Transcripts For BLOOMBERG Bloomberg Surveillance 20160310

Learner new year holidays. We are seeing a complete reversal on european stocks. For him to dive into the brexit issue is a nice sideshow this morning. I guess the main event will be any comments on negative Interest Rates or further negative Interest Rates, one of our themes, no doubt about it. Francine it will be interesting to see. Lets get to the bloomberg first word news with ramy inocencio. Hillary Clinton and Bernie Sanders squared off in their last debate before five states hold their primaries next tuesday. They zeroed in on seems they hope will drive democrats to the polls. When we talked about immigration, the secretary will remember one of the great tragedies of recent years as children came from honduras, where there is probably more violence than on most any place in this country and they came into this country, and i said welcome those children into this country. Secretary clinton said send them back. Each one accused the other of flipflopping on immigration to appeal to the latino community. North korea is threatening south korea again. And wind it would take special military steps hours after they launched Ballistic Missiles into the sea. Cam expecting missiles, as they claim they can put Nuclear Warheads onto rockets. There has been a Massive League of documents from Islamic State. They are said to contain personal data of Islamic State recruits from at least 15 countries. More problems for brazils former president. Prosecutors have charged him with hiding assets and last week, resilient authorities raided his home and accused him of giving out government a corruption investigation. News 24 hours a day powered by our 2400 journalists and more than 150 news bureaus around the world. Tom lets do a data check. Futures up. 1. 86. On to the next screen, look at that. Lets have a applause. That is gorgeous. The vix, 18. 34. Well was have the show the volatility on the s p, 500 better yesterday. These are three of five negative rates. Weden worse japan with a little bit of a touch of negative rates. All of these at the twoyear space. I wonder whether we need a negative Interest Rate temple. Tom we do. , a lote it may play out of people are expecting more from mario draghi. You seem to have a concern he will not deliver. I came into the office and when markets opened in europe they were gaining and now they are seeing a reversal, and resources are down. I want to show you gold. It is volatility day. Tom lets look at europe. This i have shown before, it is a nuanced chart. England, then we have france and germany. Here for capita gdp is france is really doing quite well, and they flatline through the crisis. Germany with the reunification was beneath france for many years. They used the crisis as an opportunity, and they advance up nicely. Francine, it is not just about negative rates or monetary economics. It is about culture and nation. The headline is germany really outperforming france . Francine it is really outperforming. The have more flexible labor laws and they benefited from a weaker euro. You talked about how we have some price volatility and i have a great chart. Eurodollartility and you can see it spiking, a huge spike. It goes back to investor angst. We are joined by paul donovan and mark gilbert to talk about gdp and to talk about something mario draghi has to worry about. Paul, will he deliver . They are pricing in strong results. Paul i think he has strong resolve. We are in an environment where European Growth is above trend, where core inflation is above the average of last year, where bank lending is rising. I am sitting here saying do we really need yet more combinations . More accommodations . Francine lets take a step back. You do not think we need this . Paul i dont think it will achieve a great deal. Francine even on currency . Does the point is, what the currency do . It stimulates profits for exporters so you are taking profits away from banks and giving them to exporters in this process. Lets not kid ourselves, this is not a growth stimulus. This is shuffling bits of paper around the european Financial System francine . We do not know what the end game is and when you look at japan, when it we are in a different situation. Paul what a terrible situation. What a focused mark terrible situation. We were focused on one guy. He only has one toolbox. It is a shocking state of affairs, and the thing that we at Bloomberg View are hoping he will push is the need a fiscal action on the part of governments. The Monetary Policy can only do so much and you need governments to say, we are going to do something on the fiscal side. What we are hoping to hear is yes, he is going to give the markets what they want. We are hoping he is really going to point the finger even more aggressively than usual. Tom what is the liquidity story in europe and globally . What is the liquidity backdrop . Paul if we are talking market liquidity, selective markets have seen a reduction in liquidity where the regulation of credit markets, for example has led to lower liquidity, and that has been quite acute. If we are talking about economic liquidity, it is Getting Better and better because bank lending is rising and economic terms are picking up. We have this distinction. Market liquidity is not as good as it has been but economic liquidity is improving almost on a daily basis. I look, mark gilbert, at the ecb right now and it has matured into quite an organization from when you and i visited there a million years ago. I know your many visits to frankford. What is this ecb like . Is it like greenspan where he runs the thing or does he have to have a collegial debate every day to get to his press conference . Mark i think if you listen to started,since qe draghi is pulling his colleagues with him, he is leading from the front, but there is a lot of reluctance within the gang. Especially if the evidence is qe is not doing what it is supposed to do, the have kind of got pauls view, why are we doing more of this if it is not working . The debate within the bundesbank is fierce and heated. Francine we actually do not know what a eurozone would look like without the ecb having put all the measures in place. Can they work on Forward Guidance . It seems he wants it to work. Will he Say Something that will make people believe he is ready in the future . Mark the rabbit he can pull out of the hat, nonperforming loans, how do you get those off the banking books . It is a massive issue for europe. It really is restraining the velocity of money and the credit growth the economy needs. If he is convinced to convince the rest of the council, we will buy it off them. You put the same money into the economy and you are taking it off the bank allen sheets. Balance sheets. That could do some reinvigoration for the economy. Francine today on bloomberg , a great conversation with our clay ceo. Ceo. Rclays he has been in the job for about eight months and he has a tough day ahead. That is at 7 15 in new york, 12 15 in london. After the ecb rate decision, mario draghi will speak in new york. We will have that News Conference live and in full. Tom good morning, everyone, ecb day. Stay with us for our full coverage throughout the morning. Olivier blanchard coming with francine and london. Here is ramy inocencio. Ramy nasdaq has agreed to buy deutsche porches market. It catapults nasdaq to the top of the u. S. Options exchange and it may help them pay for a proposed merger with the london stock exchange. Hugo boss is cutting costs and taking more control of its brand. There are closing 20 stores in china and will take control of hugo boss concession inside macys stores. The ceo resigned last month after a plummeting share price and a series of forecast cuts. Offering moreen restricted stock to workers companywide, so workers have been handed out cash bonuses of up to 200,000. The stock has fallen about 60 in the past year, and that is the Bloomberg Business flash. Francine thank you so much. Today is ecb day. Almost a year since mario draghi started his ultraloose Monetary Policy, things still not going the way he wants it to. Lets get back to paul donovan, the global economist at ubs. We talked about the limits with which mario draghi can operate. How will he field the brexit questions . Aul i think this is difficult undoubtedly u. K. Journalists are going to be pushing on this week is the u. K. Is obsessed. Francine and rightly so. Paul and rightly so. The economics of this, i think if pushed draghi will say it is a u. K. Decision that we feel this will be against the economic interest. One of the things that has been missing from the markets about the whole debate is what does the u. K. Due to europe . It is not good. Francine it weakens the euro . Paul it shifts the balance of power in europe. Germany and the u. K. Have been traditionally aligned as more free Market Forces and europe he comes more southern european if the u. K. Chooses to exit. Veer into the political sphere and i think draghi is going to be quite cautious about commenting on that particular, topic. Francine you believe he cannot do much for the economy. Can he put a blanket of safety over europe if they brexit happens . Capablecentral bank is of dealing with liquidity consequences. Credit to the ecb, this is what they did in 2008, 2009 with other Central Banks so he can fight fires when fires come up. The problem we have with the idea of a u. K. Exit, nobody knows what it looks like and this is one of the big issues. Negotiation,rs of politics, and talking, how depressing is that . Not as much as reading your research because it is intimidating how outfront you are on the debate. One of the things mario draghi has to look at is capital flows and you wrote a piece on the war for capital. It is becoming parochial, not global. Centralbank retrenchment magnifies the process. What is Mario Draghis retrenchment going to mean for capital flows in europe, in the u. K. , and globally . As far as europe is concerned, this is primarily at a national level. This is the french going along to the french Banking System and say, we would rather if you went back here. We have seen banks becoming a lot more localized within the eurozone as a whole, but europe is now less actively engaged internationally. European investors are keeping money closer to home and to the domestic bond market. This is leading to a substantial reduction in Global Capital flow. One of the consequences is Central Banks have less incentive to intervene in the Foreign Exchange markets. In the past, they were intervening and buying treasuries as a result to try to offset capital inflows from europe. Those are not taking place so china does not need to intervene so they do not need to buy treasuries. Om bring up the dollar chart as the end result, the idea of a stronger dollar even if it is not so much below parity, to see a leg up in the dollar . Paul i am not sure that is the answer because the dollar is a disproportionate beneficiary of Central Bank Interventions and flows. Ubs has been running the Central Bank Conference for over 20 years and it is clear that in the post crisis environment, just under two thirds of capital flows is going into u. S. Assets, disproportionately high amounts. If you have less capital flowing around the world, there is less centralbank flow going into the dollar. The u. S. Runs a current account deficit. That means the u. S. Needs capital but there is less capital flowing around. The u. S. Has to fight hard to get the capital in. You could look at this as being the end of dollar strength. Tom we wonder what it needs to rate dynamics as well. Ubs. Versation with paul of blanchard. Francine mike wahle in london, i am tom keene. This is bloomberg surveillance. Tom thrilled you are with us this morning, Francine Lacqua in london, tom keene in new york. Adair turner writing in project the option of socalled helicopter money is increasingly discussed but the bait the debate is about to be riddled and confusion. We really are out of ammunition that we can use without blowing ourselves up. If the discipline problem can be need to start formulating the right rules and distribution of responsibilities. Paul donovan with us if ubs. Give me some hope for a political adult this to get us to spurring nominal gdp. Paul we are not really in that sort of place in europe at the moment. Here is some Political Support there has been reform in some countries. Ago, germany was a mess and 10 years ago it was not great. It is in the last 10 years that the consequences of german reform have come through. We have seen countries attempt some reform. Has discovered paying nominal gdp growth, but there has been some change. We do not have comprehensive reform and they are quite a bit away of that. It does not mean that Central Banks are out of ammunition. The have three policy channels monitory, qualitative, regulatory. Francine they are not going to work on inflation. What lever do they work on, currency . Do not think they necessarily have to focus on currency or deflation. Eflation is a media myth it is a general decline in prices and we do not have that. We have one price falling and 5000 prices going up. The options for the ecb, they need to get sensible levels of bank lending. We had negative bank lending and 2014 and we come back to positive in 2004 2015 at still not normal. If we can get it to normal levels we can Start Talking about normal levels of economic activity. Up next, weming will be joined by a Olivier Blanchard, a former imf chief economist. At then stocks gained open than were down two and a half percent and now they are up. They are worried mario draghi will not deliver enough bankers on their side. Well mortgages go up . Those are some of the questions is that questions that we will be asking mr. Blanchard. Our interviews, with Olivier Blanchard. Ramy first up, chinas president is promising to remove the barriers the private Companies Face in that country. At the same time, entrepreneurs both her success to the communist party. He said the government is trying to fix problems involving financing and the uncertainty of economic restructuring. Myanmar, hery of party decided not to nominate her to become the countrys next president. Leaders picked an ally to be one of the nominees. Her party does control parliament, but the military changed the constitution to prevent her specifically from becoming president. U. S. President barack obama meets with canadas Prime Minister today at the white house. They are expected to announce steps to cut methane emissions from oil and gas wells, aimed at fighting climate change. The Energy Industry will probably fight the plane. Global news 24 hours a day around the world, back to you. Francine it is a year and a day since the ecb started to the unprecedented bond buying program. Mario draghi is still struggling. We also have a great note from the peter institute, reality check for the global economy. If we fuse those two, what is a give us . The former chief economist at the imf no senior fellow at the Peterson Institute joins us for the next half an hour. Olivier blanchard, we are delighted to have you on the program. No one quite like he understands the connectedness between trade, rates, and the Central Banks. Are you uncomfortable that Central Banks are doing too much . If mario draghi delivers today, will it work . First, youre putting the bar fairly high. Im not sure i have all of the answers. I think the banks are doing about what they need to do. I would not secondguess them. I have a preference for regular qe rather than negative rates. I think negative rates relieved of your with the business of banks and ways which are complex, and we dont quite know what is going to happen. I think after many years of fusing qe, were starting to have a sense of what it does. You believe it is working on anything but the currency . Yes, i think it is working. I think lower into straights have effects. For example, what we worry about of the country, the state of corporations, households. Negative Interest Rates decrease leverage and changes money from the debtors to the creditors. Extendedon to the increased rates the governments pay, it gives more room for to school policy. Even if you dont leave the extended channels work, i think they still do. Even if you dont believe that, there are many ways Interest Rates work. I am not worried about them not working. Thatlets look at the mix mario draghi has to work with this morning. Our single best chart. This is just a quick look at many of the negative rates in the u. S. Curb, the green curve is still very much positive. I guess this is the policy mix right now. Where does mario draghi need to get help from . Does he need to get help from patients . From the fiscal side . From Banking Institutions in his europe . My first remark, it may be coming from the u. S. , is that there is no fire in the house. Recovery in the eurozone is obviously,oo slowly, but it is happening so i do not see we are facing the abyss and inio is to do Amazing Things order to change it. But it is true that inflation is too low. Still, he is to send a signal that he is willing to do something. I think what he is doing is about right. The u. S. And europe are in different positions. Think Monetary Policy is the right signal. I think he is trying to help. He has to do be ready to do more if needed. Tom bring up the inflation chart. Im introducing francine, you understand this the blanchard line. Olivier blanchard got his head handed to him a few years ago for saying we need to do impute inflation. That blue light is at 4 . This is an arbitrary number. I think you would find a need to make it more variable, but there is the line that proves Olivier Blanchard was right. That inflation, world inflation number, is migrating away from the black charred blanchard line. How important is that for janet yellen and mario draghi . Moving away from my line is a crime, by definition. No, i dont think theres anything unusual happening to inflation. Inflation at this stage depends cap, expectations. Expectations for the moment are sticky. They dont move. In many countries in europe, you have a large negative gap, putting pressure on inflation. Yet the shortterm stuff, and you get the teacher of inflation, which is the only way inflation is going to go up is activity picks up where expectations become angered and people start expecting inflation, than that feeds and actual inflation. I think were not there yet. I think what we should be focusing on his activity. If it pushes up, then eventually inflation will come back to the levels we want. Were seeing it in the u. S. And we will see more in the coming year. It would be very good as inflation was higher, and i think we will get there one day. We will get back to my line. Francine bloomberg has super inflation chart. You put it very simply, the World Economy, we should worry, but we should not panic. Markets are panicking. Why . Hold ofseem to have got themselves in the past few weeks but yes, they panicked earlier. Francine what are you so confident we should not panic . Are you expecting volatility . In the report that you quoted, first, market psychology. I think in a time at which there are many, many things happening in the world, it does not take much for people to just think that the world is a complicated place and become pessimistic. That is the kind of environment where you get hurting. When the stock market in the u. S. Plunged, i cannot get anyone to tell me they do a particular number, but everybody fully it must be that somebody knew because otherwise, they would not be doing it. This being said, maybe there were things they were saying. What we did in the report was go stepbystep. What is the situation in china . Is it as bad as people think . No. Is it the case that europe banks are going to collapse tomorrow . No. Say,ch case, we try to there are reasons to worry, the world is not a great place, but dont panic. Francine before the financial crisis of 2008, there were reports saying, Economic Indicators saying, it is ok. Have we adapted the models so that we could first see a 2008 type crisis today . There is always the possibility there is something we dont see that will by definition, if we dont see it, we cant prepare for it. We need to think about the things that can go wrong. We have gotten a bit better as a result of 2008. I think we have to put in place institutions, regulations so even if we miss something, the regulation will take care of it. Even if the banks grew up in a way we dont succumb it is not and to be the screw up away we dont see, it is not going to be the end of the world. We dont know we dont know and we will never know what we dont know, but we dont know. I think we are looking more widely, looking at the shadow on the system, and were lookout. That is all we can do. Tom professor, heres some optimism. Is the new mediocre over . I dont know what the old mediocre was. Tom at the imf, it was a phrase. Dont tell me madam lagarde do that by herself. Sometimes the choice of words is left to the boss. I think mediocre i think we are in the mediocre world at this point. We have to accept it. The emerging market you market economies had is in the past, at least for some time. China is not at zero, but it is not going to be at 10 anytime soon. Growth in advanced economies has decreased. It is not just a measurement issue. Looking forward, yes, the world is going to go below the rate it did before the crisis. You call this mediocre by historical standards, he should have a 2000your view. It is incredible. If you compare to the first half of the 2000s, yes, mediocre. Francine Olivier Blanchard stays with us. A conversation with barclays ceo, and exclusive interview at 7 15 a. M. In new york, 12 15 in london. Tom this important day for i am tom keene. We welcome all of you. Mario draghi later today in an interview with the new leadership, freshly minted leadership, barclays as well come all across bloomberg today. Were thrilled to bring you Olivier Blanchard, working at the imf for an extended tenure, the professor had to get the imf through the most challenging. Conomic and Research Times he joins us in london. Francine, do you think we can get the good professor to speak on brexit . Francine i think we can. Even the queen did in a quite shady way. Olivier blanchard im sure will have something to say about brexit. The debate is getting uglier by the day. Everyone is being dragged into it. Were just hearing from the former bank saying, look, let cannot keep your trading role with brexit. Are we underestimating of the fact this happens this is almost the end of europe as we know it . Larger dream, which is challenged by brexit and all kinds of things. But if i leave aside this big issue, which faria goes far beyond economics, if i look at brexit itself, when you do computations, you do not find the effects of brexit per se are gigantic. Sometimes we will have a bit more difficult to getting into some markets. I think the main risk of brexit is the uncertainty that it will create, specially from the u. K. , which is in the case where the process is to exit, the just starts. It is not finished. Then there is negotiation. Togoes from being far away nearly in it. That is going to take a long time. Probably will take years, my guest. During that time, i think if i were a firm, i would be takedibly reluctant to decisions which forced me to stay in england or move across the ocean. Across the channel, not the ocean. Maybe the ocean. Francine if you hear a global ceo, anglosaxon, the mentality, the flexibility in labor laws, you can find it in the u. S. And in the u. K. Will germany and france be the one to move the most in case of a brexit . Some firms will think about the margin and think they did not like in germany and france are going to be partly compensated by the fact they can move their more easily. I think it will be affected, but i think the main issue, the uncertainty with what we call the option value of waiting, so i would not be surprised if the initial phase is one in which you see investment come down, a fluctuation in the pound. To me, that is the main issue. Have anfessor, we , they value now, in 1950 had to combine europe. To advance francines question, what is the view that germany and france have of a brexit . Does it go back to the tensions of 1950 or is it just a more modern discussion . What is in the might policymakers, but there is a good number of people that think of europe as a very big project, something that really changes europe in which we become more and more integrated. That is something the u. K. Has never really accepted. I think these people see any step backwards as the end of a dream. Does it go deeper than that . I do not know. I think this notion of europe is a dream is a very strong, you know, ignoring the consultations is the appealing way of thinking and many policymakers on the continent still believe that and still want that. So in that sense, that is the break of a dream. Tom within your Public Service over the last number of years, do you have any confidence that brussels can be a constructive solution . We still talk francine, help me here. We still talk about frankfurt, berlin, paris, london. I dont hear people talk about brussels. Does that need to change . I think brussels plays a role, but it is clear at this stage, major decisions, main Decision Centers are still london, berlin, and paris. That is probably the way it should be. Betterbrussels had people that could really help the process more. Theyre doing a decent job but i think in the end, political power ,rancine Olivier Blanchard thank you. We will be talking about the relationships the ecb has with the boe. Tomorrow on bloomberg surveillance, a chief economist joins us at 5 00 a. M. Onncine we are surveillance, Francine Lacqua, tom keene in new york. Lets get straight to the business flash. A shakeup atp, volkswagens u. S. Unit in the wake of the emissions testing scandal. The u. S. Ceo Michael Lawrence has abruptly left the company. He is been in charge for little more than two years. The american cells have continued to fall, the dealers to standd for lawrence the job. 16 billion as the value of start up after a new round of financing. According to people friendly with the matter. They raised 430 Million Dollars from chinese investors as it prepares to expand throughout asia. The,e, the mobile payment, trying to grow beyond its origin. In the first Earnings Report reported sales that beat estimates. The Ceo Jack Dorsey is pushing Small Businesses to use their Addon Services for managing inventory as well as analyzing sales data. He says the Larger Companies will help square become profitable this year. That is the Bloomberg Business flash. Away,ong ago and far Christine Lagarde was finance minister of france. She was not yet at the imf. It was a day where european banks were free and clear of the u. S. Subprime crisis, and then it changed. European banks discovered they had challenges, too. With us, Olivier Blanchard. Professor, banking is such an important part of our confidence. Lawrence summers has talked about that and others. How fragile our european banking banks right now . Dont think there fragile, but have a very complicated job to do. I think banks in general in the world, made be more european banks may be more european banks, have to handle things they are not used to. Policy has big effects on the prices of assets. One of the ways banks use to make money was by playing the yield curve, lending long, buying short. That is more or less gone as a source of profit. Then you have the negative rates that eat into profits. You have regulation, which is forces them to have more capital while there asked to lend more. To liquidity ratios, which increase the amount of maturity they can do. Technology. Rmous on your screen was something that relates to that, closing a number of its offices. Latercompeting with much structures. Lighter structures. I think theyre not very fragile, but they are not they really do not know exactly where to go and how to go there. So when they are news which creates more uncertainty, such as the introduction of the ilion rules and who will be first and you see in the markets, probably less in the banks themselves, but in the markets for sure. Tom francine, i like the idea of technology will change as a backdrop. Part of that is what mr. Staley will address at barclays. Francine, set us up for this important interview today. Francine this goes back to what Central Banks are doing, goes back to specifically for barclays, also other tough environment here in the u. K. And the fact they got burned by investment banks. Tom, banks in general have a tough time. Andhave a lot of new ceos theyre trying to put the balance between making no money and yields because of ecb, Central Banks, among others. You believe, Olivier Blanchard, qe is working longerterm. There are two schools of thought. Works of financial crisis and then stops. Ini think qe works situations. We know it works. The question is after. We are clearly after that. My sense is theres a fallacy, which is where the more you use it, the less it works. My senses, it is the opposite. If you think about the central bonds, they long buy it from people who do not care much about having long bonds as something else. You dont have to offer a very good price to get them to sell to you. As you keep going, you get to investors who have Balance Sheets with long liabilities, they really want long bonds. These people, these investors, are going to ask for really high price in order to sell. The more you go to the end of a supply curve in a way, the more effect you have. It,notion that as you use qe works less and less, i think is wrong. Qe works that are in better on the price. The issue is, when you have all of these Interest Rates lower, you still have the same effect on the economy. We started with this at the beginning. My sense is yes, Interest Rate still works for many channels. I do not think qe is dead. I think it is alive. Tom professor, we have to leave it there. Olivier blanchard, most generous with his time. Coming up later on bloomberg, berkeley ceo jes staley. We have another hour of bloomberg surveillance. Mario draghi, central bank or to the world, at least for today. He will adapt to deflation and a negative rate europe. Can stocks sustain in advance and mixed less revenue and Earnings Growth . Use of crash to the rescue. Mrs. Clinton, can she adjust . Good morning, this is bloomberg surveillance. Morning, washington, for those of you listening. I am tom keene. There is an ecb countdown going on as we speak. Francine it is a huge countdown because mario draghi told us there was honest no limit to stimulus. Almost no limit to stimulus. Asre watching currencies well. Tom i would watch currencies as well. We will get to the data check in a moment. First, bloomberg news. Ramy Hillary Clinton and Bernie Sanders wearing off in the last of april for five states hold their primaries next tuesday. In miami, they zeroed in on things they hope will drive democrats to the polls. One of them, immigration. Will he talk about immigration, the secretary will remember, one of the great tragedies, human tragedies of recent years am a children came from honduras where there is probably more violence than was any place in this country and they came into this country. And i said, welcome those children into this country. Secretary clinton said, send them back. Ramy each candidate accused the other of flipflopping on immigration in order to appeal to the latino community. The remaining republican candidates will debate tonight in miami. North korea threaten south korea again, this time the regime of kim jongun said it would take military steps after firing two short range listed missiles into the sea. North korean tv did show kim inspecting some missiles. This comes as pyongyang claims they can put Nuclear Warheads on to rockets. The United Nations special envoy for syria has told both sides he has to make progress in peace talks by march 24. Talks are set to begin next week. Some negotiators have already arrived in geneva, but neither the Syrian Government or opposition government said they will attend. Or problems with brazils former president. He is been charged with hiding assets. Lastly, brazilian authorities raided his home and accused him of giving out government favors in terms of donations and speaking fees. This is part of a corruption investigation known as carwash. The former head of salmon brothers has died. In the 80s, he became known as the king of wall street for turning salmon into one of the most profitable Investment Banking firms. He left his job in 1991 because of a trading scandal. He was 86. Thank you. Mr. Goodfriend, i think the reporting is a little off the mark. He invented this. I think were not made the distinction between running a major shop as he did with salomon for years, but to be inventedr. Gutfreund the modern game. Lets get to a data check and bonus round three terminal charge. No data check, not much going on within the european scroll, and i would watch the to your paper. Right now to the negative rate environment. Mr. Bronte faces mr. Draghi faces today. Sweden is worse. Japan, slightly negative in a twoyear space. Francine volatility, that is what were seeing today, as the stocks in europe were higher than they were lower and now pretty much flat. Basically, all expecting a policy update from the European Central bank had mario draghi. What he will do will have an impact on everything. Worried, tom, because a lot is priced in and theyre concerned just like december, he wont deliver. I want to show you gold. On it, it isan eye probably our chart of the year. Tom big debate about bull or bear market. We have three bonus rounds. Great britain, france, germany germany has really outperformed. That is the backdrop as mario draghi speaks today. Francine this goes back to the brexit debate. You can see the chart, your red chart, the u. K. And the most anglosaxon, flexible labor laws. That is what people are worried about, if they exit, what does it be for the rest of the country . On my chart, you can see the spike right here is a lot higher than in december when draghi disappointed. Watch out for that. Tom i am thrilled that francine is doing charts off the london desk. Here is francines chart. This is great. She passed chart camp with this. Matt miller cannot do this. There is a chart camp. Aaa plus rating by francine. We bring in Steven Wieting. None of the charts that you captures the shock and all of negative rates, do they . There is nothing. Theres something about that sits as a real surprise for everyone that the lower bound was not zero after all and trying to sort of figure out the entirety of the message of lower rates is something to capture in a civil chart. That is why we have to look at many. Tom lets bring up the negative rate chart. Franzen, jump in on this, please, with Steven Wieting. Showing a number of the nations that purposefully i did not label them. Does that matter with the countries are, their negative and agree mind line is the United States, positive with the u. K. Francine, this is the oddest environment. Francine it is. You cannot make money that way. You have to do price risk and you have a lot of them saying, how do i make money, the environment is not great, theres going to be more negative rates . Update of the day, seems the volatility we are seeing on the markets is the volatility in the perception of negative rates. Are they good or bad . There is both good and bad. We should also bear in mind there is a limited future to this issue of negative Interest Rates. Unless the public can live without currency and currency can be taken completely out of circulation, you can guarantee your self a nominal zero Interest Rate by fuld a paper. As you find probably 1 or. 75 , Something Like that will be the true effective lower down. On Interest Rates, unless they can completely remove currency from circulation. This is the tool, a little desperate, will have effect on exchange rates. You can see the big divergence with the u. S. It is both good and bad in several do for ways in terms of what they want to achieve. Francine that does that probably helped mario draghi. Is there a way he can structure to limit the pain . We heard from the bank of International Settlements say what worries them is negative rates for a prolonged time. It is not just that, so many different policies to upset over very long periods are undesirable. But what is the economy doing . That is the key to this. We would all the positive Interest Rate and conventional policies, but it depends on the real economy and whether it is permitted. Tom what you do so well, and we can bring it over to europe with the global reach of citigroup, the economy is doing better. Professor blanchard said there is no fire in the house. Desert up profit and revenue stream is there enough profit and revenue stream to bailout mario draghi in the suffering institutions over there . It is incipient recovery and coming at a time when u. S. Has been in a fairly prolonged recovery, which is showing signs of late cycle signs to it. In other words, the u. S. Recovery is not going to last for the entirety of the rest of this decade, and there will be new challenges in europe before there has been a semblance of real full recovery. Is it lasted . Sure. The Unemployment Rate in europe has gone down. It probably has considerably further to go. There are differences between these various countries economy digesting military suggesting policy. Y fromfuld in the shock Everett Morse and the team on oil. Oil shock is different in europe than in the United States. It is. We just of the last five years becoming tom saudi arabia. We whip from a large deficit country to a country socially balanced in terms of energy production. The benefits of a drop in petroleum are not as clear and a nimby was as they used to be in the u. S. And unambiguous as they used to be in the u. S. A lot of their assets around the world, in general, the eurozone runs a trillium deficit runs a petroleum deficit. What we had should have been a beneficiary. I think there are a lot of overlays. We have been recovering from a clear shocked expectations, the idea here that the World Economy was going into a collapse was implied by the fact that most asset prices around the world started to run with an 80 correlation does tom we are moving away from that. We are moving away from that and recovering from the state of shock. , lots more wieting to talk in this hour. It is taken for granted and should not be. Today, the president of the United States, the Prime Minister of canada will speak. Look for this joint News Conference later today on bloomberg. I am here in london and tom keene in new york, watching the ecb and the repercussions of this acrimonious battle, talking about brexit and the applications of a eurozone that could fall apart. Lets get to the Bloomberg Business flash. Ramy foreign banks are pushing back against the u. S. Federal reserves to be detailed plan. Deutsche bank and hsbc are among those objecting defense proposal saying there unfair to the u. S. Unit of the worlds biggest lenders. The fed once those units to have extra reserves that could be wiped out in a crisis or banks say usbased lenders do not face the same requirements. More job cuts on the way at frances second largest bank. 550 more jobs will be eliminated from the Retail Banking unit. That is because more customers are doing their banking online. Stockton had announced 2000 job cuts already in Retail Banking. En had announced 2000 job cuts already in Retail Banking. Nasdaq to the top of the Exchange Business and may help pay for proposed merger with the london stock exchange. That is the Bloomberg Business flash. Tom greatly appreciate that. Willis sparks brings in order of sensibility notice the president ial derby in the United States. He is at Eurasia Group out of brown, columbia, and to be perfectly honest about it, this is an important needed conversation on where we are. Steven wieting with does, he will try to avoid the politics with us, he will try to avoid the politics of the moment. Where the hell are we . It has become it is convoluted. Is not as convoluted as it appears. We are headed for clinton versus trump almost certainly. There will be a lot of focus between now and the convention in july on the republican side about how could you get rid of donald trump . What rules would you have to change . If the Republican Party establishment tries to get rid of donald trump, he is want to declare war on the party. As we allgotiator, know. He will play hardball. Even if his threat is only to make chaos for the Republican Party, running as a third candidate, he can do that and Everybody Knows it is a credible threat. Tom i have seen this missing from the coverage, basically, this has happened before. Everybody goes, Barry Goldwater 1964. If you go back at least to jennings bryan, franco, go back further than that to dirty boots walking through the white house with andrew jackson, this is not the first time this has occurred. In the modern era in which we have primaries and caucuses from the 1970s, we are seen anything quite like this. 1976 was an interesting parallel because gerald ford went into the convention and a strong spot, but there were a lot of people in the Republican Party wanted to see Ronald Reagan win and a lot of pressure the convention. Tom the cover of the New York Times a few years ago a few days ago, the anger you can see from governor reagan at the time sitting with us is reagan, the famous photo from the convention was something. Francine it was certainly something. Sitting from where im sitting, you look at this and you try and follow u. S. Politics and everyone agrees that 2016 is different. If it is so different, willis, does the Republican Party split . I ask a lot of people and they look at maybe well did, but can you really see moderate republicans at some point throwing their weight behind trump . Yes, i can. This year is different. When was the last time we had a major candidate for president in a party but never held Elective Office before . Dwight eisenhower is a special case. This is an unusual election but my guess is once it becomes clear that trump is going to get 1237 are close enough to the delegates he needs, most people will coalesce behind him to avoid the worstcase scenario. They will go forward. A lot of people basically focus on the senate race, thinking if we hold the house, we hold the senate, we can do with Hillary Clinton. The idea the party will simply explode because it will be open war at the convention is probably overrated. Francine really . Im surprised a party can hold together even with someone like donald trump becoming the election. Is there in any way a chance that the party splits . Sure. Francine you think of the party, the also think of the values of the party. It could split, but in the end, people will back trump. They will find a reason, if for no other reason than to republic protect the Republican Party that can cost the party for a generation. People will avoid that at the last minute. The people who do not want to see tropical goes silent. Other people like Chris Christie and others will get on board and they then will move forward. It could be a contentious convention. To idea were going back chicago 1968 is probably unlikely. Tom lets bring in Steven Wieting. What do republicans think about their electoral chances in the general election if it is trump versus they dont like him at all. Theyre looking up old timers, not the same numbers the donald trump says he is looking at. They know donald trump will bring in some voters, lose a lot more. They dont like their chances, but better to go through a losing election them blow the party apart. Tom can i ask a rational question . What is mr. Trumps Economic Policy . I dont think we know. I dont think we know his foreign policy, domestic policy. He will tell you, i am going to bring in the top people. Until we know who they are, it is hard to gauge what policy would look like until we know who some of those people are. Tom do we know senator cruzs policy . No. He is much more traditionalist than donald trump. These guys are still competing against one another, just as Hillary Clinton is basing a lot of her positions on the needs of putting away Bernie Sanders. We are still at that stage. Tom willis sparks with the Eurasia Group with us as we look at the dash to florida. We will dash to radio at some point this morning. One of our most contentious guests will join us. Gartman on commodities. Gartman on charts. We shall do that at 7 30. This is bloomberg surveillance. Is new york city. It was once his new york city. Without question, he changed all of wall street worldwide. John gutfreund is something to talk about in our morning mustread. We welcome you to a mario Draghi Bloomberg surveillance this morning. Right now we digress. Everyone who is part of global wall street knows michael lewis, no, not the big short, but the book that started it all for mr. Lewis, liars, poker in 1986. Esther gutfreund to peoples of the place by simply wondering tookd it mr. Gutfreund the pulls of the place pleasantly wondering around it and asking questions of the traders. He was a last person a nerve wrecked trader wanted to see. He felt and it chilling your bones. He has died at the age of 86. Reflecting on wall street and where became, Steven Wieting with. We worked with him prior to my arrival, so you should speak to him. Traders guys were the will stop they run the companies because they made the money, right . It is a different world now, proprietary trading has moved largely to the hedge fund humidity versus related banks. Community versus the related banks. Tom we know John Gutfreund probably cannot work in todays know you, but to go from the partnerships of Henry Kaufman to what occurred in the 1980s and 1990s to where we are now, where will the major banks compete . Is it International Like citigroup . Is at the outlet . There is a variety of Different Things and probably no single model. Tom i will go with barclays has got to be a different model than citigroup. Very different. Focused on consumer lending, other firms focused on being the intermediary for corporate around the world. All, securities. Tom fran, have you ever sat at your desk when youre doing and you hear people going, bowder . No dust francine i want to jump in to figure out the differences that you perceive between london is a Financial Center and actually new york. Wall street i guess feels different, especially today because the banks are so much quicker at putting bad things behind them. Is that fair . I think theres a difference between multinationals that operate across borders and companies that are domiciled in lets say local economy like whether it is insight italy, inside spain. The difference is due nationals local financial institutions, but there are many other differences as well. Tom francine, what i would say is in the fabric of london, there is an understanding of internationalism and cross asset need, particularly with Foreign Exchange and commodity markets. It is there in new york, but it is just not part of the fabric like it is in your london. Of course, something we observe every day at bloomberg. The kids in london for bloomberg, they speak languages francine, i had a person wants a demand the food court in london, there is only i only peak throug three leverages. Hey hows it going, hotcakes . Hotcakes. This place has hotcakes. So why arent they selling like hotcakes . With comcast Business Internet and wifi pro, they could be. Just add a customized message to your wifi pro splash page and youll reach your customers where their eyes are already on their devices. Order up. Its more than just wifi, it can help grow your business. You dont see that every day. Introducing wifi pro, wifi that helps grow your business. Comcast business. Built for business. When it comes to the fithings you love,. You want more. Love romance . Get lost in every embrace. Into sports . Follow every pitch, every play and every win. Change the way you experience tv with x1 from xfinity. Tom there is brexit in the air. Gloomy in london as march approaches, april, may, june. London, only shiny when i show up. Beautiful weather in london. There it is. We will get to brexit in a moment. A countdown to mario draghi comment two hours we will see the press conference. Chinas president is promising to remove the barriers that private Companies Face in the country. They reminded entrepreneurs they of their success to the communist party. In the u. S. , another mass shooting, this time outside of pittsburgh, pennsylvania. Whenpeople were killed gunmen barged into a Backyard Party and opened fire. Three others wounded and no one has been arrested. Police do not know the motive. Barack obama meets with the canadian Prime Minister today at the white house. They are expected to announce steps to curtail methane emissions. The industry will probably fight the plan. Will not alter its revolutionary ideas after president obama visit this month, the commonest parties newspaper says just because cuba is improving relations with the u. S. , no one should expect the country to renounce its principles. The white house says president obama will meet with dissidents while he is there. George soros will help pay for a big democratic get out the vote effort aimed at latinos and other immigrants according to the New York Times. They say he and other liberal donors will spend 15 million, they want to capitalize on the outrage over republican rhetoric over immigration. Francine. Francine we have been talking about brexit. A cabinet that is split. We have been talking about acrimony. Something more tangible, the housing prices since 2010 in the u. K. The overall strength, this market is being pulled in different directions. Buyers are treating a looming tax increase as uncertainty over the countrys referendum and that is weighing on sentiment. You see the drop over the last couple of months. Lets get to steve and willis. U. K. ,using market in the how do you view brexit from across the pond . This could get worse if uncertainty continues. The u. K. And that london prices . Francine yes, also falling off the cliff. You different story when consider the unique aspects of london as a Financial Center and its work within the European Union as opposed to the entirety of the u. K. Doctors comments about uncertainty, more material than that. To put this through the prism of near turn economic impact, not longterm Political Goals or sovereignty, economic impact, 13 of the u. K. Gdp is exported to the European Union. That is goods and services and equal measure. Including Financial Services and that component. A very large exposure of trade to the European Union. These trade agreements in a twoyear time, if they were to leave the European Union, would be subject to great uncertainty and probably would alter that a great deal. The result investment associated with maintaining those exports. The Capital Stock that is inward investment from the rest of the world into the u. K. For its ability to work and sell into the European Union, a great deal of that is in question. Toncine who has the most use, u. K. Or eu and is there anything mario draghi can do to appease investor worries about a possible brexit in june . Nothing he can do, a referendum that we do not have to wait until the end of the year for this vote. A set time, several months out, not forever. There are real nearterm, short and mediumterm Economic Issues that depend on the u. K. And his status in the European Union. Tom march is about the tabulating recalculating. A report we featured earlier was about the transatlantic challenges, brexit gets in the way. It does, britain is less liable to the u. S. As an ally outside the eu. There are Economic Issues leading to volatility. There is the political issue. The swings in public opinion, not that British Public opinion polls have been reliable lately, if you look at the swings of public opinion, they are timed with what is going on in the migrant crisis in europe and they spiked after the terrorist attack in france. June 23 we will vote. Every minute leading up we have to watch, is there another migrant crisis making headlines in britain, is there a terrorist attack in the u. K. Or in paris again . This is the issue because, i was in britain last month and i asked people what they think, they gave me answers about Boris Johnson and the deal David Cameron is cutting with european leaders. This may come down to the timing of what is going on in the migrant crisis and security. To lead british voters on the last day to determine. Tom i will go with that. The november election in the United States is the same. You did not mention scotland. Is that a legitimate study from where you sit . Every time i read about this. The risk of brexit is 30 . Deja vu from the Scottish Referendum of a couple years ago but the Scottish Referendum is playing into the brexit issue because there is a serious ,hreat that if there is brexit you will have another Scottish Referendum. The scots are much more proeu than the english. This time they could go the other way. Tom what is the dynamic in london this morning, on scotland . Rancine willis is right there is a linkage between scotland and the u. K. Although scotland is dependent on the price of oil and because it felt by so much, even if you went back and had a Scottish Referendum they would probably say we are better off within great britain. My point to you, i do not know the answer, when you are in that booth, you think of immigration, you think of any possible attacks and sovereignty, at the end of the day, you think about economics, your family and whether you would be better off outside the union. You are thinking about security, part of security is economic and part is much more fundamental and emotional associated with the migrants and other issues. Where is the direction where is the European Union going . Not just the migrants, the greek issue lester which may be back later in the year in a new form. So many issues in europe that it is going to be, as the Scottish Referendum was, and emotional decision that people are going to make. A lot of people will decide at the last minute. Timing is anything, june 23, all the volatility we are seeing is naturally predictable. Tom within the citigroup travels you have done, where is the London Alternative in europe . Amsterdam, because i saw a movie on it. Where is the London Alternative . There is a great deal of uncertainty created over where exactly what will be transacted. There may be different places and a composition of different places where a lot of the business will be done, if it is not as strong as it is in london. The bigger context for this, when you think about markets, and this specific issue, in the last few weeks, a Single Company had an issue over a skip, not missed bond payment. The entire factual Financial Sector traded off, we have periodic balance of contagion across Financial Markets were correlations like we mentioned earlier spiked up the crude oil where Transportation Companies and Healthcare Companies were trading with the crude oil price so the whole Financial Sector was trading with the single bond. That is why this particular issue rises up to a meaningful one. Tom very valuable. I know you do not see an alternative to london, but london is expensive, house dust housing, schools, maybe people would like to move somewhere more portable. We are counting down to the ecb decision. At a 30ghi will speak a. M. In new york, 1 30 p. M. In london and we will have the News Conference live. Tom keene is in your and i am in london. The transamerica fair as we look at u. S. Politics and brexit the pain that mario draghi has to deal with. Lets get to the business latch flash. A shakeup at volkswagen. Their u. S. Ceo has led the company. He has been in left becoming, he has been in charge for two years. Dealers had pushed for him to stay on the job. He was largest oil business says it will seek advice on timing for a possible ipo. The deputy crown prince dropped a bombshell in january when he said they were studying options for shared sales. In china, the bank is seeking 2. 3 billion in a private placement, they will use the money to replace capital. They will issue the stock two major shareholders. Shareholders. Tom it was International Womens day, maybe it will be International Womens weekend. Willis sparks and Steven Wieting with us. Mr. Sparks observes ms. Merkel and ms. Clinton will be busy and influential this weekend. There is a merkelclinton difference within their cultures . Angela merkel has been in power 10 years. They are both familiar faces. They are both people respected more than they are like. They are people who project confidence more than works warmth. The important difference that Angela Merkel is now seen as someone willing to take a big apple whereas Hillary Clinton is a wreck versus riskaverse candidate. Tom all the pundits are america, america, you have spent serious time in paris and across europe as well. What is the cultural distinction between women there and women here . And europe, it varies from country to country. I think the big issue, you mentioned they have a big week ahead, Angela Merkel has a big week ahead because there are Regional Elections this week in germany that are seen as a referendum on her migrant policy at large. It will be important not only for germany, but for europe. Hillary clinton has an important date in florida with the florida primary and a third woman, jill recep, a very important female head of state has an important weekend because her Coalition Partner in brazil has a Party Convention and they will have protests. With everything going on in the enormous political scandal in brazil, the question of impeaching her is likely to come to a head. These three women are facing important tests. In their path forward for ramifications that go beyond their countries. Francine if you look at Hillary Clinton, she would probably do a good job as president , she has the credentials and credibility. What is it about Hillary Clinton that people do not like . Germans like Angela Merkel, they say at every use summit, she was always the one that brought sides together. She has been eight years in the white house with we are real policy responsibility and she served in the senate and country. She knows the world, serving as secretary of state. Not many entities are that qualified. She will be compared to her husband who is the most talented politician in this generation. She does not project that kind of warmth. Not a natural politician. A lot of the antipathy is the fact that there is hunger for change, not only on the republican side, but the democratic side. She has been a major public figure for 25 years. People are familiar with the sound of her voice and the way she makes an argument. A lot of respect for her. A natural desire to see new faces and some people feel Hillary Clinton is in the way of that. Francine we have to talk about in the u. K. That Hillary Clinton getting a tough time because she is a woman, i do not know if there is true than that. Tom we will find out finally after a number of women as national candidates. Steve, you were in brazil, what is the level of political chaos . The Business Owners who have lived through a great deal of regulation and controls and obviously now a real recession. Not a malaise. Unemployment is rising rapidly and you have an inflation problem. There is an incredible amount of tension over the political situation. The predictability, you see these bouts of optimism, 20 returns and brazilian shares over the idea that there is a political transition quickly. Think back to the election before and any candidate that came along and seemed to offer change and did well in the polls and the markets reacted the same way. Be careful about assuming there will be an easy transition. Tom francine . Francine tomorrow, on surveillance, the chief economist from 5 00 a. M. In new york. We had a great conversation last time about m a and whether it filters through the real economy. Tom and ecb announcement and then a press conference with mario draghi. He will be looking at Foreign Exchange. The euro, 10976. Sterling, 1. 42. Francine . Francine coming up, bloomberg. I am very excited about your show, david, speaking to just staley. Jess a strategy interview. Erik schatzker sat down with them to talk to him about barclays and european banks. As tom keene just said, we will bring you the ecb announcement when it comes at 7 45 eastern time and followed by the press conference from mario draghi. We will have that live and talk about the china numbers. Looking forward to the Governors Press conference on saturday. Francine a lot going on. Thank you so much. The single best chart on nominal gdp. Tom and also began putting affects of nominal gdp from negative rates. We show this earlier. Showed this earlier. Five up, four of the countries at negative rates. The green line is the United States. What is important is the duration out of negative rates. The journal has a great chart, germany out, switzerland out, denmark, not so much. The length, 10 years of negative rates is just as important as the debt. Germany has a relatively strong economy. And low unemployment and you get , for the government, easier financial conditions and deeper lows on Interest Rates and still the sense of credit risk across the European Union that is priced across these bond markets. Tom what does it do to real rates in chinas we have high inflation in just it rates, does Eastern Europe get into the same challenge . We just brought up brazil. The situation in argentina where political transition and everyone is comfortable with it. The world wants a return and the arld is very happy to finance lot of the world if they can get a real return and this could have significant spillovers to emerging markets which have suffered a great deal in many of these years recently. There are significant issues still, china, Oil Price Drop is a big one. The willingness for savers across the world to go after and finance for a positive return, others around the world. This will pull down global Interest Rates. Tom lets bring up a chart. For those of you in the terminal, we got an email saying where can i find it . It is just a joy. Gorgeous. Francine it is, like a rainbow chart. When you look at the chart and negative rates, the only pink mario draghi has going for him thing mario draghi has going for him, his warnings from the bank of International Settlements and seen what is happened to japan so if he goes further negative he will structure it in a way that he will try not to hurt banks. I will defer to steve on Central Banks policy but the larger undercurrent economically and politically is uncertainty, so many variables in the air for europe. Talking about oil prices, a lower price should help europe but Lower Oil Prices are having a destabilizing effect in the middle east which is increasing pressure on europe in obvious ways. These are the things mario draghi and all central bankers are having to take into account when they make longterm decisions. I bear in mind that in this particular decision coming up, it not like a decision you will see in june or next week for the fed will raise rates 25 basis points. There is an album that soup of different programs that the ecb out for that soup a lot of these things are possibly policy levers in addition to new levers we might see today. This goes back to where the u. S. Wasin 2009 and 2010 when it at an earlier stage and many of these programs still in play in the u. S. Case. Tom what is the citibank call on what we see today . To expand tv, the size and purchases, to go 10 basis points deeper. Program. Ety and the about whatncertainty mario draghi will do and what is important is the predictive ability of a central bank was seriously harmed with the december decision compared to the announcements in october. Predictability is important. Tom we have to run. So much coming up, the ecb with their decision in the next hour and onto the News Conference with mario draghi at 8 30. That will be important. Then, the future of United Kingdom banking and the future of his barclays. I conversation with the barclays chief executive officer, must listen and must watch. David all eyes on the ecb today. China inflation rises driven by surging food costs and concerns remain over the health of the economy. He was known as the king of wall street, former Salomon Brothers ceo John Gutfreund has died. David welcome to bloomberg. Im delighted to say we have jon ferro and stephanie ruhle. Stephanie it is ecb day. What a morning. Stephanie sad day for wall street. John gutfreund, mentor to many an icon to the street passed away yesterday. David the creator of the modern bond trading business