Transcripts For BLOOMBERG Bloomberg Surveillance 20170220

That is the one thing people will want to know on monday morning first thing. The Dollar Strengthening against the yen after the fed official added to the course of policymakers signaling they will keep raising Interest Rates. This is a picture for european markets. They are gaining some 0. 3 . Another currency pairing is new Zealand Dollar slipping some 1 . The kiwi dropping 1. 7 last week after the central bank said on february 9 that it plans to keep arming costs at a record low. We have charles dallara. I want to show you the banks, gaining some 0. 7 . Lets get straight to the bloomberg first word news. Heres nejra cehic. Nejra kraft heinz has pulled its bid for unilever two days after the approach became public. The company cited the targets reluctance to engage in talks. The decision came after 3g capital and berkshire hathaway, which own about half of kraft heinz am undecided they negative mergere made a impossible. Japan posted a bigger than forecast trade deficit as car exports declined and energy import costs increased. Imports rose 1. 3 from a year earlier compared to forecasts of a 5 increase. A drop in exports to the u. S. Reflected a slide in car sales that underscores the preference of Many American consumers for suvs. The white house chief of staff says donald trump and his advisers are not aware of any contacts tween the president s associates and russian agents during the 2016 Election Campaign. Reince priebus comments come after the New York Times reported that the Trump Campaign had contacts with senior russian officials during the election. London house prices posted the largest annual drop in almost six years in february. The average asking price in the capital fell 0. 4 this month from a year earlier. That is the first annual decline since 2011. The Housing Market underperformed the rest of the country last year after high prices, brexit, and tax increases weighed on demand. Spacex has launched its Second Rocket in as many months, ferrying 2. 5 tons of supplies to the International Space station. Yesterdays lift off from nasas apollo launchpad was a success. The falcon nine rocket landed without problems after taking the dragon spacecraft out of the atmosphere. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im nejra cehic. This is bloomberg. Francine thank you so much. Despite more hawkish comments from the fed, the chances of a rate hike next month remain stubbornly low. A stone fed fund futures, investors see a 32 chance of a move in march even after Loretta Cleveland said the u. S. Economy is on sound footing. And that shes ok with rates going up over time. I would be comfortable with an increase in the funds rate at this point. If the economy keeps going the way it is going, a gradual increase in the funds rate over time, im comfortable with that. I dontncerned think we are behind the curve yet in terms of that, but if you continue delaying, eventually you do become the hind. Francine the comments, ahead of the release on wednesday of minutes from the last months fomc meeting. That spring in neville hill, head of european economics at Credit Suisse securities, and joining us from singapore is charles dallara. Hes former managing director of the institute of international finance. Thank you so much for joining us. Charles, what are the markets mispricing right now . Charles good to be with you, francine. T could be a fairly long [indiscernible] i do think there is a risk that the markets are mispricing the pace of fed rate increases. After all, we do have reasonably clear evidence of inflationary pressures in the u. S. Economy now. The economy, while certainly not comprehensively robust, has certainly shown growing signs of strength over the last months. More importantly, trump tax reform proposals and Infrastructure Spending will add to that sense of direction. I would say however that markets are potentially also underpricing the geoPolitical Risk out of europe over the months ahead. It has been not surprising in some respects to see european stocks doing better in recent months, especially financials. Frank,other hand, to be i do think the geoPolitical Risk in europe is quite large, starting with greece, which is back on the carpet again, but also continuing with the Upcoming Elections in the netherlands, france, and germany. Francine neville, do you agree with that assessment . Are the risks of the unknown that is trump outweighing the benefits that could come from spending and infrastructure . Neville i think for the u. S. , the issue for the fed is, if they are not going to go now, when are they going to go . They signaled they are prepared three times this year. At some meeting, they need to raise rates and get going. Theyve consistently signaled that they are prepared to be datadependent. If you look at the data, they are very good at the moment. Youve got strong evidence of cyclical strength. You do have the promise of further fiscal stimulus to come. And there are signs of strengthening inflation. If they skipd be the march meeting, then you go into a period of prolonged geopolitical concern over your that will last until the French Elections in early may, and by that point youve deferred the situation to june. If the fed still wants to raise rates three times, theyve got a busy run in. It may be that the data arent as good as they have been. They should do it. Francine charles, give me a sense of what the animal spirit of the west will do if trump delivers on the economy and what that means for private markets, infrastructure, and equity. Charles if he delivers on the that he it will mean delivers on tax reform, infrastructure, and deregulation. It will also mean that he doesnt deliver on a trade war. That is the real big risk trumpsout there from economic policies. I dont think it is going to happen. As ank we will see nafta test case. I think the odds are reasonably good that the three parties push through this. But assuming that all of that evolves and trump delivers for the economy, then i think we will look to additional investment in areas like health areas which are driven not by 2 or 3 growth rates, but by underlying trends that we think and deliver high returns for investors. Francine neville, what are the chances of a trade war . Neville i think they are quite low. For us, the bigger Economic Risks stemming from the Trump Presidency relate to tax reform and the potential for some border adjusted tax, which may be a catalyst for a trade war, and the fed as well. Were going to be focusing on not what yellen is saying and doing, but what her successor is doing, and potentially what trump wants from that successor. It is quite possible that, particularly if border adjustment tax is on the menu, that dollar is strengthening quite a bit, and he would like a fed chair who can act to bring the dollar back down, and in those circumstances you got a lot of volatility. Francine stay with us. Neville hill and charles dallara. If you are a bloomberg customer, you can watch the show using tv. Just type tv on your terminal and then you can see a video screen. You can follow all of our charts and analysis and reach out directly to the show producers, to myself. The show producers. Lets get to the Bloomberg Business flash. Heres nejra cehic. Nejra rbs shares are trading higher this morning as it could abandon the sale of its williams and glenn unit after struggling to sell the smallbusiness lender. The u. K. Treasury has said rbs will provide 750 Million Pounds of initiative to boost competition in u. K. Banking. Ceo ross mcewen told the Financial Times that the bank may return to profit next year. Rbs is scheduled to announce annual earnings on friday. The pboc says chinese banks had more than 3. 8 trillion of Wealth Management products held off their Balance Sheets. That is a 30 increase from a year earlier. The Central Bank Says this shadow banking outpaced the 10 growth in normal lending, raising risks for the broader economy. Jpmorgan and bnp paribas have said Foreign Companies will sell more yuan bonds in china this year as the government started allowing the two banks to underwrite corporate notes. Jpmorgan says it is having an active dialogue with global clients about possible issuance. B. N. P. Paribas said it may expand its onshore Debt Capital Markets team which now consists of three people after it gained wider access to the market. That is the Bloomberg Business flash. Francine the italian newspaper is reporting that European Commission president jungle of juncker may step down this march. His term isnt due to run out until 20 18. Lets get more from brussels with jones hayden. The move is a pretty big surprise. If this is true, it would be. Weve had this speculation in the past several months or so. Hes always denied it. The latest one of the most strict was back before the turn of the year, when there was speculation that since Martin Schultz was stepping down as European Parliament head, that juncker may step down as well. He said at that point he was going to serve his full term. At this point, that is where we stand. This seems to be maybe the hardest speculation that weve had at this point. Francine if he does step down, and you are right in saying we dont have any sources on that, what does it mean for brexit and greece . We understand that because negotiations are difficult, there is a possibility they need a new bailout program. Right. Behind is really good the scenes. Hes a good negotiator. Hes been in politics for 20 years, more than 20 years, and hes a survivor. He knows how to get things done the scenes. It will be a bit of a hit to all these kinds of negotiations, to the brexit, to the greece negotiations, and just to the way the commission has been running in general. At this point, the commission is not saying anything about this report. We are trying to get confirmation or denial, to get a statement from them. Juncker himself is due to speak before the press in a little more than an hour. Him and u. S. Vice president mike pence are supposed to give statements. Well be listening to see if he refers to this issue at all. Francine thank you so much, jones hayden in brussels. Lets get back to our guests. Here with me in london, neville hill. Joining us from singapore is charles dallara. Start with you on greece. What are the chances that actually they leave the eurozone within 12 months . Neville i think they are pretty low. I think the market is going to worry about that prospect over the next couple of months. In 2015, the Critical Data is the middle of july, when 6 billion of government bonds fall due. If they dont get a bailout by then, that is when you will get your sort of grexit. The issue this time around is that the standoff between the creditors and greece isnt quite as severe as it was in 2015 and the greeks are much more likely to acquiesce. For us, the big debate is between the imf and the European Commission in terms of getting a deal that is appropriate to both of those. We cant see both of those effectively have a standoff that will drive greece out of the euro. It has got further to run. Theres not enough risk priced into bonds at the moment. Ultimately it will probably abate. Francine let me bring you to my bloomberg screen. This is the greek twoyear yield. I think i was looking at a longerterm basis. In the quarter, they are worstperforming than france. Charles dallara, you are in singapore. Is there any value being made to private equities or buying some of these greek government bonds at the moment . Charles good question, francine. Certainly my own firm would not. That is not our specialty. That may step back and comment briefly. Stepnk if juncker did down, and i have no inside information about this, it would be as your colleague said a major absence in the greek debt negotiations. To me ands critical to my partners when i lived the private sector negotiations five years ago, when we wiped out over 100 billion euro of private claims on greece. Hes a pragmatist. He knows how to somehow put the german and french attitudes, even if they are quite a for an at times, on the same page, and i think his absence would be felt. I agree with neville that a nearterm exit of greece from the eurozone is not likely, but i think the odds are beginning to grow that a mediumterm exit is a realistic possibility. Five years ago, when i coled these negotiations, i was constantly asked by greek leaders, should we consider leaving . My answer was adamantly and consistently no. It would be chaotic from greece and perhaps very destructive for the eurozone. Today im afraid that the mismanagement by greece, by germany, and by the imf, has led greece into such a corner that they may have to consider exit at some point. I would say that at the moment the imf needs to be back in the game. I find it extraordinary that they are shaping the policies and not putting money on the table. At the same time, i agree that it is well past time for the germans and the europeans to step up with Additional Debt relief so that greece can finally escape this tragic 7, 8year recession. Francine do you think the u. S. Benefits from europe in turmoil . Charles no. I think the u. S. Has to be quite concerned. I think that it is in the u. S. Interest, and youve seen this consistently, under george bush, under obama, and i think you will see it under trump as well, that the u. S. Economy benefits , robust european economy. We have a huge amount of trade with europe. We also are so invested in European Security through nato and other means that destabilization of europe risks destabilization of the nato alliance. I would certainly not encourage, nor do i think you will see the Trump Administration encourage the destruction and fragmentation of the eurozone. Francine thank you so much, neville hill and charles dallara. U. S. Banking stocks soar as trump prepares pledges to rollback regulation. How does our guest, the former boss of the institute of international finance, feel about the future . That discussion is next. This is bloomberg. Francine this is bloomberg surveillance. U. S. Banking stocks are up 30 since the election of donald trump, helped by the president s pledge to rollback regulation and do a big number on the dodd frank act. Last week, janet yellen disputed the notion that the legislation has made american lenders less competitive, stating they are in far better shape than european rivals. Still with us from singapore is charles dallara. Former managing director of the institute of international finance. Here in london, neville hill. Charles, what do you make of the president saying he will do a big number on regulation . Does that mean like such regulation . Charles i think what were likely to see is the president make a concerted effort to swing the pendulum back. I dont think you are going to see it swing all the way back to the light touch regulation that prevailed in the runup to the Global Financial crisis. I think you will see some balance, some moderation in certain areas. Certainly there needed to be a heavy dose of Additional Capital liquidity requirements imposed on Global Financial institutions, as well as constraints on leverage, but i think theres a strong argument to be made an trump has begun to make it effectively, that the costs of regulation have outweighed the benefits in some areas. I would say the volcker rule is one of those areas. I would say liquidity requirements on insurance insurances organizations is another area. I dont think were going to the back to what some might concern themselves with the bad old days of Risk Management. I think it is important to recognize that Risk Management and governance of Financial Institutions have improved considerably since the Global Financial crisis. The regulators should be thinking about the role of effective supervisors as well as regulators. Francine charles, were looking at live pictures. You can see on your screen, these are live pictures from brussels. U. S. Vice president mike pence arriving for meetings at the European Council as part of his visit to belgium. We know that later on they will do a joint statement with donald tusk. Is the European Council president. I imagine they will talk about security, but also take one or two questions on Jeanclaude Juncker, with the news from la republica, may be news on russia. What we dont know is whether mike pence will be briefed on greece. I imagine yes. There you see the gentleman leaving. We will get back to that joint statement from donald tusk and mike pence. Charles, you were saying about the deregulation. Do you believe there is a chance that if donald trump deregulate too much that hes sowing the seeds of the next financial crisis . Charles i think that risk is minimal. I think it is a risk that will be donated by some in congress. I think it is important that we have a healthy debate on this. Doddfrank is deeply embedded in legislation, in many regulations, and it is not going to be a matter of just throwing it out the window. I think there will be a selective amendment to doddfrank and i think there should be. But i dont think it will so the seeds of the next crisis. I think if it is done with a sense of balance and proportion, we actually will have a more efficient Financial Institutions. That cancial system provide credit to small and mediumsized enterprise through the economy if you look back, francine, to the early years after the crisis, the years when the u. S. Economy was struggling to recover from the recession, credit constraints were palpable. You want a system that can provide credit there, but one that is wellsupervised and wellregulated. Be the that is going to goal of President Trump and the congressional leaders are going to be working on this. Francine neville, does that mean europe will be not on a level Playing Field and it puts more pressure on macroeconomics . Neville absolutely. Charles put it well at the end that you now need the Financial Sector to be helping deliver Stronger Economic growth, eurozone,ly in the where the shortterm politics may be ok, that longerterm, unless we get a stronger recovery, Political Risks the come much greater. To the extent to which the big restraint on europe [indiscernible] francine neville, thank you so much. Up next, we talk france. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua in london. Lets get to the bloomberg first word news. Nejra kraft heinz has pulled its 143 billion bid for unilever. The company cited the target reluctance to engage in talks. The decision came after 3g capital and berkshire hathaway, which own about half of kraft heinz, decided the negative response made a friendly merger impossible. The president of the Federal Reserve bank of cleveland says she is comfortable with rates going up over time. Loretta mr. s comments, head of the release of minutes from last months fomc meeting. I would be comfortable with an increase in the funds rate. If the economy keeps going the way its going, and my outlook builds in, a gradual funds rate increase over time, im comfortable with that. I do get concerned i dont think we are behind the curve yet, but if you continue delaying, eventually you do become behind. Nejra japan posted a bigger than forecast trade deficit in january as car exports declined and energy import costs increased. Exports rose 1. 3 from a year earlier compared to forecasts of 5 . A 6. 6 drop in exports to the u. S. Reflected a slide in car sales that underscores the preference of Many American consumers for suvs. The white house chief of staff says donald trump and his advisers are not aware of any contacts between the president s associates and russian agents during the Election Campaign. Reince priebus comments come after the New York Times reported that the Trump Campaign at comdex with senior russian intelligence officials. London house prices posted their largest annual drop in almost six years in february. The average asking price in the capital fell 0. 4 this month from a year earlier. That is the first annual decline since april 2011. The u. K. Capital cost Housing Market underperformed the rest of the country last year after prices, brexit, and tax increases weight on demand. Spacex has launched its Second Rocket in as many months, ferrying 2. 5 tons of supplies to the space station. Yesterdays liftoff from nasas apollo launchpad was a success. The falcon nine rocket landed without problems after taking the dragon spacecraft after the atmosphere. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im nejra cehic. This is bloomberg. Francine thank you so much. Nine weeks until the first round of voting in the french president ial election. It has been the weekend that all main candidates stumbled. Marine le pen and Francois Fillon were blown off course by allegations they misused public funds. Emmanuel macron was criticized for comments about colonialism. The candidates of the left traded insults, making a joint ticket less likely. Lets speak to bloombergs greg viscusi in paris. Where does this leave everyone in the race . Pretty much where they were before. The one person i would say didnt stumble so much is Marine Le Pen. For some reason the allegations that she used money from European Parliament to pay for Party Officials doesnt seem to be hurting her. I think because her supporters dont like the European Parliament. As far as they are concerned, all the power to her. The others did stumble over the weekend. Thes in first place for first round. Theres a battle for second place between fillon and macron. Whoever gets into the second round against le pen would beat her in the second round. We are pretty much where we were before. The question is the left. If you add up the totals of on and intentions for ham melenchon, they would be the candidate against le pen. They just dont seem able to bridge their differences and make a united ticket. Francine talk to me about the on andetween ham melenchon. As it killed this prospect of a deal on the left . It does seem to. The head of the socialist party was on tv saying the talks will continue but he didnt sound convinced. Cannot step aside in favor of melenchon, because he is the mostsentative of frances historical Political Party. Melenchon has difficulties. He left them as part of an anger against the party. Hes got quite an ego. He represents a different set of far leftist voters who think the socialist party is too establishment. It is very difficult to see one of those two men stepping aside in favor of the other. It is not out of the question. There have been so many surprises so far but it is not looking very likely. Francine greg, does it make a difference . Do the polls actually say that if Marine Le Pen goes to the second round, she wont win no matter who shes running against, or if it is against fillon she has a different ability than against micron . She definitely has more of a chance running against fillon for the basic reason that a lot of leftist voters will stay home if it is a fillonle pen touchup. A lot of leftists between an hourly religious thatcherite and a nationalist from the far right, theres a lot of leftist voters that are going to stay home. Macron is someone they want to assemble everyone together. The scores are much wider. The victory for macron is a much wider victory than a victory for fillon according to the polls. What ive not seen a poll test n would do. Hes not that many points behind fillon and macron. If he gets to the second round and hes up against le pen, i presume he would beat her, but no one has tested that. Francine thank you so much. Gregory this cozy in paris. With just over three weeks until the netherlands head to the polls, the far right Freedom Party candidate launched his Election Campaign by calling some moroccans scum. If a dutch person driving in a car drives five miles too fast, he will be fined within a minute, whereas the moroccan scum not all are scum, but theres a lot of moroccan scum that make the streets unsafe, mostly young people, and they are not taken seriously. We are making them and the people unsafe. In thee lets bring chief economist at Standard Chartered bank. We were listening to mr. Builders. It seems his popularity even by talking in this language doesnt wayne. What are the chances that europe gets engulfed by a populist wave . Does the that not only popularity not wayne, it could actually end at increasing. This is the world we are living in now. I think the risk of populism rising in europe is quite high. It is quite different than populism in the u. S. Or in the u. K. In the u. S. And the u. K. , we could attribute that to greater inequality, the big division between the rich and the poor. In europe, i think the main factor behind this increase in populism is the lack of growth. Europe is not delivering on growth. Europe is not delivering on jobs. Francine what are the chances that it is the end of the european project as we know it, or at least the end of the eurozone . I think the risks are still very high. I think we need to keep an eye on greece and the way the negotiations are going there. I do not share the blase approach that greece could. Robably exit the euro i dont think it will work. The euro should be forever. Lets also keep a close eye on italy. We have a general election next year. All of the opposition parties favor at least exiting the common currency. Europe is failing. It is not delivering growth and jobs. Francine what is the biggest risk in the mediumterm . Is it netherlands, france . I want to bring you to my probability chart. You can find it on the bloomberg terminal. It is very simple. The red line is the probability of Emmanuel Macron becoming president. Then you have the blue, Marine Le Pen. Francois fillon, 28. 5 . How do you look at the risk . I believe the polls, but the risk is not negligible. We dont think that le pen will win the election. If she does win, there is a general election in france the following year. So she might end up being a lameduck president. The risk in france i think will be managed. That doesnt mean theres no risk. Scenarioe that a risk is not the main case scenario. Francine we will get back to marias shortly. First, u. S. Vice president mike pence flew out of germany yesterday after easing some of americas allies worst fears. In a moment, we will speak to natos former deputy secretarygeneral. First, lets hear from pans and some of the key players at the munich conference. Today i bring you this assurance. The United States of america strongly supports nato and will be unwavering in our commitment to this transatlantic alliance. It was good to hear the clear commitment of the Vice President to nato and to our common shared values. This was very reassuring. Im in no doubt of americas commitment to the military alliance, but im also in no doubt about americas commitment to the war against terror. I was at the white house and i got to meet the Vice President at that time. When i a lot of comments was in washington. It is great to hear him repeat it here at munich for everybody to hear, of the u. S. Support for nato. It was an important speech in terms of reaffirming our commitment to nato. Have come toople me to talk about it, they said, good speech. Those are words. Lets see what the actions are. I think that is generally going to be the measure. Francine madalyn all right there. Lets introduce alexander vershbow, who was the deputy secretarygeneral of nato. He previously served as u. S. Ambassador to russia. He joins us now from our berlin studio. Thank you so much for joining us. Give me a sense whether you would be 100 reassured by what we heard from mike pence. He reassured europeans about the u. S. Commitment. Do you believe him . Alexander i think when it comes to nato and the broader transatlantic relationship, i believe him. It was a very reassuring speech. But i think on a lot of other issues in u. S. Foreign policy, theres still more questions than answers. One specific thing im worried about, russia, he did reaffirm that any sanctions relief on russia would be dependent on progress on the ground in ukraine, so on nato, on russiaukraine, he was reassuring. On everything else, watch this face. Francine we heard from the foreign secretary of russia that there will be a ceasefire in ukraine. How long will that last . Alexander im not too optimistic. Most of the ceasefires have only lasted days or sometimes a few weeks. It depends on whether mesko really wants peace in ukraine. They even deny they are there, but in fact they pull all the strings. The separatists are proxies of russia. There. Has regular troops if putin wants to solve this problem, he can. Im not convinced he does. Francine what is russias endgame . What do you think will come out of russia in 2017 . Alexander i think putin is still determined to reestablish the minion over russias former soviet neighbors. He still has a vision of a divided europe in which russia is given a sphere of influence. Contrary tocally the rights of independent nations like ukraine to chart their own course. I think were not going to see any breakthrough, as much as we have to try. We have to try to negotiate with russia, but i fear russia sees the current status quo, neither war nor peace, no diplomatic solution, keeping the pot boiling, as ideal from russias point of view. Francine so why has the west not actually spoken up against, i guess with more i dont know if it is violence, or standing with more strength against russia in 2016 and 2015 . And it is unlikely it will do the same in 2017 because of the arrival of President Trump. Alexander i think the west has tried to deter russia from doing even worse things to ukraine and i think the sanctions in particular have been an impressive display of transatlantic unity. But it hasnt been enough to pressure russia to reverse course. I think the arrival of a new administration, if it takes the right position on ukraine, sticks with the european allies on how we deal with russia, has a chance of succeeding where obama failed. The odds are not great, but i think if trump pushes hard to make a deal with putin that is a fair deal, we might see some improvement in ukraine. Francine how will donald trump deal with russia . Hes made some overtures to Vladimir Putin and last week we saw a little bit of backing down the cause of the scandal engulfing general flynn. Alexander it has been clear for some time that President Trump wants to improve the relationship with russia and theres nothing wrong with that. The tensions are high. Theres risks of accidental conflict. Theres been some concern that hes prepared to give away a lot of vital interest for the sake of cooperation with russia in fighting terrorism and isis. If russia really wants to fight isis, and that remains to be seen, they shouldnt need to be induced into doing it. It should be in their own interest. I think the key is for the u. S. To work closely with its european allies and not strike out in a different direction. If it does that, if it sticks with certain basic principles, theres a chance that we could actually achieve a longlasting improvement with russia. But again, russia has to play ball. As i said earlier, they are seeking a kind of Reed Division of europe, spheres of influence. That is not something we should prepared to accept. Francine we also know trump had candidates to be National Security adviser yesterday according to his spokesperson. Who would be the best person to lead that . Alexander i think of the four candidates that have been mentioned all have a lot of experience. Some are from the military side, some from the diplomatic side. Having worked closely with john bolton, he is a more controversial figure, has had somewhat rocky relations in the past with european allies, but hes a very capable guy who knows a lot about the issues. I think its important that a choice be made soon. The u. S. Is kind of driving without a Steering Wheel here until it has a capable National Security team in the white house and we need to see tillerson and mattis get their senior teams put in place as well. The u. S. Cant afford to be so understaffed at a time when new crises could erupt at any time. Francine thank you for your time. Alexander vershbow, former deputy secretary general of nato. Breaking out of the e. U. Commission. Weve been bringing you the report from the italian newspaper that Jeanclaude Juncker could step down as president of the European Commission. The e. U. Commission says not so. They believe this has been completely fabricated and they are saying that for the moment, this was said in a tweet, that a fabrication. Spokesperson their of the e. U. Commission saying this is complete fabrication. As the u. K. s house of lords, which has no government majority, begins debating the brexit bill, we will focus on whats next for britains european exit. This is bloomberg. Francine where getting breaking news out of. Doc consultancy, approving a Share Buyback of 2. 4 billion. Asias Biggest Software exporter has been listening to shareholders. The investors have been asking the company to return our of its 6. 4 billion cash pile. It is sitting on 6. 4 billion in cash pile. They are now buying back to . 4 billion. You should expect a nice lift to the share price tomorrow. Lets check on the markets with mark barton. Mark stocks up for the second day here. 600, 0. 2 e stoxx since november. This is the twoday chart of unilever rising 13. 4 on friday. Since november. Highest level ever. The twoday rise is now 6 . Kraft heinz walked away. We had unilever rejecting the offer on friday, saying it fundamentally undervalues it. Buffett, which own about half of kraft heinz, not wanting to go hostile. Rbs, big move today. The shares have retraced all their brexit losses. Millionaken the 750 pound provision after the u. K. Asked the e. U. To consider another way for the lender to meet and try just restrictions. Bailout shares are rallying today. Gold is in performing the way it should according to the text books. As you can see, the last two rate hikes, youve seen gold rise. Precious metals up 7 since the rate hike in december. 13 in the two months following the last increase. 6 the previous time. The big question is why. Is it trump uncertainty, the uncertainties ahead of the european elections taking place in 2017 . Quick wrapup of the markets. Brexit bille u. K. s takes another step forward today as legislation moves forward to the house of lords. The government hopes it will have cleared the u. K. s upper house with a final vote on march 7, paving the way for a possible trigger of article 50. Is marios. Us we were talking a little bit about european risk, greece, france. It hurts the chances of a clean exit from the e u we dont have the people in place with whom theresa may can negotiate. I think so. I think we should also expect a lot of europeans to be playing to their own domestic audiences as well. They cant appear to be too soft to great britain. Francine what does that mean for the u. K. . Do you worry about the u. K. More than the eurozone . I would worry more about the u. K. That doesnt mean the eurozone doesnt have problems. They are problems, but they are of its own making. For great britain, still, the European Union is the largest trading partner of this economy, and the most important determinant of trade relationships in the world is distance. Francine talk to me about how you see it playing out. 4 ,ou see inflation at 3 , what does it mean for the bank of england, and do you see bankers leaving the u. K. Engross . I think the bank of england will stay on hold. The economy has done relatively well despite the risks but that shouldnt give us a false sense of security. The pounde time sterling was the main shock absorber, it has declined substantially. I think there could be more Downside Risk to sterling Going Forward and there could be some Downside Risk to Economic Performance in the u. K. Brexit has not happened just yet. There is still full access to the European Common Market for the u. K. I think once we enter the negotiations for the divorce, i think the Economic Activity will be impacted. Francine if you have a cheaper pound, could see a lot of Foreign Direct Investment in the country. You could see that indeed. It helps. The weaker sterling definitely helps. I still think that the strong growth weve seen in the past year will not be sustainable. Broughtple have purchases forward in anticipation of brexit and i would expect a deceleration. Francine thank you so much. Marios, chief economist at Standard Chartered bank, stays with us. We will be talking a little bit about trump. I want to ask about dollar dynamics and what that means for the yield. We had a great call from larry fink, disagreeing with jeffrey the mac on where they saw the 10year yield heading in the United States. These are your markets. One i want to show you is the Foreign Exchange market. The one youi, but want to watch out for is dollar. Dollaryen, 113. 15. We heard from Loretta Mester, the Dollar Strengthening against the yen, signaling they will keep raising interest rate. This is bloomberg. Hawkish tones as the central bank is doing tightening and it will only create risks. A weekend to forget frances president ial candidate muddies the water further with the elections front runners. Ministersan finance assemble in brussels. Good morning. This is bloomberg surveillance. I am Francine Lacqua in london. We want to show you the data. The data is a little bit mixed close to president s day, so we are not seeing any trading out of the midwest. One of the big ones is dollar versus yen. Lets get straight to bloomberg first word news. U. S. Vice president mike pence has reassured europeans of what he calls the unwavering u. S. Commitment to nato. It was his first speech on the world stage. Bloomberg got the reaction from u. S. Secretary of state madeleine albright. Speech inan important terms of reaffirming our commitment to nato. As people need to talk about it, they said good speech, lets see what the actions are. That is generally going to be the measure in terms of whatever statements are made, how they are reinforced. He said the u. S. Would hold russia accountable but would also search for Common Ground between the two countries. An associate of President Trump is pushing a plan for russia and ukraine. Diplomats included the president s personal lawyer, the ukrainian lawmaker and the man who helped the president s cup business deals in russia. Meanwhile, a ceasefire between the ukraine and russian backed separatist began today. Four north seeking korean suspects who fled the country the day after the halfbrother of kim jongun was murdered. He was poisoned. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Back to you. This is your days. In terms of what were seeing, the eurodollar. Lets bring the board out before you. This is the picture for dollaryen. 113. 44. Without it out the most interesting story on the market is the Federal Reserve official adding to the course, if you policymakers over the trading day. They will keep Interest Rates rising. We will keep raising Interest Rates. Assisted with major peers, also what we heard from madame master and we heard blair on from janet yellen, she said last week that more increases will be appropriate. The other one we need to keep an eye on is the kiwi. The kiwi versus u. S. Dollar. Is after the central bank of new zealand said on february 9 it plans to borrow costs at a record low rate around the period. We are looking at a Corporate News story because 72 hours is a long time in the world of megadeals. Unileavehe price for r. Kraft said they would walk away from the deal. You can see the share price tanked. This is once we saw after the u. S. Ketchup maker decided they would not continue with the hostile business but there was a lot of speculation of who they mount who they may now bid for. We have more on that story next. Date of themain day, the president of the Federal Reserve bank of cleveland and the u. S. Economy is on a sound footing. She also said she is ok with rates going up over time. I have been comfortable with an in the funds rate at this point. If the economy keeps going the way it is going the outlook builds in with gradual increases over time. I am comfortable with that. Iget concerned that dont think we are behind the curve in terms of that but if you continue delaying, you do become behind. Francine despite investor comments, investors see just a 32 of emerge based on the futures. With Marios Maratheftis. Thanks for staying around and thanks for joining us. Give a sense of what the markets should or shouldnt be looking at. Yet, fund futures dont believe they will hike. It is quite possible that the market is seeing a significant like. The reason is the Central Banks are no longer the only game in town. This is because the fiscal policies are back on the agenda. Trump has promised that trade is also back on the tread. Markets concerned about trade. The uncertainty about what trump could do is so much on the markets mind that perhaps the guidance of the Federal Reserve takes a backseat. Certainly, it leaves the door open. But i think the market is really concerned about the future and what the fiscal arrangements could be. Marios, what is your take . The market is kosher to a weird expense because they dont know what donald trump will end up doing. At this point i am listening to the fed. Last year we had a much more but today there are signs that the u. S. Economy is at full employment. Tech is doing better than last year, growth seems to be strong and if trump influence any of his policies it will be inflationary. The risk might be higher Interest Rates than what the market has now. Francine what is your main take on what we hear from donald trump on Economic Policy . What we know about Dollar Strength . I think the policies we have heard about so far there is still an element of uncertainty related to these qualities so far, these require higher Interest Rates. I think this would result in tighter financial conditions globally over time. I dont think that is effective when it comes to the economy. I think Economic Growth is strong and benefits from the fiscal stimulus would be limited because they would be associated with the tightening of Monetary Policy on the other hand. Francine stay with us. Coming up tomorrow, on bloomberg surveillance, we sit down with a conversation with the opec secretarygeneral. Live from the International Petroleum week here in london. Look for that at 11 00 a. M. In london. This is bloomberg. Francine this is bloomberg surveillance. Lets get more on comments. We are back with jane foley and Marios Maratheftis. What are your comment on the dollar here and whether that changes the funding plan for donald trump . A weak dollar because he wants to change the trade balance. How he will get a weak dollar is up in the air. Certainly, it is possible by the middle of next year we may have a more dovish contingent within the Federal Reserve. But the fed will hike rates if they think the inflationary potential is there. Will there be enough potential for them to hike three times this year. Certainly, the fundamentals are coming through and they can look good but this is one piece of , this is the average earnings, average earnings still a 2. 5 . Maybe four and a half percent. ,hen he would look at australia week journey in the u. K. This has to do with graphics and technology. Francine im going to bring the function close. , and the fed has been optimistic for the last few years and they got it wrong. One and of course, one of the reasons for this, the dollar has been doing a lot of heavy lifting. This has been the case for the last few years. Janetst year yellen, last year, anticipated the strength of the dollar in 2014. We had a lot argument against that. The risk is the balancing between how much hiking can they do without allowing the dollar to get too strong. We have been talking about this for as far as i can remember. How much does the fed worry about Dollar Strength. It comes into the equation. We are in an open World Economy moving between diverging and policies. It is very clear that this should be happening in the fed takes the dollar into consideration. I mentioned that i never believed the fed last year when they said for hikes. Cut, it followed by a was not a very popular view. Thereime around, i think are signs the u. S. Economy is closer to full employment than this time last year and we have a big unknown. Trump now wants a weaker dollar but all of his policies, the policies he has announced and talked about would lead to a stronger dollar. You cannot have both. Francine stay with us. Lets get straight to the Bloomberg Business flash. Unilever it would have been one of the biggest takes ever in the food and beverage industry. But the company walked away after a negative response. The head of tsa is looking for support for the post purchase of general motors. The ceo will meet with government leaders in france. The company will reportedly promised to honor its existing labor contract and keep investing in its german factories for another three years. The coppererdicts come back is only the beginning. Copper will probably rally towards 7,000 per metric come this year and go past 8,000 before the end of the decade. It is seen as a barometer of Global Economic health. This rise increased 18 last year. That is Bloomberg Business flash. Francine it was a weekend to forget for the leading candidates in frances president elect and president ial election. Marine le pen gave fake parliamentary jobs well Emmanuel Macron came under criticism for comments about the nations colonial past. With us is Marios Maratheftis and jane foley. Abouto me a little bit the odds. You have four candidates. We know them without really knowing them. They all come out of nowhere. Do we trust the polls . Actually i do trust the polls. Pulling in france tends to be pretty reliable. The polls were not wrong in the u. S. We are not getting into it now but the analysis was wrong, not the polls themselves. In france they have been pretty reliable. They have been moving because there has been a lot of flux. Whenever a candidate gets in the lead they get hit by bad news. I actually do trust the polls. Looking onoment i am the bloomberg terminal. It has a manual macron at 38. 7, Marine Le Pen at 44 at 34. These of course are odds, not polls. Thatlly, it is always said macron has a provisional lead but out in a town called camper , there was an or support for him. It certainly wasnt a leap crowd for the area. It was local professionals, not a workingclass crowd, but there is a certain type of Small Business mode and whitecollar worker that is looking for a center voter. Fillon andthey find their disappointed by five years in office and they want to vote socialist and macron seems to have captured their vote. Is it enough to get them past the first round . That is the question. Francine there is talk of a deal and they traded insults over the weekend. If you look at the combined total it would if there was one leftist candidate they would somersault over fillon and macron and they would be the person going into the second round of against le pen. Candidates, running on their own and candidate of the socialist party, there were talks to come up with this one candidate. The question is who would be candidate and neither of them are going to step aside. The candidate of the establishment of the socialist Party Candidate and neither of them are going to step aside. Party, he is not going to step aside for a renegade on the far left. Gripes against the socialist party and he doesnt look like he will step aside. I wont say it cant happen, but for the moment it is hard to see exactly how they could come up with some arrangement when one of them steps aside for the other. Who does Marine Le Pen have a better chance of becoming president against . We dont know how he will get funded Going Forward. You could argue he is a flawed candidate because of the scandals and allegations involving his wife and kids. Fields problem is not the allegations about his wife and kids. Often he is far to the right and he is running against someone further from the right and to win that you have to get the votes of people who didnt vote for you in the first round and a lot of leftist voters whenever i go to any rally, i ask what you would do and half of the people say, i will hold my nose and vote for fillon to. P out the pen the other half say i will not vote. With macron, it is less of the issue. That is becoming an issue in the legislative election in june but focusing on the president ial election, he is much more of someone who gathers people from the left and the right. A macron do show that victory over le pen in the second round will be much larger and more decisive in the field victory over le pen. Francine thank you so much, our political reporter from paris. My first question, and i havent seen a lot of research on this i know the odds are against her at the moment but lets say Marine Le Pen becomes the president. Does it rally or drop . It drops like a stone, related to brexit concerns. Stands, for the primaries for the french party, they have been consistent and say that she would leave the second round and as long as that remains the case the u. N. Will find scope for relief rallies. Ultimately, that is the biggest concern in the market. Very quickly, how does the ecb do this . Decisionmaking of the ecb they have their own challenges with the economy but le pens uncertainty increases. The general election in france next year would limit the ability of the pen to cause a lot of damage to the European Union. She would be a lameduck president even if she does it in. Francine coming up tomorrow on bloomberg surveillance we speak with the president of a council on foreign relations. That is at 6 00 a. M. In new york and 11 00 a. M. In london. We will talk about donald trump and his visit to asia. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. London house prices posted their largest annual drop in the six years since february. We are joined by Scott Hamilton and also joining us is jane ,oley and Marios Maratheftis chief economist. Give us a sense of how ugly it is getting. This is the biggest annual decline in six years. It is part of a longer term pattern where it seems that after many years of really big gains in the london Housing Market the top is beginning to come off. Where we see the weakness is a prime central property. The Greater London area is not so weak. The chelsea area and hammersmith, it is the center areas doing the weakest. Francine are we near a floor . Isat the moment all we see the overall Housing Market has done reasonably well. It is part of the consumer resilience we have seen since the referendum in june and the employment market is holding up very well so it is not the case that this is a sign of impending doom signaled for the Housing Market. The potential to bid up house prices anymore is going to reach. Francine is it because of a cheaper pound . If you buy housing from america or the uae it is cheaper but at the same time you have the whole brexit uncertainty hanging over the Housing Market and also, its seems that while the consumers have been railing since brexit this year it could it may be the case that the Housing Market isnt in a position to take off but at the same time it is supported by the employment market. The forecast is a relatively stable Housing Market. Francine thank you so much for all the insight. Jane foley and Marios Maratheftis, stay with us. We will be talking a little bit about pound calls and we will be talking about athens. Tomorrow on bloomberg daybreak americas, a conversation with a yield Yale University professor at 9 00 a. M. In new york. This is bloomberg where london is not sunny. Happy president s day in the u. S. I know a lot of you are off so there is no trading on treasuries or stocks. With x1 you get the best of the oscars. Youre a funny guy. Funny how . How am i funny . Scorsese finally wins. Could you double check the envelope . Show me best picture. Whats the difference . Show me best actor. I do not take tonight for granted. Thank you so very much. Get all the greatest scripted and unscripted oscar moments on xfinity x1. The oscars, live sunday, february 26th 7ea4p on abc. Francine this is bloomberg surveillance. Lets get to first word news. Germany wants to make sure operation with the u. K. On military matters survives brexit. It is tricky. We want to have very close ties with our nato members when the united kingdom, and i have are to started with my colleague, michael ballack, to work on a bilateral roadmap because we know we need each other. We are both members of nato, and we have common interests to increase cooperation. Germany has pledged to increase defense spending to 2 by the next decade. Arewhite house says they not aware of any contact between Donald Trumps campaign and russian agents last year. New york times story saying there were repeated contacts between russian agents and the Trump Campaign on the it is. D un u. K. Lacks information on which eu nationals are in the country. That will make it difficult to choose who will remain after the u. K. Leaves the eu. China plans to build dozens more airports after a boom in travel. More than 50 airports will be added by 2020. That is a must a 25 increase. Chinas Largest Airlines have ordered hundreds of planes in the last two years. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you so much. Finance ministers once again convene today. Germans finance minister has said he expects the imf to his faith in the nations bailout program. Joining us is the presence of the Athens Chamber of commerce and Marios Maratheftis of Standard Chartered. Thank you so much for joining us. Give us a sense of what the standoff actually means for greek businesses. It is extremely important that we complete, if not today, in the next few days. The review has to be completed immediately, i would say, because simply everything has frozen here in the great economy Greek Economy. Hopefully you turn, hopefully not another trap, will produce the necessary results. At the end of the day, what he should Pay Attention to is the eurostat, the greek statistics that have been confirmed by the relevant european statistical bodies. There is improvement in the Greek Economy. It will suffice to say that the fact we have only used 32 billion out of the 86 billion that was earmarked, that is a positive sign. What is the real chance of a deal today . When we speak to market participants, there is more and more of a risk that athens will have to pursue another unpopular, Strings Attached bailout. I am by nature an optimist. I hope there is an agreement today. If there is not an agreement today, it seems we will have one by the middle of march. I think we can sustain such a delay. Obviously hoping there will be a solution at the end of the day. If there is not a solution, i dont think we should be discussing what will happen. We all know what will prevail, not just for the Greek Economy but europe in general. Francine all right, i am looking at the greek twoyear debt, yelled at 9. 9. Let me turn over to Marios Maratheftis, standard and chartered. Do you share that optimism . Optimism. T share that missing opportunities to settle things quickly in the past, and that could be yet another case of that. Greece has enough funding to go through until july. The pressures on greece right now is not the mets to settle the deal now. I understand the economy is frozen, but the economy has taken a big hit since 2008. It is actually declined by 30 . That is nothing new. Hink thisll saw the good this whole saga could drag the on march. Francine what is your reaction to that . Living we have been through for the last few months is a rift between the European Union and the International Monetary fund. That is essentially why we have not completed the Second Review. What needs to be taken into account is that this rift has brought about political developments. We have an election coming up in holland on the 15th of march, which because of the situation prevailing in the European Union is enhancing extreme nationalistic Political Party formations. Others will follow with france and in september in germany. I dont think it is in the interests of the European Union or eurozone in general to have greece without a solution. When we have completed, as a country, in the vast majority of the measures we are agreeing, these political agreements, i dont see why we should continue with this delay. We need to have a solution because greece needs to enter even with this delay the qa process, which i am very helpful mr. Draghi will be renewing after september of 2017. As we say in greece, better late than never. Lets have this opportunity to enter the qe agreement, which will assist the Greek Economy. Francine i appreciate your optimism. The way things are going, will greece need another bailout . Is greek debt fundamentally unsustainable . I think this year might get a little reaction to that because after the german election, there is the indication from merkel that next year the issue of Debt Forgiveness maybe on the issue. That would be a really big step forward for your very after the german election it could be easier to discuss it then this year. That is something on which the imf has been supporting for a long time. Im not sure what the outcome of those discussions would be. It would be a sea change for the outlook for greece. Francine lets say there is an agreement today or the next few days, how much higher do share prices go for greece . If we do not get an agreement until the summer, do shares go down gradually . Well, as i said, i hope you will have an agreement soon. If not today, by the middle of march. As far as the debt is concerned and how sustainable that is, i will remind viewers that there has been an agreement on discussing the issue of the debt and Debt Forgiveness as was pointed out since 2012. Greece has fulfilled the vast majority of the obligations they had undertaken. I think this discussion must be set immediately after the agreement of the Second Review. It is in the interest of everyone within europe to put forward these discussions and find a solution. What we need to do at the moment is complete the Second Review and united here in greece and in europe to find alternative policies that will enhance the private sector so that we will thisually entered exit crisis we have been living through. We seem to have agreement from brussels as far as attaining these surpluses of 3. 5 , but we are working on a formula where we will accumulate 2. 5 for surplus and the additional percentage point will begin back to the private sector in terms of tax alleviation so we can begin to return to as far as ours economy is concerned. We need political will in order to be able to determine these solutions. Francine thank you so much. Political as far as our economy is concerned. Will, or it could not come. This is something where watching over the next 24 hours. Thank you. Jane foley stays with us. If you want to follow us and give us criticism on some of the charts we use or the questions we ask, you can go to tv. You can follow our guests and our charts you can message me directly. Tom is off today. Were looking forward to hearing anything from you. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. By mistake in abu dhabis largest oil consideration. They will expand production capacity. Still with us is jane foley. Great to have you on the program, as always. Give us a sense of how important this is. Would happen . Is that is an excellent question. We knew that adnoc have been trying to strike these deals for some time. They have taken longer than expected, and that could be because of disagreement over price. We are not sure. They have been gradually coming on stream. In december right after opecs production agreement announcement, we had a big piece of news in the form of bp taking a concession. The fact that adnoc is striking this deal with china is eresting because china is i should say asia is the biggest export market for abu dhabi oil. Chinese companies have been striking interesting deals in the middle east, including with saudi arabia and refiners, and developing an oilfield in iraq. There is a bit of a dynamic going on here that allows china to get access to middle eastern oil and giving middle Eastern Countries and companies an injection of cash when oil prices are very low. Francine give me a sense of why we are seeing asia trying to get into these deals. Do we believe energy demands will grow over the next decade . There is a question mark over the pace of asian Oil Demand Growth at the moment. We saw china grow 2. 5 over the past year. In the longer term, if youre looking to partner with countries where you think there will be a pickup in demand, china has to be your number one choice. On the chinese side, we saw them striking resource deals around the world not just for energy, but farm lands in africa, mines for industrial metals. We see them on a resource grab to take advantage of oil prices, particularly striking these deals now. Francine thank you very much. We are just getting a live shot of belgium. This is mike pence, the Vice President of the u. S. , i think he is giving a joint press conference with the European Council president. Earlier they met and shook cans. Now they are breathing the participants on security. Mike pence was flown to brussels over the weekend to reassure europe over their commitment to security. We understand in about four hours from now the Vice President will meet with the u. N. Secretarygeneral and they will hold a press conference as well. Lets get to your Bloomberg Business flash. Investors in hsbc are looking or signs the british bank will follow through on returning more capital. They report fourthquarter earnings this week. Shares are up 56 since the brexit vote. They are buoyed by the slumping pound. Mills to ordered steel curb output through the middle of next month. The reason is officials want to reduce air pollution during the Upcoming Parliament meeting in beijing. Shares of unilever are falling with heinzer a deal craft kraft heinz collapsed. It would have been the biggest takeover ever in the food and beverage industry. That is the Bloomberg Business flash. Over to you on more on unilever. Francine thank you. Let me bring you over to the price chart of unilever. I want to ask you whether this was a complete surprise. Kraft on friday saying they want to buy unilever. You see that jump in stock price. There was the weekend, so no trading. Then it goes down half currently, and 3531 for the unilever price. Is it over . Does unilever become a takeover target . There are very few companies in the space that have the financial backing that have the size to go after them. Whether kraft heinz will come back, there is an interesting line. Warren buffett owns about 27 of kraft heinz. There is an interesting line in 2015 birth shire Hathaway Berkshire hathaway report that says we will only go where we are welcome. I dont think they expected this k so soon. A i dont think they expected the kind of response unilever had. Basis for there is no further discussion, the price is too low. This gets shut down so quickly. It was friday afternoon it was leaked. Monday morning, there was no deal. They had to retreat. Absolutely. Two days before this, the cfo of kraft heinz said they did not need big acquisitions, so im not sure if they were preparing the market because they had already rejected the deal. Once it leaked, we expected them to go through the 28 day effecte that starts in the moment the deal leaks in the u. K. They did none of that. Maybe they thought it would be tough to get a hostile deal cleared. Francine we know they had the appetite. Is there going to be a flurry of speculation on what they can buy in the u. S. . There is definitely speculation. If you remember general mills, all of these companies down on the day the unilever deal broke, because folks thought cracked would make a deal on a domestic company. The question is who will kraft heinz laughter next go after next . Francine thank you. We will be back with jane foley. Coming up tomorrow on bloomberg surveillance, a conversation with the opec secretarygeneral. That is live from International Petroleum week here in london. That is 11 00 a. M. In london. This is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua. Lets focus on weakening dollar. We are back with jane foley. Let me bring you over to my yen chart. This is a simple intraday population. The purple line is the 50 Day Moving Average, and the green line is the 100 Day Moving Average. What does this tell us . Up until thes us end of the year there was a simple story, and that was a carry trade. There was a sense that they were not going to go anywhere in japan. We know there is a lot more to dollaryen than a simple carry trade. This has really accentuated that. This is really underpinned by safe haven. There are issues with demand. There are more concerns about protectionism. What would do to trade . These issues are likely to carry on. There are issues about tapering. These came out last year. It is market of concerned that tapering may rear its head with concern to the bank of japans policies. Francine we heard about the bank of japan being labeled a currency manipulator. Is there any concern about that . Jane you have to go back to 2004 to see when the bank of japan was intervening in the market. If you go back to that era, some of the intervention was joined in by the Federal Reserve. That is an era when the strong dollar policy suited the u. S. It is not anymore. There was intervention in japan in 2011. That was the Nuclear Disaster because of the tsunami. The on that, they have not intervened in the market. Donald trump has been verbally intervening himself. From that point of view, it is the pot calling the kettle black. There are reports now of trump. What you do have in japan is again that is not it is softly valued. The dollar is overvalued against the yen and the u. S. Dollar. That is why donald trump is so worried. Onncine give me your take pound. We had a guest from Deutsche Bank last week saying he could see it between 105 and 108. That is low against the dollar. Jane that takes in view your dollar view as well. We are relatively bearish compared with the market. We see euro with the dollar and eight at 110. That has a bearing on cable. Cable could be a little weaker, not to weaker. I still see weakness coming through in sterling. That will be exhibited most against the euro assuming le pen does not win the president ial election. The course of the next few months we will see a lot more volatility in jack after the article 50 is triggered in the u. K. I think we will have the come back, the position from the eu on their brexit views. I think that will really show investors how complex and the risks of the u. K. Economy over the next couple of years. The u. K. He indication will not want to talk about trade until christmas. That highlights uncertainty. Francine thank you so much for joining us. Jane foley. Kit juckes joins us next. Be talking more about the dollar. I want to get his views on the pound. He is much friendlier when he comes on. This is bloomberg. Francine hawkish towns abound. Is comfortablek with rates moving higher. A series of stumbles from the elections of runners. Shares plungedy after they dropped their deal for the company. To our americans, happy president s day. I know a lot of you are off. I am Francine Lacqua. Im working today. Lets get straight to first word news. U. S. Vice president mike pence has reassured europeans of what he called the unwavering u. S. Commitment to nato. Speech on thest world stage. He got reaction from madeleine albright. It was an important speech in terms of reaffirming our commitment to nato. As people talk about it, they said good speech, those are words. Lets see what the actions are. I think that will generally be the measure in terms of how statements are reinforced. He said the u. S. Would hold russia accountable and search for Common Ground between the two countries. His personal lawyer, a ukrainian lawmaker, and a man who helped scout business deals in russia. The plan is set to outline a waiver President Trump to lift sanctions against russia. A ceasefire began today. Malaysia seeking for north korean suspects who fled the country. Authorities now believe kim jonguns brother was poisoned. Malaysiaglobal news 24 hours a , powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you so much. European stocks are gaining. Telecomeeing a rise in companies. The pound recouping some of fridays loss. I want to point out dollaryen. What isget to happening. We have an impact on dollar. Volume is in as it is president s day in the u. S. Always good to look at european banks. That stock index gaining 0. 5 . A littleething different today. If you look at the share price of unilever. I have to get that in a second. There with me. I had so many charts appear that i got confused. I kept the daily average for yen. This is 62 hours in the world of megadeals. That seems quite long. Shares surged as kraft heinz announced a plan for a 143 billion offer. This is after they pulled away. Unilever saying it makes no sense. You can see what happens in 72 hours when a deal is rebuffed so clearly and so strongly. The Federal Reserve bank of cleveland president says she is ok with rates going up over time. People in ancome increase in the funds rate at this point if the economy keeps going the way it is going. My outlook builds in a gradual increase in the funds rate over time. I am comfortable with that. I do get concerned, i dont think we are behind the curve yet in terms of that. Right,continue delaying, eventually you do become behind. Comments,despite her investors see a 42 chance in a move in rates. Great to have you on the program, kit. Let me bring you over to the w. A. R. The wirp function. The markets dont quite believe. This time last week we must have been close to 30 for that march meeting. We were in the mid 40s, and now we are back down again with Loretta Mester speaking. We are not behind. It will take a lot of work to convince markets they are serious. Francine what needs to happen . Growth, inflation, or more clarity about what donald trump will do to the economy . Kit i think it is very easy for the fomc in the absence of more significant inflationary pressures come in the near term diis easy for them to ther. Rates should be higher than they are already. What needs to happen for the fed, not much more. The equity market moving higher, their sensitive to that. The dollar is not running away with it. Core inflationary pressures are slowly building. Francine is there a miscommunication problem . Can hikeink the fed even ifif odds tel odds dont tell us they will. Kit this is a problem of their own design. We have been down this road before. We know this is the fed who in the absence of significant inflationary pressures think it is safer to wait if there is any reason to wait. We will not get just one rate hike this year. I am confident in february we will get more than one in 2017 despite having only had one in 2016 and one in 2015. I am sure. By now i was becoming increasingly less sure. Probably, that is the problem. Francine you go into the year thinking one thing, then you listen to what they say. Talk to me about Dollar Strength. Donald trump has said he wants a weaker dollar. All of this policy tries to dollar stronger. Kit i am sure there is a big line of people who think it is better for their comes to have a stronger currency. Buts very weak before 2012, his policies are going to strengthen the dollar. If he wants to ease fiscal policy into an economy that is near full employment and has rising wage growth and rising core inflation, then he is going to be doing things that encourage real Interest Rates and nominal Interest Rates to move higher against the backdrop of quantitative easing in europe and japan. Francine i love your notes. It is my favorite notes. You say today quietly risk on. What can change . Kit something i cannot see right now. Mood,nger to the risk on spiked higher in bond yields. A reversal in equity markets, something coming out of left field in emerging markets. Francine like what . Nonperforming bonds out of china . Kit i cannot see it right now. Chinese is performing good. They are outperforming most peoples expectations. That is driving Commodity Prices whether it is copper with the , prices nearle their eyes when it comes to hold list of things, and i cannot find much scary. Francine the market is expecting watch from donald trump when it comes to reflation and repatriation . Kit i think would have stopped because we know what we expect and are waiting to see. There is a general expectation of a Corporation Tax cuts and some kind of income tax cut. Those are the kinds of things that the market has priced in a bunch of money to come home. Francine thank you very much. We will be back with kit juckes of Societe Generale tomorrow. Opect down with the secretarygeneral mohammed invoke kendo mohammed barkindo. Francine this is bloomberg surveillance. Im Francine Lacqua here in london. Lets get straight to the Bloomberg Business flash. Shares of unilever are falling today. That proposed deal between unilever and kraft heinz fell through. Kraft heinz offered 143 billion for unilever in what would have been one of the biggest deals ever. 10 ride a huge game, a evening. They fell 7 in todays trading session. We will have plenty more on unilever next. U. S. President donald trump held rallies in florida. He defended the first month of his presidency. Margaret teller has been traveling with donald trump in florida. She joins us now. Great to speak to you on the phone. Is he really campaigning . I was reading all of the papers of the weekend, and he has been in charge for a month, and he is already looking at the next president ial cycle. Is that true . He filed paperwork that would allow him to do precisely this. It is not a formal reElection Campaign. This is what he hopes will be a shot in the arm to draw the enthusiasm of his core base. Also an opportunity for him to turn the narrative around. Is really trying to seize that opportunity. Francine you have been to the rallies with him. Did he talk about the media again . Was a critical of the media, and what did he say about his first in office . We flew in with him from South Carolina where he was touring the boeing dreamliner. He was very polite, nice, talked about policy plans and his search for a new National Security adviser. He said he was going to go out and give a speech on unity with one exception. We found out what the exception was, it was us. It was a firebrand speech, saying the media is the enemy of the people and that nobody should believe anything they read. A went on to talk about series of plans on what is going to be doing. Economy, health care, and immigration, all this sort of stuff. The hangar the airport had thousands of supporters and hundreds of media. ,his is classic donald trump showing this instinct to double down. This media approach has been a core part of his strategy. It is controversial, or sure. It is not a mystery. It is part and parcel of how he is intending to get his message across to all americans, im just his supporters. Francine have we found out anymore about donald trump or his advisorscontacts with russian agents . We know his chief of staff ,eince priebus is now saying intimated and said pretty directly that the white house and the Intelligence Community knows of no contact between Trump Associates and russian context. We have not heard that yet from the Intelligence Community addressing this. Now that Reince Priebus has said this, the white house will face a tremendous amount of pressure to have an affirmative Statement Like that made public by the Intelligence Community. We will see the next steps. This is all taking place as republican lawmakers have begun to come around to the idea of briefings and airing this, there needs to be trump earrings on the senate side hearings on the senate side. There is a commission being put together to ask the white house to protect the integrity of any communications that have to do with russia, particularly in the case that they need to be gathered for a congressional investigation. The story is continuing apace. Reince priebus comments yesterday, the white house has not provided followup evidence yet that we will be looking for. They will face a lot of demands in the days to come. Francine talk to me a little about craig dears. Recently appointed u. S. National Security Director for western abouthemisphere affairs, and tn off after he criticized President Trump. Yes. The background of this is that every National Sick or to counsel or every president is staffed with folks that are primarily attached to the nsc and others that are loan from various other departments. He was one of these folks. He was brought in by mike flynn, now the former National Security advisor to the president. He was on loan from the National Defense university. In what he thought were privates, off the record comments at a think tank that the later shared with media, first reported by politico, he is said to be openly criticizing the president. Some of his top aides, including family members like jerod kushner. After this came out, he was quickly removed from his position at the nsc to National Defense university. The white house addressing this directly with a spokesperson for the white house saying that his principal job was to support the present, and it is silly for the president to have people in those jobs who dont support him. What the white house has not done yet is drawn a really important distinction between positions inside the white house and everyone in the federal government. They have been facing and will continue to face questions whether this white house will be different from white house is in the past as far as protections for rankandfile federal employees. Is there a bar that you cannot criticize the president without losing your job . Or is this just confined because this is a position with the National Security council . To be making comments people of the present, perhaps your goal is not to shape and carry out perhapsign policies, compromise. Francine thank you very much the president currently thank you very much. Following the present currently in florida. I dont know how much you follow this and readjust your economic or gas with everything forecast with everything the president says. Waiting tok we are get more meat on the bone in terms of his economic plan. Cannot helpsting, i feeling that if i were trying to get reelected in 2020, i would be trying to make sure the recession did not arrive in 2019, and i would be planning accordingly incensed that if you withinto our in an economy a low Unemployment Rate and a long expansion, your first advice should be on reelection, you have to find a way either to get some slack in the economy in your time and have a recovery later, or extend even longer. Policybout it, cyclical right the way through boosting wages without doing anything structural would be a scary way to engineer that. Francine thank you so much. Kit juckes of Societe Generale stays with us. Tomorrow we speak with Richard Haass, present on the council on foreign relations. In london, this is bloomberg. Economy not being able to move into territory. Small. R 2016, very if this goes on for too long. These risks are there. This is why unreasonable as commands are at the moment, the better road for greece is to sign on to the agreement now. Francine that was the former greek finance minister. Bloomberg it is better to find a solution in search of greeces that stand out. F. Debt stand of the likelihood of them reaching an agreement is what . Kit today 30 i guess. Europe. We will get a deal done somehow. It is never the last possible day. Justng the precise day, we extend deadlines and get it done. Francine this is the greek twoyear yield. The you expect them to do a deal even at the last minute or have to ask for another bailout that will be very unpopular . Kit i assume something will get done at the last minute. Since we are not solving the wasrlying problems, and i almost more alarmed by the news that the imf chief economist said this would happen years ago, the program we have had, and on we went with what we got. This does not offer much hope of returning Sustainable Growth in greece. We are permanently funding another shortterm fix. We will find one because the alternative is not worth thinking about, and we will push it down to the wire. Francine what happens if greece these the eurozone . Do we need to put a probability a on it . Kit it is not impossible, but a number is just a guess. Someone more clever than me will put a number on it that is not just a guess. If you are going to think of a year to do it, frankly after brexit with what is happening in italy and what is happening in france, it is not a great time to have that conversation. Francine thank you so much. Kit juckes of Societe Generale. Coming up tomorrow, our conversation with yale Professor Robert shiller at nine this is bloomberg. 00 a. M. In new york. This is bloomberg. This is bloomberg surveillance. I am Francine Lacqua. Surermany wants to make cooperation with the u. K. Survives brexit. We want to have very close ties with our nato member and friend united kingdom. Colleaguerted with my to work on the bilateral roadmap. We know we need each other. We are both members of nato, and common interest. Germany has pledged to raise its defense spending to 2 . The white house chief of staff says President Trump and his advisers are not aware of contact between his campaign and russian agents. He said repeated contacts andeen Campaign Aides russian intelligence officials was total baloney. Citizens living in the u. K. Will brexit,mans land after document drafted by european lawmakers says the u. K. Lacks information on eu nationals in the country and it will make it difficult to choose who remains. Wayex is now 1 10 of the towards its goal of launching 20 rockets this year. A falcon nine rocket was nched, the same when used it was carrying cargo for the International Space station. Global news 24 hours a days powered by 2600 journalists and analysts in 120 countries. This is bloomberg. Francine shares of unliver are falling after the proposed deal with kraft collapsed. Kraft kraft heinz offered 143 million for unliver in what would have been the biggest takeover ever come up with the company walked away after unlivers negative response. David joins us. Great to have you on. Smashedever seen a deal so quickly. Did kraft heinz walk away because they wanted a friendly deal . Yes. As soon as it leaked you had theresa may saying we will examine the deal. You did not have investor saying this is a great idea. Why dont you consider it more seriously . Unlivers was categorically no. They once and we dont like this because we dont like the price. We dont like this combination. On and off record was a similar message. Warren buffett said he only wants to do friendly deals. He decided maybe this is not the best way to do it. Francine where does it leave both parties . Unliver is huge, and do we think kraft will go for someone else . Unliver is in a target too Many Companies and the consumer space can take on. Unliver last month when they reported earnings, they had the Fourth Quarter growth in two years, so they are struggling. They will now have to show they can do something to reward shareholders that stuck by them. Whether that means splitting out the food business or selling brands or products that are not working. The spreads business is one long considered. On them toe is now show they can keep up this growth and they are better standalone than as a combined company. Ofncine give us a sense what happens to the rest of the food makers in the u. S. Will prices suddenly go up tomorrow on speculation of possible m a deals . In andof them, they fall said they did not think they needed a big acquisition to grow. Kraft heinz is so big in the u. S. Comes from maybe they will be looking at emerging markets. Will shareholders by the stocks . Is nohonest answer one knows what kraft heinz would do next. Francine we talked about animal spirits in the u. S. I dont know if there is a link between animal spirits and m a appetite. As it not going as fast shouldve been given financing the last couple of years. You are getting back to doing big deals and you sense there is plenty of money around. Of cash on the Balance Sheets of some of these Mega Companies that finance these deals, we did them in the Financial Sector before 2008, big, hostile takeovers of banks. Id look at all of it and think it is animal spirits, and also there is a lot of money after all these years of low rates and qe that wants to do something, and it is risk on in the markets. This is the fuel for this. Can someone at the fed realized that this goes on. Francine this goes on. I would take what else goes on. If you have a bloomberg terminal, you can type tv and check out our charts. If you have advice or comments you want to give to us go on to ib just below the video there. We are seeing some breaking news from the eu. We started the show with that report from the italian newspaper. Junker willays complete his term as commission president. We will have plenty more on that. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua. Saudia arabia broke records on output, 10. 5 Million Barrels a day, exporting three fourths of that. Reduction is being cut back this year. They are attempting to end in oil glut by reducing oil output. 9. 4 billion to build petrochemical plants in the state of louisiana. Billiono spend 5 expanding production lines in texas. Predicts the comeback has only just begun. Copper will probably rally towards 7,000 per metric ton, going past 8,000 by the end of the decade. It is often seen as a barometer of economic health. Its price increased 80 last year. That is the Bloomberg Business flash. Francine it was a weekend to forget for the leading candidates in frances campaign. Denied that she gave her aides fake parliamentary jobs. Another came in first term criticism about the nations political past. Us a sense of the polls. Who is winning . It was losing . Marine le pen is up one point. At 20. Ers unchanged thatugh the polls to show each one of them that they got to that second round against Marine Le Pen would be her, the margins are narrowing. Its not quite the blowout that it looked like a few weeks ago. Of 42 to 58 , so the latest news is definitely good for Marine Le Pen. Macron talking about france, the past being hurt. He has been heard. He went to algeria and use words and crime against humanity stuff like that for French Colonial rule. It is still a sensitive subject in france. There are people who would say good on you for being honest about frances pass, but many others think it is insulting to the country. They really attacked him. Macron is the front runner from the odds point of view because his margin over le pen is considered to be larger than fillon in a hypothetical second round race. Oneryone seems to think macr is the man they have to go after, so all the spokesmen were hitting him hard, all the usual criticism, that it is all subduction, no substance behind him, so it is interesting to see how everyone has targeted him as the man to be attacked. Thingne what is the one that we can get rid of. There was an idea that the left could combined two candidates, but they traded insults this weekend. Yes there are two candidates there. If you add up their scores in the polls. They would be the second force behind Marine Le Pen. That candidate would be expected to be in the second round against the pen, but neither one of them seems inclined to step aside for the other. One left the socialist party as part of rebellion. Will stepo way hamon aside for a renegade on the left , said the left seems to be condemned to go into the election with no unity. There have been a lot of surprises so far, so dont rule anything out. There is less chance of a unified candidacy on their left and there was last week. Francine im looking at some of the odds, the probabilities for the top three candidates, melenchon, Marine Le Pen, then france walk fillon. Then it has gone down, and now back up. Do you trust the polls . How do look at the polls . Do i trust the polls . You have a huge margin of our error. Uncertainty is winning when i look at that picture in the sense that no one is really pulling away or dominating. E have what it looked like , peoplehed candidates wanting change, and the new kid on the block running into some doubts about how much experience he has got. It is playing out like that, but they look as if they will keep moving around these polls. We have not brought in what could happen with the left wing, so i think it will be messy for a long time. It is messy until we get the first round out of the way . When does it play out on the markets . It has played out remarkably little so far. The possibility after the u. S. Election, the 108 range, so we had an adjustment without washing around and the lower level waiting to see what happens. That is likely to happen closer to the event. If these polls stay the way they are, i would have thought we will be trying to test up parity between eurodollar between now and the end of april. Francine im going to show french german yields in a second. Tapering, am i wrong . You would be crazy to have the tapering conversation from here until after this. The Economic Data is slowly improving, but they can wait until the summer to have that conversation. Francine this is the difference in yields between german and french 10 year. I brought it back to 2012. Is this just Political Risk . If we have a somewhat chart is that the banks or risks. Majoritynce, the vast if you try to bracket down is risk. Cal there is this piece in the background that whatever happens from here on in, we are going to see further tapering over time. We will can have a debate about this year or next year. Slow inn the long, long game of ec buying of european bonds and we dont know what happens after. Francine again, if you are mario draghi, do you ignore Political Risk . Yourre concerned because number one function is to make this european bond market work really. That is what he came in and solved it i think he would do whatever it takes, so i think he finds it difficult to resist further tapering if we pass through the French Election without anything upsetting. Marine le pen and coming in and talking about redid nominating debt or anything. I think the conversation happens the summer in a big way and they will end up tapering further. Thank you so much. Coming up tomorrow on bloomberg surveillance, Richard Haass is the president of the council on foreign relations. Look for that at 6 00 a. M. In new york. This is bloomberg. Francine look at that. I was not expecting it to be sunny. Sunny and london. A beautiful landscape across london, pound leading gains versus the dollar, volumes muted because it is a u. S. Bank holiday. It is time for the forex report. Dollars rising versus yen, some fed speakers signaling rates will increase. This is the picture of the pound there. It is all to do with thin volumes. I want to show you kiwi come my biggest or most interesting fx trade. Kiwi dropping 1. 7 last week. Central banke saying it plans to keep borrowing costs at a record low for a prolonged time. The dollar spot index at 100. 84. It is time for the single best chart, and today yen. We are back with Societe Generale. Simple yen chart, looking at yen trading on an intraday move, but this is the 50 Day Moving Average for yen in purple, the 100 day in green. This goes back to what donald trump will do. This those. He gets elected. We were moving up a little bit before he got elected, but as u. S. Yields rose in anticipation of easing fiscal policy and the fed tightening, dollaryen took off. You would find it hard to get into it, but they got themselves into the trade. Since the middle of december, the peak in u. S. To the date, come down andhave conned than a gone sideways. Risk on, risk off, 10year gilts for the United States just under 40 basis points today. I sit here and think they must be likely to head towards 1 than zero. With a strong economy, you need higher real yields the net. Francine what can governor kuroda do going from here . There is questions about his targeting of the yield curve, what is that worth unless he ural reform . Rall to move tocy negative Interest Rates coming purging japanese investors to move offshore when they were already buying as many foreign assets as they could usefully manage. , upas locked 10 year yields from eight basis points on friday. Having done that. If he can get higher yields elsewhere, he will get a weaker yen. That buys him more time for arrows to, 3, 4, 5. The economy is improving. The economy is slowly going in the right direction of nominal gdp growth. Francine what about inflation . Visit just take time . It takes time. Focus it this way, they dont need inflation is much as they need nominal growth. If i can get my nominal growth rate higher than my cost of borrowing, i will be francine in better shape Going Forward. Francine you are talking about treasuries. Francine 3 . What can change that view . Long as inflation is just edging higher and the economy as strong, we will get to 3 . The more the fed is behind the inflation and the less real and just rates, but i think that is where we are heading. It is as simple as the u. S. Economy having a good start to the year then running out of steam or slowing down and underperforming. Wheree had plenty years the economy has started looking are looking so good. Francine what about a trade war with china . The curve steepens, the market prices in risk. It will be worse for others than the u. S. Initially. The u. S. Is a net shortterm winner from a trade war in relative terms. After that come it depends on how good it is. It is bad for Global Growth, and how can you be the worlds biggest economy and something that is bad for Global Growth and be a winner . And initially you dont loses much as others. Francine thank you so much. Coming up tomorrow on bloomberg surveillance with aranny sits down conversation with the opec secretary general live from the International Petroleum week in london. Look for that at 6 00 a. M. And new york, 11 00 a. M. And london. We will talk shale, the new deal, chinese buying into oil fields. Look at that. Sunny london. U. S. Viewers, happy president s day. For the rest of us, back with more market news. This is bloomberg. It is 12 00 in london, 8 00 p. M. In hong kong. Welcome to bloomberg markets. Anna here are the top stories we are following this hour. Unit lever plunges as kraft heinzs bid collapses. It would have been the biggest takeover in the industry. Meeting in brussels and to discuss progress in greeces bailout. The eu and imf are racing to complete the review for the start of a busy national election. U. S. Vice president mike pence meets with eu officials and brussels today, reaffirming that u. S. Commitment to cooperate with the European Union. I warm welcome to the program. Lets have a look at where equities are trading rightow