it is let the Exchange Rate flow because that is an adjustment mechanism. Nevertheless, revenues are down, and one way to raise revenues is to privatize certain public entities, certain state entities so that the caucus building that russia will do that i think markets would very much like that. Tom i have to run here to bloomberg radio, anastasia, i look at Eastern Europe and it is the forgotten group, given migrants, refugees, the immense challenges of germany. How solidified is Eastern Europe , as they speak to Angela Merkel in germany . Anastasia i think it is an important part of the political landscape, of the economic landscape, and i think Angela Merkel, germany, france, everybody has to Pay Attention to it. Eastern europe could be potentially a solution to the but there is not an agreement there yet. Francine tom and francine, i believe you both have to leave. Tom, youre going to bloomberg radio. You made a great point in the break about wealth funds divesting. Where are they divesting, and how is it affecting prices . Anastasia there are the Foreign Exchange reserves, and most foreigners change reserves are held in shortterm debt. So that is why we are not necessarily seeing pressure on the long end of the curve, because it is on the short end of the curve that these managers are selling. The Sovereign Wealth Fund issues are different because you do have potentially sizable allocations to equities, so you could see billions of dollars potentially come out of equities because of the impact of those Sovereign Wealth Funds selling. What about what you are witnessing in terms of the impact to Sovereign Wealth Funds . Luigi my concern is that last year they used to buy a huge quantity, and now on the other side they are selling. So in terms of net flows, that is a difference. Of course it cannot be the only factor. A weaker general economic last resorthe buyer becoming a seller of first resort becomes an issue. And we are talking about places like the danish Sovereign Wealth Fund, and china not necessarily luigi it is very important in the equity market. Vonnie Jpmorgan Funds management what are you hearing mostly from clients . Aretasia our clients definitely longterm investors, and we have to remind ourselves and our clients that we are longterm investors. For the long term, the most important decision you will make his picking the right strategic allocation. In times like this, this is not the time to evaluate, reevaluate your strategic evaluate your strategic valuation. The answer is, absolutely. Whether it is credit over equities, which i think is probably the preferred way right now. If you were playing on the risk rebound, whether it is european stocks or u. S. Stocks, plenty of opportunities. Vonnie thanks to Anastasia Amoroso, and Luigi Zingales, from joining us. A big tree tomorrow on bloomberg surveillance. Jonathan golub will join us. Bloomberg is up next on bloomberg television. Bloomberg surveillance continues on bloomberg radio. We live in a pick and choose world. Choose, choose, choose. But at bedtime. Why settle for this . Enter sleep number and the ultimate sleep number event, going on now. Sleepiq technology tells you how well you slept and what adjustments you can make. You like the bed soft. Hes more hardcore. So your sleep goes from good to great to wow only at a sleep number store, right now save 50 on the ultimate limited edition bed. Know better sleep with sleep number. Stephanie chinas shrinking foreignexchange pile. If it gets much smaller, the chinese may be forced to devalue the currency. Does opec really have any clout left . Venezuela tries with saudi arabia to do something to shore up oil prices. Histrying to revive campaign, Chris Christie goes after marco rubio. The New Hampshire primary is tomorrow. Stephanie welcome back to david westin. Matt i am back david i am back. I am back just in time to see the super bowl. Stephanie unfortunately, just in time to look at brutal markets. We are here to break them down with stephanie ruhle. Is fromnd adam posen the Peterson Institute of economic and jamie metzl