Transcripts For BLOOMBERG Bloomberg Surveillance 20161117

Becomes the first world leader to meet u. S. President elect donald trump since his election win. Back in japan the boj fires a warning shot at the bond market, announcing its first offer to buy an unlimited amount of securities to maintain its yield curve target. We also look to a Rate Decision from a country whose currency has been battered by trumps election. Will mexico hike rates . Anddoes president obama Germanys Angela Merkel meet for farewell talks, what will trumps policy mean for europe . Plus, trump versus trump. How Donald Trumps business interest could see the president elect face more conflicts of interest than any other administration in u. S. History. First lets get the bloomberg first word news. Heres nejra cehic. Nejra a key member of donald says the Incoming Administration is exploring ways to fund fixing roads and bridges , including an option proposed by hillary clinton. Steve talked to the socalled infrastructure bank, something trumps team had slated as being controlled by washington and funded by a tax increase on business. Regulatory changes, looking at the creation of an infrastructure bank, theres a lot of things to do. The economic priorities are clear. President obama and german chancellor Angela Merkel have pushed back against donald a jointagenda, making call for free trade and a socially responsible economy. Writing in the german weekly, the two leaders say, we are stronger when we work together. We are standing at the crossroads. The future is already here. Saudi billionaire prince our lead has told bloomberg that all his stakes in Public Companies are potentially for sale. That reverses his longstanding policy that some holdings are forever. His Investment Firm has owned periodares since 1991, a that includes its plunge the ring the financial crisis, and a 436 rise since then. It also owns about 5 of twitter. Everything is on the table. Everything is on the table. Everything is on the table. Yft,re invested in l twitter, four seasons. Requiresf our interest to divest from any country, we will do it. Nejra global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im nejra cehic. Francine thank you so much. Lets head straight to the terminal for your asset check with mark barton. Mark this is my favorite chart of the day. Hold 10yearand to treasuries over similar yielding , rising to the highest since 1989. Weve seen a selloff in both but u. S. German bunds, bonds have sold off more in anticipation of Infrastructure Spending. German yields have risen about 10 basis points since trumps victory. Chair yellen speaks to congress today. Her first big appearance since trumps election victory last week. She will be quizzed about Infrastructure Spending. She will be quizzed about her future as well. Looking forward to that. Wereoday said no bids placed at its First Operations when it offered to buy bonds at a fixed rate, the boj announcing today it would carry out two operations, one to buy securities, another for debt of three to five years. The fact that they announced it still had the effect of bringing down the yield on the 10year, the white line, the fiveyear, the blue line, and the twoyear, which is the purple line. The euros losing run has come to an end. It is rising against the dollar. The losing stretch was the longest since may 2012. The euro fell 4 . The median forecast for end of year is 1. 05. Saxo is forecasting parity. Rsi is 31. It is time to buy the euro according to technical analysts. They said earlier it is time to sell copper because it fell through 70. It is back above that level now. Trumpsained 4. 4 since victory and reached its highest level in 16 months. Like iron ore, copper did give a sell signal earlier, falling through that 70 overbought fine, but it has bounced back above that. Francine thank you. The japanese Prime Minister becomes the first world leader to meet the president elect, donald trump. The boj announces its first offer to buy an unlimited amount of securities in the wake of a global selloff. Japans topix closed on the brink of a bull market. Stocks in europe are broadly flat. Lets get more analysis from jim hurley. Im going to call in the crisis editor. Also, marcus ashworth. Marcus spent three decades in the banking industry. Thank you both. Im so delighted to kick off this thursday morning markets conversation. ,arcus, theres an expectation but inflation is back. The dollar will be strong because donald trump will deliver on Infrastructure Spending. How much do we know that is true . Marcus we dont. Im sure you janet yellen will bat that one away. Hes kicking some tires. Ans looking at potentially infrastructure bank. It is an interesting idea. I think they will look at doing things like that. The bond market have had the move and they are calming back down again. It is not a straight line. Francine was it a trend that started before trump and accelerated . This is only on the trump infrastructure plan, then it can back away quickly. Marcus it was clearly poised, and trump was a catalyst, but if you look at all the big money market firms, everyone expected this. Everyone was waiting for the election results. Trump, bang, off it went. Francine just doesnt feel like a crisis at all, and yet when you look at the bond market reaction, jim, we are craving detail. That will come when we have a new treasury secretary. Jim it is a crisis for a lot of people. It is not a market crisis. But in that way. Put it that way. But in terms of detail, we are not having a lot of clarity on who the personnel is going to be, let alone the policy. Youve got republicans on capitol hill who are going to policies that they rubbished obama about, like Infrastructure Spending. Theyve been all about austerity and keeping the lid on debt. Francine youve covered politics for decades. Youve covered Foreign Policy, european politics, but theres a link. We see the primaries in front, the possible resurgence of Marine Le Pen close to becoming president. Are the markets focusing so much on domestic policy, reflationary policy in the states, that they are discounting what happens in Foreign Policy . Jim the markets reflect conventional wisdom. We know conventional wisdom has been wrong at every turn in the past year. That is my take away. Francine marcus, the markets will give donald trump as much time as he needs to come up with a treasury secretary, but are you expecting a lot of volatility from now until his inauguration . Marcus if he makes a misstep here, i think they will be brutal. Weve had a big rally off the back of essentially everyone waited, everyone expected clinton. We got trump. He was very clever in saying he would spend, aiming for 4 gdp, which is a huge lift, but if he says something positive about trade, then we may have a more sustained rally. But if we see signs of infighting, i dont think the market is going to be that trusting. Francine hes promised, and this was his campaign, he was promising 1 trillion in spending in infrastructure. Even 10 of that is not bad. Marcus i do think there is a lot of expectation built into this and we will have weve got a nice, easy rally. Probably hes staying positive entree. Everyones keeping a very close eye. Francine thank you so much. Marcus ashworth and jim hertling. Stay with surveillance. Plenty coming up. What will the economic policies of the incoming u. S. Administration look like . And as president barack obama and Angela Merkel meet for farewell talks, what will trumps Foreign Policy mean for europe . Plus, trump versus trump. We will analyze how Donald Trumps business interest could see the president elect face more conflicts of interest than any administration in u. S. History. This is bloomberg. Francine bloomberg surveillance this is bloomberg surveillance bloomberg surveillance this is bloomberg surveillance. Lets get the Bloomberg Business flash with nejra cehic. Nejra volkswagen has lost market share in europe. The German Company accounts for 24. 9 of the regions car sales in october, compared with 25. 3 a year earlier. Zurich insurance says it will cut cost from 2015 through 2019. The new plan replaces a previous goal to save 1 billion by the end of 2018. The company will target a dividend payout ratio of 75 of net income after tax. Thirdquarter earnings slightly below analyst estimates, underlying operating income rose. The figures of the dutch grocers first consolidated earnings since completing a merger with its belgian rival in july. That is the Bloomberg Business flash. Francine thank you so much, nejra cehic. What exactly will the economic policies of the Incoming Administration look like . Markets intend to decipher what trumponomics really means. A key member of trumps team has said the Incoming Administration is considering an infrastructure bank, a concept suggested by hillary clinton. Fit great odds for december are at 94 . Lets introduce our guests. The studzinski with us for hour. Ashworthing and marcus also still with us. John, just to say you are from blackstone says about 1 of what you actually do. You are a philanthropist. You meet World Leaders. You know donald trump. What have you learned over the last eight days since he has become president elect . John thank you for having me. First of all i dont know donald trump. I think i know a lot about the cult around him. I do know enough about him, having seen him in the Business Community in new york for 30 much hat he is very he bases a lot of his business oneationships on one to relationships. What were seeing now with respect to abe going to new york and having a one to one meeting is people wanting to understand who donald trump is, meet him personally, and i think importantly, establish longterm relationship. I do think were going to have to balance the institutional relationships of america with japan, the American Government with the japanese government, american trade with japanese trade, with donald trump and abe. They are both in some respects very similar. They have very clear views. They are very decisive. Obviously very different. We talked a little bit about infrastructure and Donald Trumps spending plan. Do you think he will reflate the American Economy . Do you give him the benefit of the doubt . John i think we have to give him the benefit of the doubt. Hes got some very interesting people in his economic team. Some people have a lot of experience. The team is not in place yet. The policies are not in place. The focus is going to be on infrastructure, fiscal stimulation, and a big focus on trade and job creation. Francine on the back of that, jim, because youve covered european politics for such a long time, who does europe send . Who should be the first politician or the person you would send to meet donald trump . Jim which european politician would i send . The one who would be most simpatico with him is nicolas sarkozy. Sarkozy eight or nine years ago called obama his buddy. Francine hes not in charge yet. Jim you asked for a european politician. Obviously you want to send probably merkel because he was out there on the campaign trail calling her a disaster. As trump pointed out, everything is so personal with him. And he sees that shes an impressive figure, his impressions will evolve. You made an interesting comment, john. With the republicans in washington, they have such an ideological agenda, and you suggest donald is something of a pragmatist. How do you think that is going to play out . John the rubber will hit the road. His very astute Vice President , who i think we see now is playing a major role in the Transition Team, and is going to have a very important seat at the table, hes effectively going to be the conduit. Hes a very ideological politician as well. Dinncine we have two bo alumni here. Marcus ashworth of bloomberg gadfly, thank you. Jim hertling of Bloomberg News and John Studzinski stays with us for the hour. Trumps what will Foreign Policy mean for europe . We speak to a key ally of the german chancellor, dr. Michael fuchs. This is bloomberg. Francine this is bloomberg surveillance. President barack obama, Germanys Angela Merkel, have made a joint call for free trade and socially responsible economy. The opinion piece in a german publication ahead of obamas farewell talks in berlin is seen as pushing back on the agenda of donald trump. Lets speak to a key ally of Angela Merkel. Im very pleased to welcome michael fuchs, who joins us on the phone from germany. Michael, great to speak to you. What did you learn about how donald trump will govern in the last week . Michael of course its always like this. If there is an Election Campaign, things are going to be said which are not really what is going to be done later. Things are going to be a little different. I have a feeling that mr. Trump is already pushing back a little ng down themi situation, which is good. I hope we will have a good contact with him like we did with mr. Obama. Keep it slowly and down. Francine do you worry about trade . This weekend, theres a big. Eeting of your cdu party how much are you expecting to discuss trump . Michael we are very much depending on International Trade. Almost 40 of the german jobs are depending on International Trade. Who is is really a party pushing for International Trade. That is something which scares us a lot. In obama mentioned already his speech in essence that International Trade has to be a topic for the American Business and it is very important for all of us. I guess we will find solutions with mr. Trump on that case. The cdu is really standing behind ttip and we want to push it forward. It is a pity that we dont have it. , because it is even more important to do with the americans, and we should find solutions. The quicker the better. Francine michael, what are you expecting to come out of this meeting of the cdu . Michael this weekends meeting is the board of the party sitting together and we are planning our Election Campaign for next year. Were considering what to do and with whom to do it and what kind of planning. We are describing the program which we want to have for the party. That is quite something. It is a difficult job. We are sitting together for almost two days. It is important that we are now coming up with a program. This is going to be proposed to the party convention, fifth and sixth of december. I think there is the key point. We will promote our program, show what we are going to plan for the election, what we are going to offer for the people. Francine do you also expect Angela Merkel to say she will run again as party leader and chancellor . Michael s it is up to her. She will use the right moment to tell us what she wants to do. It could be that shes going to make an announcement on the fifth or sixth of december. As far as right now is concerned, shes running for leader of the party again. We have election of the Party Leaders again on the same event. Francine michael fuchs, we also spoke, or i was going through with some of our reporters in berlin, one of Angela Merkels speeches that she gave to a lot of employers two days ago where she appeared to offer a brexit opening to the u. K. Toyou see her tone shifting her demands of the u. K. As we get into negotiation phases . Michael in the bundestag, she gave a speech and she was clear and said, there aint no free lunch. Theres no cherry picking. Four freedoms which has to be fulfilled and you cant say, i want this and i dont want this. We had a discussion on the banking passport. Banking passport is only possible if you are a full you member. The u. K. Cannot have the banking passport for free. That is something which is going to be negotiated. We always said we dont want to start negotiations before article 50 is triggered by the u. K. Government. We have to wait until mrs. May is coming up with a final decision. I have a feeling theres a lot of ongoing discussion at the moment. The brits have to make up their mind. It is going to be very tough. We have to make it tough. Im really backing it. We have to make it tough because if you dont make it tough, then each and everybody is just picking up something what he likes and the other things he doesnt want to make. No. It is either or. Francine michael fuchs, thank you so much. Very clear as always. Joining us on the phone from germany. We are back with John Studzinski and tina fordham, chief global economist at citigroup. We need to talk Foreign Policy. This is something, john, that we talked a little bit about. Tina, welcome to the program. Will it work for markets . Tina will what work for markets . Francine the donald trump land. Tina markets are loving the donald trump plan that weve seen so far. Emerging markets less so the cause they are so much exposed. Also i would say, more exposed to global trade countries are worried about this as well. For now, the patterns in trading and this expectation of fiscal stimulus in the United States for the first time in a long time, that has got markets flying. Francine tina fordham, thank you so much. Bloomberg first word news. Heres nejra cehic. Nejra a member of Donald Trumps team says the Incoming Administration is exploring ways to fund fixing roads and bridges, including an option proposed by hillary clinton. Trumps team slated as being controlled by washington and funded a tax increase on business. The focus is regulatory changes, looking at infrastructure bank, theres a lot of things to do. Nejra president obama and german chancellor Angela Merkel have pushed back against Donald Trumps agenda, making a joint call for free trade and socially responsible economy. The two leaders say, simply put, we are stronger when we work together. We standing at a crossroads. The future is already here and a return to the world before globalization wont happen. A saudi billionaire has told bloomberg that all his stakes in Public Companies are potentially for sale. That reverses his longstanding policy that some shareholdings are forever. His Investment Firm has owned city shares since 1991, a period that includes its plunge during the financial crisis. It also owns about 5 of twitter. Everything is on the table. Everything is on the table. Everything is on the table. Twitter,vested in lyft four seasons, tens of companies. Toour interest requires divest from any company, we will do it. Nejra global news 24 hours a day powered by more than 2600 journalists and analysts in more white house remains incomplete. Scott, the pentagon, state and justice departments all report no outreach yet from trump and there are a lot of them. As the president sense the cause weakness in bound. Were going to show you a longerterm chart for british pound. 15 fall has been about since that brexit referendum. A lot of travelers have been coming to london. The number of foreigners shopping here has increased. Economistsew out expectations. Lets reset to politics. Japans Prime Minister is set to become the first world leader to meet the new u. S. President elect facetoface as j. P. Morgan shares fell yesterday on the talk that jamie dimon could be offered the job of treasury secretary. Lets get the latest with Stephanie Baker. Still with us for the hour, John Studzinski and tina fordham. Stephanie, great to have you on the program. The trump transition looks messy , but the key role is basically who he will put in place as treasury secretary. Stephanie absolutely. What were seeing is, trumps victory surprised many people, including himself. He doesnt have the deep bench of policy experts and people that can staff his administration. He is reaching out to people he wasnt close to doing the campaign. Jamie dimon being mentioned as one of them. Were getting conflicting reports that hes been asked but he doesnt want it. J. P. Morgan shares reacting nonetheless. I think hes a key appointment. He needs a heavyweight to steady the ship, given the uncertainty the markets are experiencing. Francine it seems there are two people in the running, right . We dont really have confirmation. Ing about trumps Transition Team. Stephanie the other name in the mix was the chairman of his campaign. Im not sure if hes considered as a heavyweight as jamie dimon would be in terms of policy experience. Those are the two names that have been most prominent in the next. We dont know. Francine tina, weve never seen this before in the u. S. Tina we havent seen a lot of what has happened this year and theres more to come. Trumps initial appointments have been to his loyalists. That is a fairly small pool. The treasury secretary is the one markets will be watching closely, much more than commerce. Secretary of state is quite important when we think of geopolitical risks. Reassurance with some sensible adult supervision. Francine what will he put first . The appointments so far tina theyve been loyalists. I would have thought someone like jamie dimon would be a real prize if he could be had. It is perhaps a poisoned chalice to take this job. Francine john, when you look around the world, and i want to ask about the significance of shinzo abe being the first foreign leader to meet donald trump we know that hes a businessman. How important is it for him to meet World Leaders that have a lot of credibility, to show the world and the markets that he can be more team . Tame . I think he will meet a lot of World Leaders oneonone. I think he will try to establish personal rapport. I think hes a good listener. He wants to hear what people have to say about how hes perceived and how this whole issue of trade and some other geopolitical issues are perceived. Three, hesnumber curious about the whole interaction of these various international personalities. I think for those reasons there will be a lot of people going to the mountain, to trump tower, over the next eight weeks. Ring. Ne to kiss the tina dont forget that abe need something out of this too. What shinzo abe will be most concerned about is the u. S. Japan security relationship. He will be looking for trump to roll back because of the china rivalry more generally, he will want trump to soften what hes suggested him a that south korea and japan should develop nuclear weapons. Francine it is significant and we focus so much on economics, but there is a huge question over nato and security in general. A lot of these leaders may want to come to trump towers for this reassurance, stephanie. Stephanie i think defense will be a huge issue during their meeting. Having said that japan should be paying more for its own defense, that will come up. Transpacific partnership, the deal which abe has pushed very hard, that will also come up. I dont think we should read too much into the fact that he is the first foreign leader to be meeting trump. Look at the list of foreign leaders hes spoken with and it has been very haphazard. He hasnt followed protocol. It has been all over the map. Tina nigel farage not being on the shortlist normally. Francine but he tweets about it. John to your point, hes not necessarily going to follow protocol. That is one of the reasons people are responding and the markets are responding positively. They see theres an element of leadership here and strength of conviction. Markets are perceiving that in a positive way, that hes going to use a certain amount of intuition and judgment. I do think abe needs to come away with something, not just some element of having a meeting , and i do think its about the south china sea, about north korea, about that whole stability factor in the pacific. Francine thank you so much. John studzinski, we will talk more about Donald Trumps resolve or conviction. Stephanie baker, John Studzinski, and tina fordham. Up next, trump versus trump. How Donald Trumps business interest could see the president elect face more conflicts of interest than any other administration in u. S. History. This is bloomberg. Francine this is bloomberg surveillance. Donald trump the businessman is about to run headlong into donald trump the president. Lets analyze how the president elect will deal with potential conflicts of interest. Stephanie baker has written about this for bloomberg. Where might President Trumps power clash with his business interest . They are interlinked. Think youvedont ever had a president with such a sprawling business empire. It is throwing up whole new issues. There arent any real rules that force the president to dispose of his assets or put them in a blind trust. It is purely based on recommendation. No one is going to force him necessarily to do this according to the law. He has said that he would put his interest in a blind trust run by his children. That is not really a blind trust. Given the level of involvement of his children in the transition, it has raised other questions. Francine has he said how he will handle these conflicts, or has he not said anything . Stephanie hes kind of dismissed it as, it wont be a problem, trust me. Empire, allk at his his Licensing Agreements, hes got Licensing Agreements with developers in turkey, in manila, in the philippines. Hes got a deal in dubai. Panama. The list is endless. If you think about how he may have to make Foreign Policy decisions that could impact those businesses hes got links with, it gets very messy. Francine who keeps the checks and balances . Are there rules . Is it written down . Is it congress . Stephanie youve seen the Oversight Committee in congress, the leading democrat saying that he wants the Oversight Committee to look at it, but of course the republicans controlled congress and the ranking republican has not said anything about this. That is the only possible him ince that could rein and force him to create a firmer wall between the presidency and his business interest run by his children. Francine great article by Stephanie Baker. I urge everyone to check it out. Now were back with John Studzinski and tina fordham. Up next, well get some final thoughts with our guests. Also joined by tom keene. We will be talking more about the markets and yields. Spreads in german 10year and u. S. Treasuries the widest since 1989. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london with tom keene. Lets get the bloombergs miss flash with nejra cehic. Nejra volkswagen has lost market share in europe for the 14th straight month since september last year. The German Company accounted for 24. 9 of the regions car sales in november. Zurich insurance said it will cut costs by 1. 5 billion from 2015 through 2019. The new plan replaces a previous goal to save 1 billion by the end of 2018. The company will target a dividend payout ratio of 75 of net income aftertax. Reported thirdquarter earnings slightly below analyst estimates. Operating income rose to 513 million euros. The figures are the first consolidated earnings since completing a merger with its belgian rival in july. The netherlands has sold 65 million shares for 1. 3 billion euros after an 18 rise in the stock price during the year since the bank was returned to the market. Has said it plans to sell the rest over time. Rio tinto has fired two of its top executives after a probe. Energy and minerals boss alan davis and Legal Executive Deborah Valentine are leaving the miner. Davis says rio has no grounds to fire him and he will take legal action. Representatives for a company where valentine is the director have not replied to a request for comment. Francine thank you so much. Lets get some final thoughts with John Studzinski and tina fordham. Also, special guest surprise host, michael anchor, tom keene. They got you on. Tom way too early. Francine it is like 9 50. Tom it is new york. It is way too zulily. Francine this is so typically american. We talked about emerging markets, Foreign Policy. Theres a lot of talk that the election victory may have given theresa may so much more leverage in the brexit talks. As moreat e. U. Sees us valuable on things like security. She may be a key to negotiating trade deals with the u. S. Tina i think that might be a bit of Wishful Thinking on the part of the u. K. To my mind, theresa may has overestimated how much leverage the u. K. Has in these discussions. I was at the conservative party conference. They were talking about global britain. Support for free trade is plummeting around the world. It seems to me that it is going to be difficult. Nigel farage appears to have got president elect trump to put Winston Churchills bust back in the oval office, but i dont think that means the special relationship got a lot specialer. Francine you like that, tom . We are quoting history. Tom one of the things shes got to deal with is the timeline. Chartnd tina, heres a which to me is the britain chart of all economics. This is nothing more than the current account deficit of britain. What i look at is the chronic nature of this chart. The yellow box is the presumption of a continued and sustained current account deficit. Is that your vision, that they the currentaccount account and that drives forward sterling dynamics and growth dynamics . John wow. Go. Cine there you and he said it was too early. John it is a fabulous question. Francine i think what is so important about trump and brexit is the x axis. Everybody is looking at the emotion of the moment. You couldnt even get dessert. The chronic nature of that dialogue of those two candidates was extraordinary. What is the chronic nature of this current account deficit and of what we see for Prime Minister may . Francine it is a currency problem that they have. John im not going to go there. This is not my long suit. What do you worry you are very good at is, you travel the world. Do you worry about the soft power . Yesterday we had a wonderful conversation about soft power. Joseph saying the u. S. Is losing soft power. Does brexit mean the u. K. Loses soft power . Is that significant . Become a reduced global power. That has been on a downward trajectory. John i think the world order is changing quickly. A series of big economic blocs to a series of very strong leaders and strong personalities. Weve got president xi, Prime Minister abe, modi, the gentleman in the philippines, Angela Merkel, now president elect trump. Theres going to be a lot of strong leadership. Morethink actually a lot negotiation is going to be done oneonone. I do think personal relationships are going to become much more important. Tom within the personal relationships, is it a reaffirmation of the system or an every nation for itself view . Hn i think much more of the every nation for itself, which is why i think every leader is going to have to focus on their relationships with the key economies in the world, the United States, china, and germany. Francine that could spell disaster. This is a race to the bottom. John lets not be overly dramatic. It is going to require us to rethink a lot of things. Francine if you have every world order, or every powerful nation looking inward, then you cant create the common good. Tina that has been the case for some time. I think what we have now, and steve waltz at harvard wrote a piece on what trump can do on Foreign Policy, to talk about sovereignty tom where do you think i got the question from . [laughter] tina great minds think alike. That might be a way of going forward. That would be to focus on sovereignty and interest. These are the terms we would use in Foreign Policy. Talk about more personalized relations, which can be alarming if institutions dont have a role. If you are unlucky enough to have a bad relationship with the socalled leader of the free world, that is bad news for your country. Tom john, youve got a great commitment to one Benjamin Franklin. [laughter] francine tom i love Benjamin Franklin and i love you. Benjamin franklin and john adams showed the flag. They had to go across the ocean. How does President Trump show the flag where his core constituency would just as soon stay at home . How does the u. S. Project in a Trump Administration . John Benjamin Franklin actually spent 17 years in the u. K. Trying to understand what was going on. He also spent a lot of time in paris. I think what youre going to see donald trump doing is doing a lot of listening to people in new york and i think he will travel. Francine thank you so much. John studzinski and tina fordham. This is what were looking at next. We talk finance. We talk trumponomics and the markets with tom keene. This is bloomberg. Speed always wins. Especially in my business. With slow internet from the phone company, you cant keep up. Youre stuck, watching spinning wheels and progress bars until someone else scoops your story. Switch to comcast business. With highspeed internet up to 10 gigabits per second. You wouldnt pick a slow race car. Then why settle for slow internet . Comcast business. Built for speed. Built for business. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Trump alliance. The Prime Minister of japan travels to new york to become the first foreign leader to meet with the president elect. The businessman versus the president. Potential conflicts of interest than any president in u. S. History. We unravel the overlap. And the bond markets Central Banks see potential conflicts f interest than any president in u. S. History. A surgeon yield. This is surveillance. Im Francine Lacqua in london, with tom keene for the week. Were giving a close eye on pounds dollar, what have we learned . Tom what i have learned is that a lot of people are telling me to move out of london. A surgeon yield. Heres a step to the city that there was not on june 24, no question. Francine youre right. We have some great retail sales. New data, really strong retail sales. Tom what i noticed here this week is the Global Nature of surveillance wins, because this is a global story. Its truly a global story. Francine this is what we are trying to look at, the trends of populism across the globe. Lets talk more about the president elect and get straight to the first word news with taylor riggs. Taylor japans Prime Minister shinzo abe becomes the first Global Leader to meet with donald trump. He is stopping off in new york on his way to peru. He praised his talent and said he will try to work handinhand with him. He wants to keep him from pursuing the trade and Security Policy campaigned on. And japans central bank is restarting its control over the worlds secondlargest bond market. The bank of japan is offering an unlimited amount of bonds at a fixed rate. The boj is concerned over a recent rise in yields, which turned positive this week for the First Time Since september. Congress may have Federal Reserve chair janet yellen on how it might affect the economic but dont expect a clear answer when yellen testifies before the joint Economic Committee today. This week, a number of fed officials have an asked the same question, and they have said they are unsure about anything under trump. Testimonytch her today here on bloomberg tv at 10 00 a. M. Eastern time. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Taylor thanks so much. Equities, bonds, currencies, commodities. Quiet today. Its the first subdued a day in ages. Futures are flat, 2. 2 . Im bored with the first screen, not much going on. Vix, beginning to catch up with a big bull market. Twoyear yields, 103 is the p eak. The dollar index is below the breakout highs. Let me put up eurodollar again we do you have . Francine there is that parity call that keeps happening. I know its a significant, but i wish i wanted to put the japanese yen, and got distracted on gold. Jgbs are significant because it is the first time we see governor kuroda trying to control the boj yield. Whether it works is another story. Ok, will there it is. Let me do this inflation in the United States. Inflationrvice sector up top, producing inflation down below. Our audience of the United States feels that high 3 Service Sector inflation. This is the whole point, francine, of a desire to overshoot, the fed based on their inflation, not our viewers inflation, nowhere near what they needed to be. Francine a great chart, especially because we would hear and janet yellen later. This is my chart. I brought it back to 1989. This is the spread between treasuries and german debt. U. S. 10 year yields and the spreads with the german 10 year yields. What this means is that, basically, investors demand surged this week. We are seeing a lot of spreads widen, and expectations in the markets are that donald trump will expand fiscal stimulus. Theres huge difference between the german and italian 10 year yield. Tom there is nuance this year. Theres some real nuance in the dynamics. Francine lets talk about the nuance and dynamics of the market. Lets get more with mike obrien, the j. P. Morgan Asset Management ceo. He joins us now. I love that. Whats going on in the markets . Ultimately you have to take a step back. High, but we have a lot of clients from the world, and the trans data is low. We do a study of longterm Capital Market assumptions. We try to step back from the geopolitical noise, the economic stories, and say what are the fundamental interrelationships between equities and bonds . Ultimately, if you look at 10 years out, our view is everything is low, and the challenges where to find return. Right now, with the Trump Administration incoming, expectations are that gdp will grow. Yield could pick up, and that is positive for investors. Francine how much does this have to do with real expectations, and how much does it have to do with the trend of going up before the president elect wa electeds, and the fact that this given a boost . I think this started before he was elected. Are that wectations are on the path toward normalization. Well see rates in the u. S. And around the world progressively rise. Wed expect that u. S. Rates would get to 2. 25 by 2020. But that train left the station. I think what the Trump Administration has done is accelerate the pace of yield. Tom within your Asset Allocation in dealing with clients, the bottom line is we are setting ourselves up for disappointment off of the certitude of where mr. Trump will take us. There is this whole belief construct of what a Trump Administration means. You and i have seen this before, and you undershoot. That is a major concern. How much expectation has been built into where the rates have gone . Tom what is your weighing of and under shoot right now . Is it likely . A certain outcome that we undershoot, the effervescence of the last 10 days . We think it will be a question of time. We think it will come through in gdp growth; the question is how long it will take to get there. One of the challenges we face is that we expect a curve in treasuries to be very flat. It will ultimately be a question of when, not if. Francine when, not if . Is this big Infrastructure Spending . The 1 trillion he has offered to spend on infrastructure . Things were Getting Better anyway. Id say our expectation, looking out 10 years, that gdp growth in developed markets will be up about 1. 5 . There are constraints of productivity, the amount of Capital Investment over the last five years, the demographics when the u. S. Population, even with immigration, is down per annum. It will still deliver a pretty low level of economic growth, which we dragged down around the world. Francine to what level . Our expectations are that across the developed markets, equities over the next 10 years we will be looking at 6 return. Emerging markets, maybe 9 . If you look at your typical portfolio, go back 10 years. The expectation was you and i would expect a percent per annum. Its 6 now. Youre looking at a 5. 5 return, and tom i want to look at the latest paper. When i was in school we had the stress test, with the little bottles with a litmus paper. Heres the litmus paper dxy, bring it up. This is intraday. The blue circle is the election. The shock, the rebound, the strong dollar, blended with china, our traditional Major Trading partner. I have a leveling out here. If the dollar is the litmus paper, what do you look at within the mix to give you the best judgment . Visit sterling . Eurodollar . A blended index . Its a blended index. The dollar is an interesting conundrum. If you go back to the 10 year forecast, we expect the dollar to weaken. But if you look over the next mediumterm, obviously, the dollar is strengthening. Right now, across a basket of currencies, 10 year is out. Tom francine, let me get this chart. Talk about euro parity. Francine i want to get to euro parity in the second, the what i want to ask is when you look at yield, its not only a turn for investors, its pension funds. You need to make sure people have enough money to retire. Much do you get asked about real concernis it a that we will have a huge demographic problem . Were seeing it yes, i think people are going to have to reset return expectations. The historical normal of a percent or 9 if i asked you, the reality is 6 . Itslll challenge Insurance Companies and their ability to generate returns. Pension funds, they are harder to squeeze. Itthe individual investor, could be a reset of expectations as to what one can expect going forward. Then it will be lower by 300 basis points. Tom lets do this for francine, i want to dazzle her with synthetic euro. Its Deutsche Mark inverted. Shell love this. Synthetic Deutsche Mark, back in 1960. That blue circle in the middle is the advent of the euro. Down we go, up we go. Particularly for european four, is this a time when we least expect it, blowing through under one per dollar . Its a function of the strength of the dollar. Again, the challenge we have got next year there is a lot of risk attached to the euro right now. Our own view we do think that europe, when it gets through this current uncertainty, we will get back to an environment of trade surplus, back to stability. Dollar, probably closer to 1. 30. Tom 1. 30, really . 10 years out. Francine one or two things. 10 years we think for 10e we can talk years that we dont have time. We dont have 10 years, but we do have another 50 minutes with him. Stay with bloomberg for full coverage of janet yellen as she testifies before the congressional joint Economic Committee. That starts at 10 00 a. M. In new york, 3 00 p. M. In london. This is bloomberg. Francine this is bloomberg surveillance. Im with tom keene in london, im Francine Lacqua. Lets get to the Bloomberg Business flash, with some corporate stories. Taylor there was a surprising jump in retail sales in the u. K. Last month. It increased 1. 9 , far more than economists expected. Cooler weather led to more spending on winter fashion. Clothing and shoe sales rose the most in more than 2. 5 years. Plans to cutnce costs by 1. 5 billion through 2019. They also plan a dividend payout ratio of 75 of income. They are struggling to increase profits after record low Interest Rates, lackluster growth hurt investment income. The ceo has been selling assets and changing the firms organization. Thats your Bloomberg Business flash. Francine thank you. Today, the bank of japan announced it will buy a limited amount of securities to maintain its yield curve targets. This comes in the wake of a global bond selloff in response to trumps. Election shinzo abe will meet with the president elect in the first facetoface meeting between him and a foreign later. Brendan greeley joins us now from new york. You did a great piece. This was for business week, how the white house could justify a debt driven keynesian stimulus. Its macroeconomic modeling, whats not to like . The republicans in an pushing for the last 20 years. This goes back to newt gingrich. They have been pushing the Congressional Budget Office to use what they called dynamic scoring. You take everything you do, seeded into a macroeconomic model, and you see what the results will be for next year. You take your dgp and feedback into the model. This is a fancy way of saying we will make tax cuts look cheaper. Trump, and itnald looks like he will do that in a way that is completely unprecedented. They will take not just tax plans, but the regulatory plans, energy plans, trade plans. They will push these all into a macroeconomic model and push the results back into their plans for the next year, right . So the trunk team is saying, we can give you everything. We can give you 4. 4 trillion in tax cuts that will pay for itself. Francine right. Are they the first to come up with this, or is it just because you have less fiscal hawks . You know, you have in congress this constant push and pull the between the cbo, the Congressional Budget Office, and congressional staffers. What are your assumptions . What he has done is wiped all that off the table and said, look, heres our model, take a look at it, and by the way, we get absolutely everything and it is offering. Tom congratulations. This is the single best and most important article on what is to come in washington on fiscal policy that i have seen. You know the static dynamics that they. At bay. I want you to stay the arch criticism democrats. That others have about greenspan like dynamic scoring. What did David Malpass get wrong . What does Peter Navarro get wrong . I cant really say that david not pass is at fault. If you have to predict the future, do use the best model you can. The question that democrats should, as best we can, not just scored tax cuts, but spending. Suspect that the multipliers for Government Spending are better on infrastructure and they are on tax cuts. But the question is, how good are the models . Tom im doing this just for you. Im doing it like mr. Trump. This is what he would be doing and that we can be asymmetric and only look at tax cuts. Is there any indication that the trumpthis is what he would be ae responsible and dynamically score spending . No. There isnt. They have talked about a different way to look at Infrastructure Spending. They havent really talked about making a dynamic. I do know how they will justify their Infrastructure Spending. As we know, the Trump Transition Team wants more Infrastructure Spending. But heres what came out of it for me. We have this quote, i think, from alan greenspan. In 1995 he told congress, im skeptical. I dont know if the models are good enough. I emailed his office and heres what they said he hasnt changed his mind. Alan greenspan is still skeptical about whether the models are good enough to do this. Tom i agree. This is a fabulous story. Thank you so much, you have been too much a stranger. It took in eight months to research this. Francine its a great article. The problem he makes this point clearly is that the method only works if congress balances the budget. Hes right, its just that things move. Tom David Malpass, who im sure you will hear from in the Trump Transition Team he is adamant this is the way to go. He needs a very balanced treatment over static and dynamic scoring. You can transition from Mark Halperin and john heilemann, with all due respect, 5 00 p. M. New york time. Rumor is, the will get through the traffic on fifth avenue. This is bloomberg. Tom good morning, everyone. A beautiful new york. An autumnal new york. A massive change on fifth avenue. Thank you, oliver chen. On bloomberg surveillance radio yesterday, he had stunning comments on the profound impact of fifth avenues retailing of mr. Trump being the president elect. Id like to go back to that. Francine this was a great conversation, a great article. This is we are going through looking at models, how you can justify spending so much and infrastructure while also cutting taxes. Will it work . The point we make is that Monetary Policy and quantitative easing has limitations of what it can do. It can stabilize economies, but i cant just grow. Our view is that combining fiscal policy and Monetary Policy is a positive we have written papers about this to get them combined. Our view th coste of borrowing is low. It ties in with the qe program to create economic growth. And infrastructure around the world, the demand for infrastructure investing from pension funds, is substantial, and right now he is missing the opportunity to find the investments. Sovereign wealth funds will want to invest. Tom the backdrop is that jpmorgan are optimists. Wey quickly, what if undershoot and change the dynamic . The expectations are that this will underpin growth, and i think a lot of what we have seen has been building in tom mike obrien with jpmorgan Asset Management. We have much to talk about. In our next hour, one of my most anticipated interviews of the week. Stephen major of hsbc. Yields higher, and then they will revert to lower for longer. Thats must watch. This is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Tom london, and the weather has been absolutely perfect. Its a boy into and bustling london. Fighting off the splurge of brexit. Im going to the Churchill War Museum today. Tom our producer called it right. This is why retail was surging, you were in town. [laughter] tom, spending, helping the economy. U. K. Retail sales surged more than any economists had expected. Tom thank you, thank you. Francine a good note. Especially for those talking doom and gloom. Tom it has been great. Come to london. Sterling is going to. 89. Lets go to our first word news with taylor riggs in new york. Report saysw immigration is good for the u. K. , and the country should preserve the socalled free movement, even if it leads to the european single market. The report comes from the think tank that backs the free market like a few Margaret Thatchers. It urges any foreigner to work in the u. K. As long as they have been offered a job. Iran expects donald trump to display what it called more rationality once he becomes president. A Senior Iranian economic official says his comments before they election were for campaigning purposes. He says the Nuclear Agreement with iran was a bad deal and wants to renegotiate. An economic environment wants congress to overhaul business taxes and postpone moves on individual taxes. Among the proposes is a rate cut for Companies Overseas earnings. Senate democrats might go for shortterm revenue gains, because it would help pay for nationwide infrastructure improvements. Global news, 24 hours a day, powered by over 2600 journalists and analysts in more than 120 countries. Im taylor riggs. This is bloomberg. Tom thanks so much. Chair yellen will speak today, the first chat after the momentous election we have seen. Look for that across bloomberg, 10 00 a. M. The question is, is she central banker to the United States, to President Trump, or to the world . This next guest if you were to get on eleanor right now, if you sailed around emerging markets, what would you see . What would be their response to president elect trump . I think the response in emerging markets is that we are looking at an Amazing Investment opportunity. Trump has essentially had two effects want to create uncertainty, and the other yield curve steepening. The uncertainty is almost certainly going to abate over the next couple years, the next couple months, as we get to know his team,s policies, how he works of congress. That is the primary negative effect, and that has given us a beautiful look into em currencies. They are still marginally averse for the dollar this year, so this is a great entry point. Tom on the basic economic standpoint, give me the partial differentials, the dynamics of exports. We all know what it means for america and the united kingdom. This is going to be an export boom for e. M. That is what it looks like. The Real Effective Exchange rate, which measure the competitiveness of young countries, are back to the levels we last saw in 2003, which was really the start of the last major currency bond rally in e. M. They have shorter durations, em countries have much less debt, and the yield of local markets in particular are higher than when the fed had Interest Rates at 5. 25 . Tom do you want to buy brazilian bonds today . Absolutely, they are in the region of 600 basis points. We have seen falling inflation and they are doing the biggest fiscal reforms we have seen for years. Francine talk to me about china. What im interested in we had this story, the chinese holdings of u. S. Treasuries declined the most since 2012. Again, does a donald Trump Presidency accelerate that quite to graphic and we . Quite significantly . I think it should. He thinks we will have more demand into the u. S. Economy at a time when we have reached full employment, and never before in u. S. History have we reached full employment with better than 25 basis points. Just to get the fed back to neutral we need to hike nine times, and there a snowballs chance that can happen. Francine what things we were talking about when it comes to janet yellen is Dollar Strength. I know we will talk about dollar, but if the Dollar Strengthens, it is doing a lot of tightening already. So how many fed hikes are you expecting . We would expect two next year. By 2020 we are around 2 . I do think on the emerging market story, as the yield curve steepen the u. S. , a lot of the institutional money out there, which is currently being invested in em, we could see that revert back. Tom that is what we like, two different opinions. Help him with how he manages em. Do you have to manage your enthusiasm, or do you hedge the currency . Is the price a weaker currency in e. M. . Currencies and e. M. Have suffered under the rising dollar, but so has the euro and the japanese yen. Tom so you pile in . No, you need to have a strategic and tactical view. Occasionally you get christmas presents, when the market over react to certain global events. Francine like last week. Absolutely. Its interesting i have done quite a lot of analysis on this. If you have a simple rule that you are only allocated to emerging markets when the index spikes by 10 points in one month, you would have outperformed the index consistently. All Asset Classes since the inception of the industry. There is a tendency in the markets to overreact and oversell e. M. During periods. Of risk aversion. We just had a 10 point move. Francine they get a quick question if trade deals are in question, 2016 feels different because he can do a lot of damage and Foreign Policy or trade relationships . He could, but all u. S. President s enter into office with one single objective, to get a second term in order to get a second term, you have to do all your domestic stuff in the first term while you still have political capital. You save all the Foreign Policy stuff until the second term. That is lacking the risks of an imminent trade war tom lets show what john is talking about. On the bloomberg terminal, your terminal fact for the day, ggr go will save you every time. Its a great inventory of international paper. I just picked out the brazil 10 year, in u. S. Dollars. Look at the pop. Thats a highyield, lower bond price in brazil. You come in and buy it looking for lower yield. Absolutely. We have to bear in mind that the Brazilian Congress is in the process of passing structural reform that will limit spending for the next 20 years. Tom do you have the same enthusiasm about e. M. . Structural demographics work in favor of emerging markets. Economic growth tom you mentioned flows. On emd, flows are influential. Tom massive jargon alert. Ok, the emerging market debt. Practical to have the feel to it in terms of investment. Emerging Market Equities are becoming much were strategic, and i think a lot of it is around the demographics that favor economic growth. Leverage is an issue in the emerging markets. The only thing we do see, emerging markets are performing developed markets by about 300 basis points. Attempt jargon free in the next section, maybe. 5050 shot. Its a fed day today. This is the most interesting chair yellen speaking. Also scheduled, neil cache kari. The exceptionally controversial president of the minneapolis fed. From london, this is bloomberg. Stay with us. Francine tom at francine from london for the week. Lets go to abu dhabi, because we need to talk about dynamics. Strategists say a global shortage of u. S. Dollars could happen with donald trump takes the white house. Tracy alloway joins us she wrote a great piece on this. Is it premature for Deutsche Bank to be concerned about this, given that we dont have that many details on his policies yet . Certainly argue that trumps policy stances on many issues at the moment remain relatively unclear, but the reason why Deutsche Bank and other analysts from the Financial Community are picking up on this so early is because it has been a really pervasive problem in Financial Markets for some time now. We have had diverging monetary policies, banking regulation, all coming together to create a headache, a dollar shortage, that you can see if you look at things like cross currency basis swaps. The cost of converting euros and yen into u. S. Dollars right now is that it is the lowest in three years, and that is despite abundant global liquidity in those areas, which means that if we do get a further shortage of dollars it could be even more painful. Francine what about repatriation . 10 initially . Does that help, with the availability of dollars . Tracy this is Deutsche Banks rumpsnt, that t nomination will exacerbate the dollar shortage trend, because you could see crossborder flows curtailed. You can see this repatriation of corporate profits. Theres some debate about the exact amount of profits being u. S. And what impact it would have in terms of strengthening it, but at minimum you would imagine that bringing those profits home would take a chunk of u. S. Dollars out of circulation in places like europe in particular. That is painful at a time when banks already seem to be struggling to intermediate between currencies. Tom tracy, the politics of this a president elect working u, then american millioie dynamics of other countries. The key coefficient is a strong dollar. What happens to the dollar, and what happens for President Trump if we get a 2014 Dollar Strength . Tracy i think thats a really interesting question. The consensus at this moment in time seems to be that trump will be good for the dollar in some way. The knock on effects of a stronger dollar are, of course, emergingmarket pain, a tightening of financial conditions, which we have seen already, quite dramatically. That is heading emerging market assets. Traditionally when we get things like the dollar shortage, we have seen the Federal Reserve step in with swap lines. They Exchange Dollars for other currencies, and that eases some of the pressure on the plumbing of the global system. One point that Deutsche Bank made is that with trump in office, these the Central Bank Currency swaps might not be a given. Linesn 2008, the fed swap were very unpopular with domestic populations, and neck it happen again. Big changes for money off the back of politics, which is something that i never thought id say. Tom thank you so much. Amazing, the linkages here. The vote in pennsylvania, the international economic. Lets start on this idea to me, this is really esoteric. There is a real complexity here. But the simple answer is how your em adapts to a first or Second Derivative movement in the dollar. If we get a tree shea dollar that is not good. Of course not. Initially, the effect on the Capital Markets are such that people pour money out of the markets. Later on, you start seeing the improvements in competitiveness, and that improves the current account. With the interesting state that e. M. Is at, they have had their capital outflows tom do you see a gumming up of the liquidity of the global 2017, if wer in the get this complex dynamic move he spoke about . Its like the old days of commercial paper does the system lose trust . I think its pretty predictable that the dollar will get stronger in the nearterm. Theres repatriation, theres the amount of foreign assets and investment looking for opportunities, and the yield curve may attract nonus investments into the u. S. I think the safe haven is the u. S. Everything points to a stronger dollar. Francine does it . Does that not constrict funding, for one . That makes it harder. It seems that the market has repositioned losses. They were only two weeks ago, a lot of the banks were pointing to a Trump Presidency with dollar weakening. We say Dollar Strengthen the immediate shortterm. Again, if you unfold, if you look out five, ten years, you get the fundamentals replaying. We see the dollar weakening as a longterm trend, but right now, for the for seeable future, it is strength. I tend to agree with the timeline. I think what is pushing the dollar up, particularly against the euro, is that we are in the fourth quarter. People have position square, they take risk off. But i think even as we go into next year, i think we will see currencies outperform the dollar significantly. The u. S. Dollar is already overvalued in Exchange Rate terms. The u. S. Is struggling with two consecutive quarters of negative growth. Thet prices are high, and u. S. Is simply not going to be able to bring policy rates into real territory tom this goes to the heart of the matter. You have a more optimistic view bring up the chart. This is trade weighted major. I was talking about this chart this morning here in london. I said, wed need a plaza accord dollar, a ruben dollar. I bring those arrows to the right side to show the percent change. Mike, to be honest, we are nowhere near dollar crisis. K of dollarris crisis that the naive have . I dont think so. Theres still a substantial Monetary Policy divergence. I think that is going to reinforce the strengthen the dollar. Tom will the flows coming to the United States . That is what we are hearing is a consensus. The whole purpose of macro policies has been to derive flows back into the u. S. Banking system. The first dollars that came back in were in qe, providing liquidity to the Banking System, but started driving up the dollar. We have reached the point where the dollar is overvalued, and the Banking System has too many dollars creating bubble risks. There is no real desire for a higher dollar. Francine right, but when you look how can you even talk about plaza accord unless you sold in china . And china if you dont have china, its no courted all. Tom you hang out at the grand hyatt. Francine is there any appetite from beijing to get involved . China has been pushing aggressively just to join the ba sket. China clearly has aspirations to become a major global reserve currency, and they are just about to open their cabinet. Nobody has gotten any exposure you. I think the technicals are strongly in favor tom we have got to go. A bonus surveillance round euro parity, will euro break parity . No. No, i dont think so. Tom its a boring moment. Were rooting for parity. Its exciting. Francine posttruth. Thank you. Love posttruth, because it talks about trump and brexit. This is the picture. This is the truth of the cross asset check. Up a touch this is bloomberg. Francine this is bloomberg surveillance. Berlin, the shot that we can see from our office. Germany is where Angela Merkel will meet with obama our new correspondent is in berlin. They are offering some sound advice to the european union. That is my morning mustread. The bloomberg Editorial Board wrote this. President europe, obama urged leaders of the eu to be more forgiving of greece and its debt. What he should also say with the elections of france and germany approaching and the animus difficulties running well, theyre reluctant to force explicit losses onto the taxpayers. One day, they might have to go to bow to the inevitability, but the inevitable can be delayed. Tom i think that is one view. Im struck by this as well, from the daily express, which i know nothing about. Britains total eu exit. Francine its a tabloid, very much like the daily mail, coming under fire for creating extreme views. That brings us to the word of t he year. A word that oxford dictionary picked, post truth. This is a word that they picked this year, what does post truth mean . It encapsulates 2016. Circumstances in which objective fans are less o influential than emotion and personal belief; brexit, trump. This is the world we live in. It is not new. I took a random walk down wall street. The markets in the shortterm are a voting machine, and in longterm they are a weighing machine. Emotion is what dictates the shortterm, and fundamentals play out longterm. I think you are right theres a lot of emotion of some pretty seismic decisions. Tom can you explain it nicely . Stephen major looks for higher yields, and then we go back to lower for longer. Do you agree . Lower for longer on yields and returns, if you were to go back a year, i think inflation has gone away. But i think lower for longer on the normalized Interest Rates tom the actuarial assumption doesnt move with trump economics . Longterm, something will have to come down in terms of the longterm yield and tom thats an important thing. Francine it is. Do you look at populism is something inevitable for the rest of western nations . Does that impact your investment . One of the topics we are discussing at jpmorgan is how that populism transcends into an economic i think it is a factor of life. We have seen some pretty big changes we hadnt expected. I think we are resetting our expectations in many ways based on two big changes. A lot of us are just trying to work through what the consequences have been. Tom mike obrien, thank you. J. P. Morgan Asset Management. A quiet day in the markets, but you wouldnt know it if you looked at the change. Major next hour, steven of hsbc on the most interesting idea, of when the facts change, he changes. This is bloomberg surveillance. Good morning. Tom this morning, markets transition quiet as the president elect transitions to choosing his cabinet. Finalists have been selected. There will be inflation then back to lower for longer. Speaking of inflation, the will let janet yellen overshoot. We are live from london. I am tom keene. New york city in the backdrop here is the turmoil of fifth avenue, where the president elect lives. Seeant you will reduced earnings adjacent to mr. Trumps about. Abode. Francine here in the u. K. , welcome to my town. We have weakness. Etail sales surging we see a lot more traveling. It is confounding economists who ugly. Rexit would be very welcome to london where it is cheaper and colder. Tom it has been good. Steven meijer will join us in a bit. Right now, you need a news update on the president elect. Ministerapans prime becomes the first Global Leader to meet with the lo donald trump today. He praised trumps extraordinary talents and says he will try to work handinhand with him. Speaking with japan, the Central Banks recent his control over the worlds secondlargest bond market. The bank of japan is offering to buy a big amount of bonds. The japanese 10 year yield trends positive this week since the third week of september. Trumpsllen, how donald fiscal policies may affect, but dont expect it clear statement when she testifies today. A number of federal officials have been asked this same question is that they are unsure what impact tax cuts or stimulus would have. You can watch her testimony today on bloomberg tv at 10 00 a. M. Eastern time. President obama will talk about solidarity with a close ally on his final trip to germany. The president meets with angela ricker, and they are expected to discuss a number of issues including the islamic state, hiding in ukraine, and trade. Ighting in ukraine, and trade global news 24 hours a day powered by more than 2600 journalists in more than 120 countries. This is bloomberg. Tom breaking news right now out of san antonio, texas. Equation. Ubledigit that is what you do when you have cheap money. 6000 employees. They will take out western refinance. I want to race through this to get to mr. Stephen meijer. A boring screen today. 13. 34. 1. 00 dollar weakness after a number of days up on Dollar Strength. Francine look at the vix. We have a talking about when it spikes what it means for emerging markets. This is about boj offering unlimited amount of debt buying. Xau 1229. Tom we will get to a different of a chart i made the other day stephen majorss amendment and what he suggested for lower for longer and low yields. Mr. Trump has shifted the market and there will be higher yields, but to get to the point you and i talked about the other day is we revert to lower for longer then. How do we get from a trump yield, inflation, strong dollar, and revert to the land of stephen major . the yield would go up and at some point it bites and grows into expectations. I can imagine if we got to the point where treasuries were 2. 5 over 10 years, the is the peo. Francine the funding is part of this. They are keeping you in check on how much you can spend. Steven a lot of this infrastructure is supposed of a publicprivate. What kind of funding rates are they talking about . 6 . 4 , you are talking about a completely different kind of outlook for the profitability of his projects. Are just dont get the idea that you can solve a debt problem by increasing debt. I will go back to the core in my beliefs on this in that there is too much debt. It is one of the symptoms of the imbalances in the Global Economy. It makes it difficult to solve the worlds problems. Francine unless you repatriate. Lets say 1 trillion in spending. 10 of that and 10 of the offshore. Steven a dollar move is a wa sh. This is what i think people are missing. On International Trade and repatriation threats and promises, we dont know about the sequencing. My guess is it will take a long time to get these fiscal measures there anyways. It is easier to do some of the other promises. Are they going to be good for the u. S. Economy , Global Economy . Ive not convinced. One step at a time. Tom the idea of expectations and varied expectations. I got a huge response to this chart. I hope i can close. 1. 37 . The dreamliner is the adjustment to 2. 5 . Redmigrate to the arrow over time. We had strong sterling the last couple of days. Do you get the same effect in currency that you get in your fixedincome market where you get a shock, then we revert to what david bloom suggests with a weaker sterling . Steven you know i work closely i with them. I sent in new york these guys shoot first and ask questions later. On this occasion, i shot first. I told him i think yields are going to go up in the u. S. That may have had some influence on the dollar. Versus thegoes up euro and yen. Tom do you capitulate on your weak sterling call . Steven the weak sterling call is a very strong structural one. It is based on the brexit outcome. We have not changed that. It was a something for david to change. Anything Company Sterling strength recently is now tightening of financial conditions again. Was looking at the outlook, it is thinking hold on. They want a reflation. The expectations in the forwards of three and three quarters or 4 . Francine has a donald trump win change anything in terms of rags and in terms of trade deals or are we over thinking it . Steven youre not overthinking it because it is a paradigm shift. I think of things in three. Maybe it was greece and then the u. K. And in the u. S. There is a paradigm shift. In terms of the bonds market, itll take more than that to change the longterm growth path of the u. S. Economy. We are flat on our forecast number as we speak. 1. 35 for the end of this year. We previously had 1 . Forget, what i like about the market is it is behaving classically because the cheapening of guilt is on inflation expectations. Inflation went from three to 3. 3775. It is starting to look a better value. I am wondering globally whether the guilt are looking like a good safe haven at these levels. Tom the arch theory. We have a copy here 20 feet offset about that fixedincome theory. In the coming year, the advent mics, are going to be focusing on capital flows or inflation or deflation adjusted rates . Steven there is a really good question. I think flows is the most important one. Tom almost 19thcentury. Steven flows will outweigh trade here. Sense,that rolling in a there is a bit under the dollar here, and i think that is one of the most important dynamics. Fixedincome, people are trying to remodel the economy and the bond yields. Give me a break. It is difficult with trumponomics because it will be very unpredictable. We have one thing at a time to deal with. Francine he says it straight. That is why we love having him on. Tom everyone disagrees, which is great. Francine janet yellen testifies at 10 00 a. M. In new york at 3 00 p. M. In london. We will be talking more about treasuries and spreads. This is bloomberg. Hill, therestol been summons time talking about washington as the trump transition is in place. A lot of controversy. A lot of controversy. About thegreat story conflict of interest and we will delve a little deeper. Lets get to the Bloomberg Business flash with taylor. Energy ministers optimistic they will cut production in opec. Ae cartel wants to impose ceiling on each of its members to improve prices. Opec tried to influence russia and others to join the cut. The increase in the u. K. . 9 was far more than economists expected in october. Cooler weather led to more spending on winter fashion. Concerns to cut costs by 1. 5 billion through 2019. A payout ratio of 75 of net income. They struggle to increase profits. Zurich ceo has been selling assets and changing the formation. That is your Bloomberg Business flash. Tom it is not an ordinary meeting. The president elect today will meet with mr. Abe of japan. All will be watching every moment of minutia, everybody language, every second every body language, every second. No one will be watching more closely than our own martin. What is our team watching today trump . Be, martin the question is what kind of access we are going to have to that meeting . sis is the first time trump meeting with a world leader and we do not know what to expect. We do not know. Tom we do not know the press access as well. One of the access is we have is the wisdom of al hunt. My morning mustread from albert hunt, which is always a good and beautiful thing to see. On pennsylvania, the secretary won pittsburgh and philadelphia by the margins expected, but in philadelphia, there were almost 100,000 fewer voters. This is really transient about not what did happen, what did not happen. Nobody showed up for the secretary, did they . ,arty not enough people did especially young people and blacks. Pennsylvania is al hunts home state. He knows it better than probably anybody and he was apprised that voters did not come out in numbers that she needed to take the state. Francine tom is going through the politics and the states. I want to know about the family. What do we know about trumps family and the role he will play in the white house in managing his business . Marty trump said he will pass along his businesses to his family. His kids will run the business. Meanwhile, they are very involved in the Transition Team deliberations. That has raised a lot of concern about potential conflicts of interest. They say there is not any. We will have to see how it plays out. It is unprecedented like a lot of other things in this Trump Presidency. Francine tom disagrees. Tom robert kennedy. Bobby kennedy came in. There was a massive uproar when Bobby Kennedy showed up at the door, knocking over everything in sight and he measured to get something done for the nation. Dont tell me this is unprecedented. Marty there are three family members who are deeply involved. More than just one. There was nancy reagan, who had a big influence on Ronald Reagans appointments. A it is not appropriate. Am not saying it is not appropriate. Francine you need to put a line. At some point, a line to assure there are no conflicts of interest. If there was not that line, do people in america care . Do people realize there is a conflict of interest . The press carewe and a lot of commentators care, but you are right. Maybe the general population does want to see a grenade thrown in washington. Unconventional stuff is what they want. That is what they are certainly getting. Tom tell me about secretary dimon. That will be a newsmaker if we see it. Will be do with jamie dimon here . What will we do with jamie dimon here . Marty we make of lifting reports that he is not interested in the job and other reports that he is actively pursuing a job. [laughter] marty and cannot be solved if they come out and say either he or jp morgan, and the shares are moving on this stuff. Is a completely confusing situation. Tom i just want to say i do secretary diamond watches every morning. We would love to have you come on bloomberg surveillance. Francine does it make a difference to your yields . Lets say in the secretary diamond. How much do we know he can do . Steven straight answer is no. An often depends on the numbers, doesnt it . And what hand the secretary is given to play. It is a very difficult one. I dont think it matters that much. Tom thank you so much for your perspective this morning from washington, marty. Later this afternoon 5 00 p. M. Thatork time, you can see as they transition to a further discussion of the trump transition. We transition it will come back with steven major. Francine this is bloomberg surveillance. We are looking at charts, yields come over that means one thing and one thing only. Steven major is with us. When you look at european yields, we are seeing right now the spread between the french and german yield, the yellow line on the right hand of your screen is where donald trump gets elected. Are we pricing and more risk . Going into the selection, we thought france was sitting a little bit rich compared to spain. We were looking at the spreads europe. You are. There is a colander of events. They are looking at the italian referendum. I have not going to say anything is going to happen but i think there are concerns about the project. That is what tends to happen. Tom what we like to do is get smart people from different banks and we are honored you are collegial about agreeing to disagree. Work. Adamant it can spain faces south, germany fixed itself, italy can fix it if they want to do it. One from Deutsche Bank disagrees. They find an emerging and early with meet help from imf. Which is it . Steven there will be some friction between the two. Unfortunately, there is not a straight answer. You cannot have black or white here. For the euro to survive and prosper, there inevitably has three steps to fiscal union at ebt mutuaization. There has to be some conflict or disagreement and then we move forward again. The market is from the correct to focus on the risk of volatility and uncertainty. Tom lets come back. I cannot say enough about how this is what bloomberg surveillance is about, the best voices on the street in conversation of the debates of the moment. Without question, the most controversial fed president in the 7 00 hour today on television on radio. Stay with us. Francine a picture of london. Retail sales purging. Tom really . Francine it did. Tom over there on the other side of st. Pauls is rachel riley. All there. Francine a lot corner is coming to london to spend their hardearned cash a lot of foreigners coming to london to spend their hardearned cash. Steven we will stick with taylor we listed wit was that e immigration thing. A report comes from the dictate that backs the legacy of Margaret Thatcher and urges the government to allow homeowners of any skill level allow foreigners of any skill level. A final trip to germany for the president. He meets Angela Merkel and they are expected to discuss a number of issues including the islamic, the fighting in syria and the ukraine, and the transatlantic trade. They have had a close relationship over the last 8 years. Iran expects trump to display more rationality when he takes over. They say his comments before the election will work campaigning purposes. He said the new agreement with iran was a good deal and wants to bad deal and wants to renegotiate. Amongst even more proposals is the rate cut for company overseas earnings. They would help pay for nationwide infrastructure improvement. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Tom chart of the day. This sets us up with steve major. The yellow line down below is goods, inflation, and deflation in the u. S. The white line above is what you are living, the Service Sector inflation. The dots in the middle are what we will see this morning at 8 30 new york time. The money inflations of donald trump. Which inflation matters to the president elect . Ian there is a lot to choose from. The key story is that the headline race is going to jump very sharply because the declines from last year are dropping out of the comparison. A year ago, it was exactly zero. Is now about 1. 5. My primary or march, it will be 2. 5 by february or march, it will be 2. 5. That raises expectations and we end up with an environment before the trump stimulus kicks in that we have inflation rising broadly and that would be a problem. Tom we talk about rockefeller republicans. They went to overshoot on inflation. Lets assume President Trump wants to overshoot on inflation but the economists in charge want to overshoot not 60s inflation but inflation we have not seen in decades. Ian this is a really live debate about whether we should or overshoot. If you overshoot the inflation target a little bit and can argue they will level off and will not become too alarming, maybe argue it will come back down again, that is fine. The problem is if you breach the a flatlinearget in or a rock below where it is rocketing upwards, you have a much bigger problem and janet yellen cannot go in front of congress and say it is not a problem. That is a very different policy description. Tom parabola. It is euclidean thursday. Francine there is a lot of modeling going on. Tom modeling. Geometry. Francine on overshooting, should they or shouldnt they . Ian a little bit would not cost me any loss of sleep but if we overshoot, it will come next year in the first half. And when i come back on without more significant action and that is with the difficulty comes. Can have a little bit of inflation overshoot but it will be more than that and require a bigger policy was once because there is pressure for overshoot building before we get any stimulus. If they do administration does anything like it said it would do before the election, we looking at potentially much more inflation pressure in the second half of next year on top of what we already have. Francine by the end of next year, what level are you expecting u. S. Interest rates to be . To risk high enough possible recession in the u. S. . Does the trumponomics plan make that an impossibility . Ian i think we will get a strong year next year, especially the second half because that is when the stimulus will come through. Rates will be near 2 at the end of the year. They will be nervous about the process of 2018. We could have a trump boom followed by a trump recession. Very quick and aggressive end to the cycle. Front ratee two economists as strategists. Steve majors says lower longer. Have we given up lower for longer from the pantheon camp . Ian yes. I have given that a. That up. The speed of the hikes will depend on how quickly the inflation reaches the target and how quickly the new administration implicates stimulus. Tom brilliant. Why is he a bit off the mark . Steven i agree they will hike. The financial conditions are tightening. It is the dollar. It might be credit spread and equities for all i know. As he just said, looking ahead too018, if they tighten up quickly, the economy is slowing down again. A look at the bond market. They have to factor in a longterm growth. Meansp and down again nothing ultimately and bond yields will look straight through it. If you want some proof of this, look at the u. K. Seeing close to 4 in the forwards. The bond yields have a one handle. Francine right. Steven the market is good looking through these things. The question is whether the inflation will overshoot and be a sustained overshoot. Tom sustained the keyword. Steven yes. Francine if you renegotiate trade deals and enforce a sticky inflation, the bull market should left onto that. Steven it is difficult for anyone to forecast and we have to be honest about it. It is about sequencing as well. Imagine you could forecast the fiscal outlook and International Trade developments, what comes first . It has to be defended as well. One step at a time. For me, the yields go up. Lets see if the economy can take it. I doubt it. Francine you doubt it because . Steven it yields go up, financial conditions are tightened. Francine to take it into a recession like something ugly or just not as good as it could be otherwise . Steven the simple facts are we are six or seven years into the upturn. The probability of the next recession is getting higher every year. Francine right. Steven the new hawks that arrive at the fed. Tom that is what i wanted to go. Perfect. Two empty seats. Who knows who will pick . Is it a new hawkish fed, not now, one year, two years, three years out . Do you buy that . Ian absolutely. Those two seats will be felt by our money guys. I dont know who the names will be, but it is clear trump has surrounded himself with people do not like the 08 policy zero rate policy. They will be felt by hard money guys, and that will make life more uncomfortable for janet yellen. They will not be the majority, but there is a substantial minority already on the fed which takes that view as well. Those who are opposed to zero race will get a substantial figure. With inflation rising and wages, and will be interesting. Fed,ian, if we see a new is it going to be a battle of rules versus discretion . Ian well, the House Financial Services committee is very keen on rules. An act life itd would start in the senate which would impose a rule on the fed. I hope they dont go down as road this road. Cooler heads will prevail, and that is what will happen but it will be very uncomfortable. There will be a fight over the way the fed operates. Francine will cooler heads prevail, steven . Steven yes and at the end of the day it depends what hand they are dealt. There will have to look at Economic Data and i am not convinced you will have an economy that is steaming ahead. Markets will whatever the feds are doing as they have been for the last two years. Francine thank you so much. We will be talking a little more about the emergingmarket debt and the dynamics in yields. Ian, thank you. Coming up next, we will hear from janet yellen, the chair of the Federal Reserve. She talks to the congressional joint Economic Committee starting at 10 00 a. M. In new york, 3 00 p. M. In london. This is bloomberg. President obama currently meeting Angela Merkel. They will talk about many things i imagine. Trade relationships, Foreign Policy. This is the view from our office in berlin. A little earlier we talked to the pity leaders and asked to deputy leaders and asked if you would like a fourth term. To some other news , the Bloomberg Business flash. Taylor a big transaction in the oil industry. Western refining bought. The deal valued at 6. 4 billion. Western refining produces oil, gasoline, and diesel fuels and tells primarily in the southwest u. S. A scandal in the volkswagen sales. The automaker underperformed rivals. Sales were down almost 2 . Vw has agreed to pay billions for the problem. It faces criminal investigations. Jp morgan is expected to settle allegations that have higher children of chinese decisionmakers to win business. Jp morgan will have to pay 200 million. Regulators are prepared to announce the settlement as soon as today that would end an investigation into whether the hires violated bribery laws. Francine gone from the businessman is about to run headlong into donald trump, the president. To analyze how he will do with a host of potential conflict of interest over the white house in january, Stephanie Baker has written about this. She joins us now. Major is also with us. What have we learned in the last eight days of what trump plans to do to avoid any conflict of interest . He has not spelled it out yet. What we know is what he said during the campaign, with his he will set up a blind trust that is not a blind trust because it puts business interest and is not give him an a distance from his Business Operations to provide a truly blind trust. It is up to him how he handles it and how he sets up his business interests. There are no ethics rules that applies to the president only for the rest of the administration, and so far, the Oversight Committee in congress has not said anything about whatever structure he comes up with. Tom i thought your story was incredibly fair and balanced. To me, it is the distraction. Buried in your story is the question i can constantly, which is, what happens to the president who has different arguments in court going on at any given time . Do you know yet if they will be delayed until after his presidency . Do they race to get through Different Court proceedings before the inoculatio inauguration . Stephanie he is also being audited by the irs. Tom i want to point out to our audience worldwide that tim obrien is without question the expert on mr. Trumps taxes, but these are separate issues. What happens to the court cases with trump education and the rest of it . Stephanie that is unclear. Depending on who he picks for attorney general, that could have influenced over how the cases are managed and held. Tom attorney general giuliani will say you have to do this, this, this would this case . We dont know. Stephanie this is where it gets tricky and where you would expect the Oversight Committee of congress to step in to provide some degree of checks and balances, but it is unclear given the Republicancontrolled Congress will that will happen. Francine be nice. Can we say with certainty that this is a transition like no other in history . Stephanie absolutely. Absolutely. I am fascinated by the Foreign Policy implications because he has Licensing Agreements with developers in countries around the world. Tom also istanbul. Stephanie istanbul is one where he has a Licensing Agreement that pays him as much as 5 million a year according to his Financial Disclosures with a developer there. Turkey is incredibly important to u. S. Foreign policy in the fight against isis. Whatever decisions he takes their could have ramifications for trump tower, istanbul, and it is the issue of the philippines, where he has a license for a trump tower in manila with a man who happens to be in the envoy for the u. S. Tom i get it. Are we going to see a president ial shot of President Trump looking out the west wing window on the phone and we think he is talking to putin, and hes really talking to his lawyer about a transaction in copenhagen . Stephanie 80s to appoint someone other than his children but itide that degree will be a question mark hanging over him whether or not it is a conflict. There will be a perceived conflict. America. Is his family is supposed to support him. Stephanie of course. Absolutely. It is great if you have a close family. You need to look at the implications. We have never been through this before. Tom absolutely. The soninlaw is really in line to be some form of government official. Stephanie it is unclear whether he will get a security clearance that was asked for, but he is a very important figure in the family. Is question mark over trump will his presidency enrich him somehow . That will be the main question. Tom we need access to the gucci store on fifth avenue. Stephanie talking about the lease gucci has gone which is cratering as we speak. A data check here. Commodities finally a quiet day. 1 . Have the yield at the yen 10734. Foreignexchange finally quiet today. Sterling 12477. The dollar index still about 100 but not what it was 24 hours ago. Wencine coming up shortly, will talk more about currencies. Bloomberg daybreak americas is next. I know you have a very exciting show coming up. David we will be talking about currencies and centralbank and the trump transition. Kari in thel kash wake of his speech yesterday. Just before Janet Yellens testimony, which will be one hour into our program, we will have bill daley, who was secretary of commerce. We will talk to him about what is going on behind the scenes, the process, the urgency, the timetable they need to be uncertain about running coming up on the program. Tom david westin, thank you so much. Many different ways to go with steve major. Thewere talking about turmoil in europe, but we have to go to japan today. Francine for two reasons. Abe the first one. Tom to show up. Francine right. This is the first foreign Leader Meeting with donald trump today in new york, and the bank of japan this morning firing a warning shot over the bar markets and offering to buy a limited amount of securities to maintain the yield curve. Work . Nwill it steven it is and it has since the 21st of september so nearly two months now. They say they will buy 10 year and 20 year gjdp when it spikes above zero. They did not say they would sell. It is controversial, but i think it is a cap. They have shown today they need it. They have 80 trillion yen per year to spend to keep that cap in place. This really matters because this to free up cash to go abroad or into equities or whatever. With treasuries yielding what they are now, they are much more attractive than where they were a couple years ago. I understand they found treasuries interesting 18190. Presumably more interesting at 22230. Tom how they could are we in the system now . How open are we to the shocks . The uv light here is integrity to the system or are we fragile now . Steven in a book on the end of alchemy, stuff happens. In balance has built up over decades and you cannot predict when the next one will come. It could be japan, china, greece, u. K. , switzerland, italy. You cannot forecast these things. We are very vulnerable. There is too much debt. Tom thank you so much for joining us today. Very valuable a very controversial as well. Speaking of controversial, he has been a voice for sanity some would say. Lord turner will stop by tomorrow. Services authority chairman. We will be looking forward to speaking with lauren turner. Stay with bloomberg surveillance. Chair yellen later this morning. Jon a very warm welcome to bloomberg daybreak. Good morning to you. We count you down to janet yellen, future stable, dow futures up five points come as five points come s p appeared wetoo trade at 220. A softer dollar session in the jew 10 space. David two big stories today. A softer dollar session in the g 10 space. As donald trump narrows his cabinet picks, we speak with someone who has dealt with those decisions before. Bill daley, a member of the Transition Team. It big story for markets, Janet Yellens much anticipated testimony to congress. The first time we hear