Transcripts For BLOOMBERG Bloomberg Surveillance 20170221

This is bloomberg surveillance. We are getting pmi figures out of the eurozone, and this is what they are showing. This is for the month of february. Services pmi rising more than expected, 55. 6. He spoke to economists who forecast a figure of 53. 7. Everything above 50 means it is expansionary. Manufacturing also rising a little better than expected. That is at 55. 5. The forecast was 55. I want to see the full breakdown, but we did have a earlier figures in manufacturing pmi from germany that were much better than expected. This is big for eurodollar. Lets get on to the rest of the markets. The one thing i want to show you is hsbc. That stock under pressure today. It did miss profit estimates as the revenue was dropping. It has had to say it will cut more costs. Still the biggest loser in europe in terms of the equity markets. Down 6 . Stocks are pretty unchanged overall. On a case basis, depending on the earnings. We once again talk about politics and risk in europe with those French Elections. You can see the vix gaming at 12. Get to the first word news. Nejra hsbcs fourthquarter profit missed estimates. Onetime profit jumped 39 , but came in below the 3. 78 billion estimate. The lender extended a stock backpack five act that drove its london shares to a threeyear high. I would not encourage any investor to read too much into the one billion now. We have clearly got a Strong Equity tier ratio at 13. 6 , well above the top end of the range that we targeted, in terms of ensuring we are well capitalized in our businesses around the world. Focus onue to investing capital in the growth of our business. As the opportunity arises, we will contemplate, as we have done, share buybacks. Nejra hsbc shares have dropped the lowest since august of 2015 and london. Donald trump chosen an Army Lieutenant general as his new National Security advisor. He will serve with retired Lieutenant General Keith Kellogg, who returns as chief of staff. Masters succeeds michael flynn, who resigned following revelations he misled officials about contact with a russian envoy. Australian Prime Minister Malcolm Turnbull described President Trump as a Big Personality with a big job. Saidbill told turnbull he had frank and open conversations with the president and the content was not for public view. To push thentinues case for tpp to go ahead without america, which abandoned the deal as one of trumps first moves. Turnbull it is vital that we maintain the drive toward more open markets and free trade. Trade means jobs. Australia is a trading nation. Our future depends on not simply selling things to funny 4 million australians, but to the whole world. As i said in home joe as i said at g20 last year, protectionism is not a ladder to get you out of the load low growth track. It is a shovel to dig it deeper. Nejra Marine Le Pen is gaining in the polls ahead of the French Election. The latest poll shows first round support for the antieuro candidate has risen to 27 . Cron and micron ma Francois Fillon are at 20 each. That poll was conducted before the news that the offices of the National Front were rated last night as part of an investigation into whether she is European Parliament money to pay for jobs related to domestic politics. ,oal news 24 hours a day powered by analysts in more than 120 countries. This is bloomberg. Francine thank you, nejra cehic. The dollar is on the move after the Philadelphia Fed president s adjusted he would support a rate increase next month. Interview conducted on friday but published overnight, the fomc Voting Member said, i would not take march off the table. Interview conducted onwing friday but published officials hinting they might move next month. But investors see just a 30 chance of the height. The december hike, futures predicted in 100 chance of a shift. Has the fed it fully prepared the market for a march move . Global equities economist at commerce bank, and Richard Jones is bloomberg fx strategist. Thank you for joining us. Peter, nothing is priced in at the moment. Will they go even if there is a 36 chance of it happening . To go in march, we would hear a lot more signals, giving us some. Ndications all the meanings are live, but some meetings are more lives than others, and i am not sure which is the one. Where do things need to be for the markets to start believing . It is a chicken and egg. What comes first . Is it the markets, and the fed follows, or the other way around . Peter the fed wants basically to tell the markets, we are going to hike rates. We are not using the market meeting as a stick to beat expectations. They are tryingto tell the marke going to hike rates. To push up june expectations about the 75 priced in there. We have to see a number 80 plus in order really for both the markets and the fed to be happy that it is the right time to push the button. Richard i think peter is absolutely right. Comments are consistent with other comments he made. March really is not in play, but june definitely is. I think that is the point of mr. Harkers comments. He might also be setting himself up for a dissent in march, which is not unheard of. He might be doing that. Francine but why is march not in play . Richard i think peter is right. They did not do enough to set it up in january. There was a lot of talk for them to do that. They did not. The february statement was very dovish. Is it because we do not yet know Donald Trumps Economic Policy . Peter Central Banks do not like to surprise markets. Given that markets are not expecting it, the fed would say, why take the risk of upsetting the apple cart . And as you rightly point out, there are still so many unknowns with regard to policy. They went in december on the basis of very little, with regard to knowing what the administration would do. We still have not got any indications yet. Francine can they afford to wait . Or fundamentally, do Interest Rates need to be hiked . Richard i think what the fed was really concerned about in february, which is why you had janet yellen tilde little more hawkish than expected, was investors were saying, here we go again. A repeat of 2015 and 2016, where the fed says we are going to hike multiple times, and we end up getting maybe one. What yellen has been able to achieve is, investors expect twi in 2017, and that is probably about right. They have left open the possibility of three, but two is nailed on. That is something yellen wanted to solidify with investors. Francine what happened the last four weeks . We started january 2016 with market saying another thing. 2017, the market was aligned. Now, they no longer are. With the had a year fed saying three rate hikes in the course of 2017. I think the markets did that a little over the top. If they go june, september, and december, if we took that off the table, having waited 12 months for the second rate hike, i suspect the frequency will speed up. Three months seems to be a little bit too soon, given that the economy is doing ok. Inflation is coming back. But it is not solid enough. Richard if you look at this year versus this time last year, multiple rate hikes are more on the table than they were at this time last year. I think that is one thing the fed has achieved. In,are definitely priced and three are not out of the question. Francine richard and peter, thank you so much. Richard is one of our columnists. And peter dixon is an economist at commerce bank. Commerzbank. On tv go, watch the video, follow our charts and functions, and our breaking news from great guests. We talk about currencies, fx. Producerss show directly. You can give input, analysis, or sometimes criticism. Stay with us. Interesting times. Hsbcs chief Financial Officer as europes biggest bank suffers a surprise drop in revenue. We look at the numbers. Plus, as Marine Le Pen makes progress in the polls, bearish bets on french stocks are on the rise. And a very Big Personality, the australian Prime Minister, with a diplomatic take on President Trump. Our exclusive interview with Malcolm Turnbull. Francine this is bloomberg surveillance. Here is nejra cehic. Nejra bhp billiton said first half profit jumped sevenfold, beating estimates. Underlying profit rose as Commodity Prices surged on increased demand from china. We will be speaking to bhp billitons ceo at 2 35 p. M. U. K. Prime. Anglo american profit more than doubled last year, beating estimates. Underlying earnings were 1. 72 a share, compared with 54 cents a year earlier. Commodity prices soared. The producer of diamonds and platinum no longer news to sell assets to reduce debt. Russia overtook saudi arabia as the biggest crude producer in december. The country started restricting output the of agreed curbs. Russia pumped almost 10. 5 Million Barrels a day that month. About 30,000 more than saudi arabia. It was the First Time Since march that russia produce more oil. The u. S. Was the third biggest oil producer, followed by a rock and china. That is the Bloomberg Business flash. Francine hsbc shares in london are down more than 6 this morning after europes biggest Bank Reported fourthquarter profit that missed estimates and a surprise drop in revenue. The bank pledged to buy back 1 billion of stock. Hsbcs cfo said he is focused on the growth of the business. I certainly would not encourage any of our investors to read too much into the one billion. We have clearly got a very strong common equity tier one ratio of 13. 6 , well above the top end of the range we targeted in terms of ensuring we are well capitalized in our businesses around the world. So we continue to focus on investing capital and the growth of our business. As the opportunity arises, we will certainly contemplate, as we have done, share buybacks. Francine Michael Moore leads Bloomberg Finance in london. Still with us, peter, Global Equities economist at commerzbank. In terms of what we are seeing from hsbc the producer down 6 and european trade what were investors concerned about . The turnaround was longer than expected. Peter i think it is about the revenue picture. This bank has been cutting costs for the last several years. Since gulliver took over, revenues are down about 20 billion. The shrinking of the business, but also revenue headwinds. The bank pointed out in 2017 they are facing another 3 billion of revenue headwinds. So i think it is, can this become more than just a costcutting story . Can it become a growth story . Francine when do we find out . They will have to write down a huge chunk of the Private Banking business. Michael in addition to being disappointing on the revenue front, it was a pretty messy quarter. There were 6 billion of what the bank calls oneoff items. Analysts had been expecting about one billion. There was a lot of noise in the quarter. There was the big writedown, which they had previously written down that unit before. Certainly, there was a lot to digest. Francine peter, what is your take on hsbc and the u. K. Banks . They are different to a lot of their rivals. Peter i think all banks are facing huge headwinds, as we just heard. There was a cost problem and a revenue problem. Unfortunately, they both need to be tackled differently. At the same time, it puts a lot of strain on the management of banks, to tackle these problems simultaneously. From a british perspective at least, life is going to get rather difficult. The expected slowdown in the economy and who knows what brexit will mean. That probably means the focus is going to be, at least for the near term, on the cost side of the equation. Francine the miss seems to be chiefly driven by lower revenues. The chief executive is battling five years of declining revenue. How long does he stay in charge . Peter you will have to ask the shareholders. It is really the shareholders. What we learned over the course some banksears is, ceos stay around for a long time, and others do not. It depends how active the Shareholder Base wanted to be. Francine thank you for joining us. Michael moore and peter dixon. Up next, what a difference a year makes. Aglo american reports doubling of profits and says it no longer needs to sell assets to reduce debt. We focus on the commodity come back. And we interviewed the opec secretarygeneral, mohammed barkindo, just after 11 00 a. M. Here in london. Plus, a discussion with totals ceo from 4 00 u. K. Time. Francine i am Francine Lacqua in london. Anglo american reports profit more than double last year, amid recovering commodities, leading the mining giant to say it no longer needs to sell off assets to reduce debt. The results highlight the reversal of fortunes from last year, when investors were questioning whether the company prices. Rvive toughening the Anglo American ceo spoke to bloomberg earlier this morning. Books look pretty good in terms of prices. Probably some downside during the year. The fact we cut costs mean we will be robust through the cycle. We cut our costs from 77 to 29. I think the metals could do much better. We are hoping they do much better. Diamonds, we think the market is starting to study. In they some downside barks and some upside in the metals. Francine british stocks overall are trading their the cheapest level in two years with fears that despite climbing more than 20 from postbrexit low. Peter dixons Global Equities economist at commerzbank. And you look at commodity stocks , a year and a half ago, we were talking about possible nonliability. This year, they are getting their dividends. Are we seeing a complete reversal for the quality cycle . Peter i think this time last year, a couple of prices had been collapsing for some time. Now, things think seem to have stabilized. Emerging markets stabilized. There is more demand there. The chinese economy has been falling off a cliff. I think we are getting used to this world of less than stellar commodity price growth, at acceptable levels. Companies have managed to cut costs accordingly. I think they will be more stable. Francine will there be m a or winners and losers . Peter i think the next few months will be characterized by steady as you go. I think we are at a steady equilibrium. We do not know whether things will get better or worse or stay the same. I do not think Companies Want to take risks at this point in the cycle. Francine when you say we do not know where it goes to, do you mean Global Growth or possible trade wars between china and donald trump . Peter you name it. There is the International Trade situation. We do not know what Central Banks are doing. The future of the dollar. All these things feed into what commodity users have to think about. Ultimately, what they care about is, can they get the stock out of the ground . To the highest possible price . I think the price will probably hold up. Growth seems to have stabilized. I think all the other factors suggested the risks are higher. Worry about you china . The last time we worried about china was two years ago. They still have a huge nonperforming loan problem. Is there a concern at some point they crash, and that could lead to scampering Commodity Prices . Peter i am not concerned about a chinese crash. The air seems to be deflating out of the bag at a modest pace, and that is a good thing. I think they will do all they can to keep the show on the road. As you point out, the flip side is the end of the huge buildup of debt. That will act as a drag on growth over a couple of years. To that extent, i think we can be relatively hopeful that things in china will stabilize. Francine does it make a difference if you are a u. S. Commodity producer . I know they are global, all over the world. If you are based in the u. S. , are you going to be advantaged because of deregulation . Peter you might get some boost from that, but i think the problem is that you have got problems in other parts of the world that you cannot control. If we start to get some form of trade discrimination, for example, that is going to cause all sorts of problems. Currency moves are one thing. If the u. S. Moves in one direction, you can bet other countries are going to move in the opposite direction. That is going to disadvantage u. S. Companies on the roundabouts. Francine where do you see the dollar going from here . Peter i think it should go moderately higher. Given what we francine but moderately. Peter basically, were not going very far. If you set against the euro, 1. 04 on a ninemonth verizon, that is probably what i am looking at. Not significantly different from today. The countervailing forces that have been in play for so long will remain so. By the end of this year, we get the ecb removing its tapering. I think that will start to give the dollar more of the lift. Francine i want to see what happens with the French Elections, which were talking about next. Peter dixon stays with us. , le pen gains ground. Boost pollncerns numbers despite a fake jobs controversy. We analyze the race. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Francine this is bloomberg surveillance. Here is nejra cehic. Hsbcs londonlisted shares have fallen the most since august 2015 as fourth corporate quarter profit missed estimates. Adjusted pretax profit jumped 2. 62 billion dollars, but came in below the 3. 78 billion estimate. Chairman Douglas Flint may stay on rather than leaving this year. It extended a stock buyback and is boosting costcutting measures. I would not read too much into the one billion. We have clearly got a strong common equity tier one ratio at 13. 6 , well above the top end of the range we targeted in terms of ensuring we are well capitalized in our businesses around the world. We continue to focus on investing capital in the growth of our business. As the opportunity arises from time to time, we will come to play share buybacks. Francine donald trump has chosen Army Lieutenant general h. R. Mcmaster as his new National Security adviser. He will serve with retired Lieutenant General keith along, who returns as chief of staff. Mcmasters succeeds michael flynn, who resigned following revelations he misled officials about contacts with a russian envoy. Australia Prime Minister Malcolm Turnbull has described President Trump as a very Big Personality with a very big job. Turnbull told daybreak australia he has had several frank conversations with the u. S. President , but the content was not for public view. Australia continues to push the case for tpp to go ahead without america, which abandoned the deal as one of trumps first moves in office. It is vital that we maintain the drive toward more open markets and free trade. Jobs. Means australia is a trading nation. Our future depends on not simply selling things to 24 million australians, but the whole world. Year,aid at the g 20 last protectionism is not a ladder to get you out of a low growth trap. It is a shovel to dig it much deeper. Nejra euro area finance ministers have poured cold water on a quick dispersal of new aid payments to greece. Athens and its creditors have agreed to pick up discussions in the coming days. Greek bonds rallied. Creditors are demanding the nation is to use tax, pension, and labor reforms before they sign off on an agreement. They have to realize that there is no agreement. There is no political agreement at this point. That would be too early. It is a very positive and good step that the institutions have, now, confidence and common agreement to go back to athens. Will hold asays it News Conference later to present new findings on planets that orbit stars other than our sun. Although the space agency has not given any other details, it has confirmed that scientists will be there who observe socalled xo planets. Global news powered by journalists and analysts in more than 120 countries. I am nejra cehic. Exoplanets i am so excited. Peter dixon said he had to leave the set early so he did not miss the press conference. Polls ahead of the French Election show first round support for antieurope candidate francine le pen has risen to 27 , with macron and fillon unchanged at 20 each. However, that poll was conducted before news that the offices of the National Front were raided last night in an investigation of whether she used European Parliament money to pay for jobs related to domestic politics. Trying to drum up support among People Living in the u. K. Capital. Investors are piling into options, protecting against equity declines. The cac 40 index is near its highest level since 2013. A number of outstanding puts on the gauge. My bloomberg terminal has climbed to an almost twoyear high relative to bullish calls. Lets bring in jeremy, a professor in paris. It are from commerzbank is still with us. Welcome to the show. One of the first things you said is, there is a misperception amongst the international investors, Money Managers, and general politicians. Please lay out the dichotomy. You understand the dismay might feel, looking at the political situation in france and looking at this rise. What you have to understand is how the french political system, especially the french electoral system, works. Imagine that Marine Le Pen can percent. That is an extreme scenario. In the second round, you need to mobilize. You need to assemble around your president. She will not be able to do that. 40 is probably the Glass Ceiling she is going to reach. Anyone facing her is probably likely to get around 60 in the second round. Francine this is the second round. My concern and a concern for the politicians is that the two people who are front runners to the bloomberg terminal. These are not polls. You look at the top three candidates. You have Francois Fillon and white. In january, he is at 60 , and now he is at 29 . You have Marine Le Pen steadily rising. And then you have macron. What happens if she faces Francois Fillon, who could be considered a very flawed candidate . It would not be unprecedented. Jacque chirac faced a similar situation in 2002 when he faced le pen, the father. What is going to happen is that fillon is going to have to be extremely clever, politically speaking. What she wrote has been doing in 2002 was basically beyond the second round, trying to create an alliance among all mainstream republican parties around him. He never did that. Fillon is in an odd place, because he is former conservative, especially in terms of the image compared to sure rock. To chirac. Francine there is this wave of populism, a wave against the elite, about the people who cheated the system. If you look at Marine Le Pens father, people say he is unelectable because he was way too confrontational. He was more racist than she comes across as. Not meanbable does impossible, and that is what i have learned from this past year in international politics. Here is one element. He is facing Emmanuel Macron Emmanuel Macron is a disruptor like she is. A lot of people vote for macron the same way they would have voted for if there was not the baggage that comes with it. Forink she is really facing the first time a candidate that is almost as challenging as she is. You are right. This is not something that we should discount. Especially right that 2017 is probably early for her, and you should not discount a risk of her in 2022, the next electoral cycle in france. Is aight now, there structural barrier to entry for the front national. We can talk about what might happen next year. Francine this makes your life hell, doesnt it . You are not an equity economist anymore. You are a political analyst looking at odds, deciding between french government or German Government yields. Peter absolutely. I think in my view, looking at the polls, for what that is worth, it does look as though le pen has virtually no chance of winning the election. Therefore, if i want the yield pickup, i will buy some french bonds for the nearterm, and maybe sell them on prices start to rise again. , they aree moment getting too far ahead of themselves. Maybe it does suggest the international and domestic perception are quite different. He also rightly pointed out when thing we have to take account of these days is tail risk. Francine peter and jeremy both stay with us. Jeremy is in paris. And peter from commerzbank. Very big, a personality, the australian Prime Minister, with a diplomatic take on President Trump. Hear from our exclusive interview with Malcolm Turnbull. Government debates the brexit bill, we focus on do you exit and what it means for investors. Coming up later, we speak with the opec secretarygeneral, mohammed barkindo. We talk about trump and deregulation. Francine this is bloomberg surveillance in london. We are seeing a bit of a dollar move. Mark stocks are rising for the third consecutive day, the highest level since december 7, 2015. Lots to get through today. Hsbc, the big story. Shares down as much as 6. 8 . The biggest decline on a closing basis since 2009. For the quarter profit missing estimates on a surprise drop in revenue. The bank says it boosted costcutting measures and will extend its buyback. The chief executive is battling five years of declining revenues as he peers back the sprawling globin empire global empire. Barclays and rbs lloyds only one is lower. It is lloyds. Since brexit. Billiton, the worlds biggest miner, reporting results onexpected surging demand. Anglo american, the biggest producer of diamonds and platinum, said profits more than doubled last year, beating estimates. Commodity prices soared. It no longer needs to sell assets to reduce debt. A wonderful chart. This is in january last year, all the big u. K. Listed minors. At 13,hat trading yellow. Anglo american has risen by 514 , quite astonishing. Glencore up. Up by 362 . Falling against the dollar. Comments from fed reserve bankers harker votes on policy this year. He bolstered expectations for rate increases early in march. He said commanding news on friday. A march hike is not off the table. Francine mark barton there with all the assets you need to know about. The australian Prime Minister, Malcolm Turnbull, described President Trump is a very Big Personality with a very big job. Speaking exclusively to daybreak australia, turnbull said he had frank and open conversations with the u. S. President , that insisted the content of those discussions was not for public view. This comes as australia continues to push the case for tpp to go ahead without america, which abandoned the deal as one of trumps first moves in office. Turnbull we have had several conversations now. They have been constructive, frank, and forthright. Have a veryand we deep engagement with the american administration, and every american administration. You know, the australianu. S. Alliance, relationship, is very deep. It is built over a century of fighting sidebyside in every major conflict. It is an alliance. It is an economic partnership. Millions ofon people to people links and family links. It is very strong and very deep. How do you think of the man . Turnbull he is a Big Personality and has a very big job. In terms of the added difficulty of decisionmaking this is a brandnew world. He is someone who does diplomacy by social media, by twitter. There is certainly an element of the unexpected. Does that change the way you deal with the u. S. . Turnbull we pursue our National Interest methodically, calmly, consistently. We make our case frankly and forthrightly. When we are speaking to our american friends as you would expect, with good friends, we are fairly circumspect about what we say in public. It is important we give very frank advice and have frank exchanges with our american counterparts. But we do not lecture them through the media. It is very important, i think, to be able to talk frankly, as good friends should. Have beenmarkets, we trying to work out, what is trump the president versus trump the candidate . A lot of that has come to fruition in terms of pulling out of the tpp and his view on immigration. You think he means what he says . Turnbull that is a judgment you have got to make. Going tos are always be people always assume that president s and Prime Ministers mean what they say, naturally. But in terms of commentary on leave thatcs, i will to all the collective talent of bloomberg. It is not my job to comment on u. S. Political developments. Francine it is bloombergs job. Still with us, the affiliate professor of economics and International Affairs in paris, and theater dixon from commerzbank. I do not know what the chances of a trade war are. We had a measured world leader saying, were friends with america and our discussions will remain private. If there is chaos almost every day on a Foreign Policy basis. Peter there is a risk, because we are not entirely sure what mr. Trumps goals are. I think we can agree it is america first, but if america is first, there is a little bit of a departure to say the least from what america has been doing the past 70 years. America has been the leader, the central pivotal force behind the Global Economic order. If its interests are going to be swayed toward its domestic needs, it means it leaves a vacuum in the rest of the world. We still have some interest. Francine who will fill that vacuum . If it is china or russia, does it make a difference . Jeremy i think it does make a difference and i am not sure the rest of the planet is ready to be chinas or pressure or russias neighbors are ready to let that happen. Situation and the European Union means any politician who would be willing to develop a longterm vision for europe is going to have a boulevard in front of him or her , but the poor situation right now for bids any european leader to have that new vision. What is quite remarkable, i , isk, in the case of trump the fact there is a deep reach in the relationship we have. Any single leader would say, it is about time we managed chaos. Unity will help us out. What is President Trump now saying . Lets not manage it. Lets generate uncertainty. Lets generate chaos. He is using it strategically. That is a really big rupture. Francine does the u. S. Benefit if the eurozone breaks up . Jeremy in the short term, he probably thinks it does, because if it ever breaks up, basically, he will be the only ruler. So take any strategic issue the , on is facing on iran russia. I know of no better ally to the United States in terms of how the world works then the European Union. I think he would in the long run have to pay a high price. Francine how does this play out on the markets . We had a beautiful piece same not much Political Risk is priced in. Do you buy treasuries . How do you protect yourself against the unknown . Peter that is a good point. Traditionally, we go to the dollar as a safe haven. But i am not convinced the dollar is a safe haven anymore. The euro clearly is not. I think what you start to see is a rise in things like gold. Uncorrelated safe haven assets to the dollar, as it were. You probably start to see a move toward increasing pressure on the european bond market. Traditionalkind of safe havens which i think will benefit as a consequence. I think investors still really need to earn some money, so they probably, for the short term, are going to continue piling into equities, in the hopes the worstcase scenarios to not materialize. We all number happened in 2008. Sometimes the worst does materialize. Francine peter and jeremy both stay with us. Jeremy is from paris and peter dixon is from commerzbank. As the u. K. s house of lords debates the brexit bill, what it means to our investors. Francine this is bloomberg surveillance. The u. K. s house of lords begins debating the brexit bill. Theresa may sitting on the steps in front of the royal stop royal throne. Although silent, or presence reinforced a warning to the collected chamber not to meddle with her plans to trigger article 50 by the end of march. Think of them when Governor Mark Carney Bank of England Governor Mark carney will sit down in front of lawmakers to be quizzed on the inflation report. Still with us, jeremy from paris and peter dixon from commerzbank. What are the markets pricing in . Is it a clean exit out of the e. U. , clean negotiations, with passporting rights and access to the market being lost . Peter they are still waiting to see what will happen. I think the worstcase scenario is certainly rising up the worry list. I think banks or Financial Institutions are concerned about what the loss of passporting will mean for their business. Perhaps making adjustments at the margins and thinking, we do not know. It is difficult. Francine are there parallels . Is it going to be more difficult depending on who becomes president of france, for theresa may to negotiate a good deal . And are there parallels between brexit and a Marine Le Pen win . Jeremy i think whoever wins the french presidency is going to have a hard time with this brexit issue, no matter who gets elected, really. It does not really depend on the french outcome. It is really a big problem they are going to have to solve. If you think trump, brexit, are facingen we Public Opinions who believe they have nothing to lose. They have been told for so long that they should not tempt the devil. He should go with the obvious choice. They should basically chose the obvious candidate. Except, i have lost my job. The kids are probably going to live a worse life than i have. Please tell me, what have i one thehoosing mainstream over radical . That me check the radical choice and see what is going to happen. You know what . I will tempt the devil, just for the fun of it, perhaps. Francine i was trying to get you a gdp french chart, but i failed on that one. What is a quick fix . Is it structural or labor reforms . What do people need to feel more secure and connected to the euro . Jeremy we do not have any more european leaders or political leaders, the way we used to have them. Go back to speeches by monet should my speeches about the European Union. They developed a longterm vision of where we are going, one of unity. There is no more unity of the french level or the european level. One of prosperity. One of saying, we are going to make the efforts together, and there will be a Better Future for everyone involved. No one believes that anymore. I think what is interesting about the disruptors we see in politics is, you have to disrupt the disruptor. I think macron does this to some extent. Fillon trying to come of it has issues to deal with. We might be on the right path. Francine jeremy, thank you. And macron is in london today, so we will follow his every move. Dixon, political equities from commerzbank. Bloomberg surveillance continues in the next hour. Bloomberg surveillance continues in the francine dragging the dollar, not taking a trade like off the table. The fed is not behind the curve. Hsbc slums after a surprise drop in revenue. The revenue extends the stock itsack as the stresses on asia growth strategy. Donald trump chooses army general hr mcmaster as its asia growth strategy. National security adviser. Good morning. This is bloomberg surveillance. It is an interesting tuesday. We look at politics in europe once again. We look at yields and a Little Movement on dollar on the back of that fed announcement. Hear yields. Ow, to record low twoyear yields. Going into the april 1 election. Professor ihad a respect say you International People dont understand what is going on in france. Tom i agree. We have a lot to learn. Francine lets get to first word news. Trumps newt National Security adviser has a reputation for speaking his mind. Thin, whos michael resigned michael flynn, who resigned over contact with the russian ambassador. Mcmaster andalled outstanding choice. Australian Prime Minister says it is frank exchanges with President Trump are not for public review. He said he had several details conversations with President Trump. As you would expect, with circumspect, we are in what we say in public. It is important to have frank exchanges with our american circumspect in what we say in public. Dont lecture them through the media. Think, to bent, i able to talk frankly, as good friends should. Australia has walked the line between in gauging with china and america. Nuclear power may be delayed by next generation reactors. The worlds fastest rowing Nuclear Market has announced plans to greenlight eight new reactors this year. Chinas construction delays have slowed the process. The biggest worry for britain. Nine months after the brexit vote, 28 of those surveyed say the economy is either their first or second biggest concern. That is up from 16 one year ago. Terrorism ranked second followed by immigration. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. We will begin in the u. S. Fourday work week. Francine lacqua in london. Euro is weaker. Not at parity yet, but we are migrating their over the next five or six days. Oil with a bid this morning. There is the dow, 20,006. Based fabulous at trend charting. What we usually do not show, this is a big deal. It is different than the United States. The difference in yield between the twoyear and 10year germany is steepening because of a low twoyear yield. That is a beast we need to keep a very close eye on. This is my quick data check. When i am most interested in is probably vix. 11. 93. Markets trying to reprice what i would argue is Political Risk once again. Hsbc disappointed. They were the biggest fall or in todays trading session. Tom i have three or four charts to go with this morning to show francegermany. I have never done this chart. It is near for bloomberg surveillance. Take the negative german and flip it to positive to show the rate of change. Here is the negative yield. Here is the deteriorating negative yield. I flipped it upside down. Worst negative yields. Things get pretty good over here. This is a renewed move to a record negative yield. You can see a little bit of convexity showing new acceleration, rate of change. Worthy jawdropping german twoyear yield is. Francine i am basically showing to what your chart are showing. I wanted to put options. I am looking at equities as a measure of political volatility. This is where we are seeing into options against equity declines. This is the cap for, you can see as lead up in the last week some of the changes in the balls and probabilities. We were wondering with our previous guest was this first spike up in midjanuary the saga as somesurrounding Francois Fillon. This was my favorite piece today, markets just are not pressing this, look out for more volatility if you want to price things properly. Treasury yields followed the dollar higher. The Voting Member of the comments that the central bank is not behind the curve. Joining us the hour is david stubbs. There is quite a lot of stuff going on in the market. Are we actually repricing these dollar moves with a possible repricing in march . It does that suggest this is a done deal. It is slowly creeping up. David a lot of people leave the fed wanted to go twice this year. That would double the pace of tightening we have seen so far. You will get Dollar Strength with that. That reflects where the economy is. The data has been so good domestically in the u. S. , the fed cannot ignore that. That is why they are in a difficult place for march. It is a clear case either way to hike or not. I would say they do not do it. They will wait until may or june to see with it data is doing before currency pushing up. Before pushing the currency up. Surprise ndidate can they surprise . Do they need to wait for 100 . David they do not need to wait for 100 . Ideal, 70 . If we get a hike, you need to see senior members of the fomc being quite vocal. Yellen and fisher talking to bloomberg or someone else, making it clear that march is becoming more likely. If we dont get that in the next couple days, i think the probability has dropped. Thanis so much more anything else, they like to prepare the market. Tom march is upon us. I have not gotten that through my journey bring it. March 15 is right around the corner. Help me with the old idea of three data points. On durable goods, we take the threemonth moving average to smooth out the volatility. Is this a fed that by definition has to wait around for the three months or four months of lifted inflation before they can act . David that is a great question given what we saw recently in the cpi data. We saw a huge spike in the core goods monthtomonth data that got people riled up about where inflation is going. The fed does not target cpi. They target cpe. Everyone now knows that. We are waiting for their preferred measure of inflation to come through. I think that was a oneoff spike. I think we will get more inflation data that says the picture is not that bad. The next cpi data, it is on the day of the fed meeting itself. They will have that data. We will not in the days before him. I think the inflation picture really is the swing data point here. I would like to see a couple more months before i worry about or inflation. Tom helping to dovetail into our to stores this morning, the fed dollar dynamic along with france and germany, dovetail the quality of european inflation. Is german inflation the same as u. S. Inflation . Is there Something Else going there as the twoyear goes to a record low . David german inflation is quite similar. Their labor market is tight. Their Credit System is good. There is no problem there. The ecb dilemma is almost every other country in the eurozone, the inflation picture is different. They want to focus on the thing as a whole. We are about to see a renewed focus on risk in europe. The previous guest on bloomberg today about risk not being fairly priced there, i think that will show up not only in intoe, which will weaken the Second Quarter as we approach the French Elections, you have the vix on that board. That is at a very low level. With all the capitalists for european catalysts or European Equity pointing lower, lower currency, Commodity Prices, the Political Risk will overshadow this market. If you want to get long european equities, hedge currency and potential volatility on your options position six months out to try to deal with that uncertainty. Francine what is being mispriced . Is it Political Risk, possible trade wars, anything on the market that is a possible canary in the call mine . David what the market is missing at the moment is the euro is the issue in this election in france in a way that the pound was not at issue in brexit and the dollar was not for donald trump. We will see a widening in this spread between german and french bonds. The french manifesto about taking over the bank of france, full the markets will worry about that. Im not going to say she is going to win at all. When she does when the first round, i think youre going to have to start pricing in that eventuality to a certain extent. That will lead to a lower euler euro. That potentially be great for eurozone risk assets. That is down the line. Understand why did take the other side of that risk. I would advocate hedge the currency. Francine thank you so much for the insight. David stubbs of jpmorgan stays with us. We sit down with a conversation with opec secretarygeneral mohammed barkindo. David stubbslive from the interl petroleum wait here in london. Look for that at six clock and in new york, 11 00 a. M. In london. This is bloomberg. Aylor this is bloomberg. Lets get to the business flash. To people familiar with the matter, the Japanese Company wants to complete the transaction by march of 2018. Toshiba is grappling with a 36 billion writedown in their Nuclear Division. That comes with cost overruns in over Nuclear Division construction in japan. Passive says the investment model will become higher in the region. One reason, new regulations will increase the cost of managing money in your. Vanguard sees that driving up the share of the market from 50 to almost a third. Hsbc is extending stock buybacks that have driven shares to a threeyear high. The bank announced a 1 billion 2. 5ck after purchasing billion last year. We continue to focus on investing capital in the growth of our business. As the option arises from time to time, we will certainly contemplate share buybacks. Fourth quarter profits missed estimates. Cut that is your business flash. You have more on hsbc. Francine we certainly do. Joining us is our senior banks analyst and david stubbs with jpmorgan. The problem with hsbc, it is by far the biggest loser on the european stocks. They have cut costs. They tried to rein in their global footprint. It is five years of declining revenue. How do they get it back . Lets not forget deleveraging. Hundredrly completed 90 billion asset disposal. 290 billion asset disposal. For the dog tote stay where they are. Brexit, they moved on that. The problem at the moment is they wonder about things on cost. Capital is great. Is the storyback right now. The dividend is much more costly than the buyback. They talk about their deposit franchise, they have increased the gearing to rising rates. We have operational gearing now, where does the revenue go . Francine u. K. Affected by brexit and hong kong, the other core market is not been doing great. Good things be done better . Honest, no. They had done a very good job. Turkey has not gone to plan. Look at their market share in china. China is very important. They are tiny in china. Balance sheet trade, that is important. I think they have done a decent job. The share prices shows that. Tom let me bring up the share price. What a train wreck. They have an outlier call. All sorts of interesting things in economic and Security Research group nobody cares. The stock is back to 2003 pricing. You can take it back to 1999, the end of the boom pricing. Is this an asian or london bank . Where do they fit into the Competitive Landscape . Asianglobal. It does not matter the u. K. The u. K. Is the material. We know currency wise they have very large sterling. Sterling weakness is good for them efficiency wise. Anddrivers are gn developing their asia franchise and china. Trade are asian bank, very important to its outlook. More so than any other bank i can think of. Tom why arent they based out of hong kong . I get deutsche bank, two locations, jpmorgan new york, new york, new york. Dont tell david stubbs that. Fiveyearderstand a and 10 year plan of hsbc. I know they are not standard chartered. What is the plan for this bank . The question of the domicile was went over again and again. They decided to stick with the u. K. It is a cheap place. Goodra, they are a pretty regulator. We dont know exactly what the ramifications of having the full domicile there would be. Janet is important. Better with the devil we know, i think. Francine there we go. If you look at the price of the book, europe versus u. S. , white you have europe, blue is u. S. There is a consensus that the u. S. Banks are in stronger footing. They have the potential for deregulation ahead of them. They have a more vibrant Credit Demand market there. If you look at that chart, price to book, and you question rideer the valuation can much further without significant relation because we are not going back to a precrisis environment in terms of credit levels, leverage that boosted returns. We all know r. O. E. Is the main driver of rice to book. The big question for me is if and when europe can catch up a little bit with the u. S. The question on the european side, correct me if i am wrong, more on the revenue, income statements, europe is over bank, Credit Demand is weaker. Om as always, very valuable. Stubbs continue with mr. In our next hour. What a weekend it has been for the trump administration. It was a reset, recalibration, cable tv all fired up. It was tremendous, as the president would say. We have a tremendous guest. Richard haass will join us on the disarray of trump order. It is like world order. Stay with us. This is bloomberg. Francine look at that car. It is time for your morning mustread. We picked out beautiful cars. G. M. Plans sales of its lossmaking european business. This is talking about gm taking seven years to figure out the obvious. It says it did not want to deal with further brexit fallout and rebuilding the opel name. Even with 2016, a successful year for the brand, it came fifth in terms of german unit sales behind audi and bmw. Lets get to our Global Market strategist. Were you surprised when this came out . This was a huge m a deal. Seenot sure if they will roadblocks or this makes sense . That will be concerned over jobs in europe. Places in an interesting to visit has so much coming both ways. Global Car Companies that have different brands in different places rises with the kospis. You see models all over the world. At the same time you have their demand or luxury at the top and. The massmarket, we are shifting from ownership of car to car is as the utility, autonomous driving. Unless you are leading that, you can be left behind as we move forward into the 21st century of transport. Francine thank you so much. We will talk more about driverless cars. This is the only think tom and i really have in common. We cannot wait for driverless cars. Coming up, the conversation with Robert Shiller at 9 00 a. M. In new york and 2 00 p. M. In london. We will talk about the fed hiking rates. This is bloomberg. 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. It is the winter capital. They dont go to a winter white house on the hill, senate and congressman. There is. The capital to get there tuesday started. 30 inf people under age america dont know tomorrow is George Washingtons birthday. This is a national disgrace, francine. February 12 is abraham lincolns birthday, pedro 22nd is George Washingtons birthday. They just think it is president s day, which is a threeday weekend. This is an outrage. An outrage. I know. We will talk to marty checker about the some of my this in a moment. I think she knows this. Taylor of course i do. Frances trade minister is president pbeat about trump and the future of the north American Free trade agreement. I was encouraged by the comments by President Trump when he referred to tweaks about nafta. This has been amended a number of times. It is an agreement that is more than two decades old. Ecommerce for example did not exist. It is an embellishment of the breadth and depth of our relationship. The president said he would focus on what he called the unfair u. S. Trade relationship with mexico. Ainas commerce minister says trade war with the u. S. Should not be in option. He told reporters envisioned that this agreements are inevitable, but history shows the u. S. And china can overcome frustration through negotiation. There has been a discovery beyond the solar system. That is leading to speculation that it will involve planets capable of sustaining life. Astronomers for years have studied socalled xl planets exoplanets. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you so much. He has covered economics worldwide for bloomberg. He knows that tomorrow is George Washingtons earth day. Right . That is right. And im taking tomorrow off instead of yesterday. Tom that would be good. I like that. I think the coverage on the good general has been lax. Athink if senator mccain was selection, this guy was in a tom clancy movie recently. If you read his wikipedia, this is a guy with a zero bs factor. He wrote a scathing book about vietnam, our strategy and tactics. He talked about the lies that led to vietnam. Bseral mcmasters is a zero guide. How will he get along with this white house . Donald trump is full of surprises. He has picked an iconoclast. In his book, he blasted the military for not challenging lyndon b. Johnson in the vietnam war. Who speaks his mind. It will be interesting to see how he gets along and brings everyone together on National Security matters. Tom will his counsel be the same as what general flynn confronted, or will this guy demand his own unique, new, traditional nsc council . We have not found out whether he has absolute power. To pick his staff. That was an issue for some of the people who declined to take that job. It will be interesting to see how he actually compiles his power base in the white house. Tom i look at the weekend here. I think this is an important, it is sort of a jumble. When i say crazy white house, i dont mean that in a negative way. It is just the signals are like this every weekend. This weekend was a little,. Francine certainly sweden was a little confused over the weekend. I will give you that. We heard from the trimester of sweden not a long time ago that Prime Minister of sweden that people need to stick to facts. Does this stick out what donald trump said in that rally . One thing about donald trump is he is able to control the narrative. People in america have gone past sweden and are looking forward to his new National Security advisor. It resonates very much with the american public. They are used to this. He sometimes does not check his facts, and they basically shrug their shoulders and move on. Francine what do we know about the trump russia relationship . Is russia falling out of love with this new administration . It is very interesting, mike pence in europe this weekend was very firm in his condemnation of the russian gambit in crimea and other places. It leaves questions on peoples minds. What is our policy towards russia . Outwardly it seems like the relationship is deteriorating. We will see. Tom help me out with a date calendar on things economic. It has been pushed aside. When do we actually see republicans, majority republicans discuss fiscal policy or even tax policy . Does this wait for 2021 . Taxe were supposed to get a proposal from donald trump this week or next. The fiscal issues are so intertwined with tax reform, it is hard to know when exactly we will see something concrete. Pivot is this week we are supposed to get from proposals. Tom will the king of austerity have a voice in the white house . There is no question he will. That is of some concern because we have mcmaster as National Security chief who is arguing for a much larger military force in the u. S. Who isent omb director dead set against increases in the deficit. That will be something to watch. Francine here is an awesome interview we did with the australian Prime Minister Martin Turnbull earlier on. As you would expect with good friends, we are fairly circumspect about what we say in public. It is important to give frank advice and have frank exchanges with our american counterparts, but we dont do it we dont lecture them through the media. It is important to be able to talk frankly, as good friends should. Francine the you believe World Leaders are now changing the way they deal with donald trump as they learn how to handle them . Well, you know, donald trump has made it clear he is not fond of leaks. I dont think World Leaders are going to facilitate telling people what was said in a private conversation. Yeah, he is definitely changing the way for leaders are dealing with this u. S. President. No question. Francine thank you so much. Important breathing, he heads our Government College coverage. You look athen volatility, we touched on this at the front, they seem to be largely ignoring the white house and administration, with a continue that route will they continue that route . David we should get something concrete on tax this week or next week on corporate taxes in the u. S. That made markets move up. That was justified. If we get significant reductions in corporate taxation, the invocations are obvious. Outside of that, the market is struggling to price in some of the action we are seeing from the present because it is contradictory. You have this rhetoric about fiscal stimulus, and then you. Ave deficit hawks you have a focus on infrastructure in the campaign, and then you have the difficulties of repealing and replacing obamacare because it is quite a republican plan. Want to makea of all that. For yields to rise so much so quickly, it was pricing in that the president was going to do everything he said he was going to do. It was all going to affect growth. There was not capacity in the accounting, therefore inflation was going to rise. I thought that was overdone. Tom help me with a tactical question this morning. Maybe i dont cap index gains, but i have really nice Capital Gains from the glorious trump stock market. What do we do this tuesday . Do i hold on, or do i have to Equity Ownership . David i think you have to be a little cautious about where u. S. Docs are given the huge moves we have seen in the current valuation issues. When i talk to clients about relative Equity Ownership, the case for the u. S. Seems so compelling with the numbers, the outlook, but the Political Risk there. We have to get past the French Elections. It is difficult to advocate moving into credit aggressively because spreads are tight there as well. We have a difficult asset environment. Equities,ays within remain our best call. Some of the staples for example would be our main one. I believe emerging markets are going to be resilient in this environment. I think they can handle a stronger dollar if we get one. We may not. Valuations under the long run averages should have policy support coming through as well. It outperformed last year. We are now in a time tom that is a good point. We will continue with mr. Stubbs. 105 on the bloomberg this morning. Ellen zentner this morning of morgan stanley, arguably the market call of the year last year. Ellen zentner on a cautious american economy. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua. Tom keene in new york. The rally still very much on due to underlying profits for the worlds biggest miner. The group warns we may see declines in the near term. Our editor for energy and commodities. Great to have you on the program. We were worried about the viability of breakup of certain big miners. Months, and you have this. That is usually important. If you think about the u. K. Stock market, how Many Companies are still paying dividends . These Commodity Companies represent a huge return for investors. It is an important signal to the market that they have listened to the market. They are not going to do bigger m a, return money to shareholders. They still seem to be doing the right thing. Will they keep going on that trajectory . Francine there is a pickup in demand coming from emerging markets including china, or they close down the minds because they have a handle on oversupply . A little of both. You have the number one and number two copper mines in the world hit by a strike and its up labor export market. Those events change things dramatically. Thesee that in copper and rest of the market is following on those heels. We have not seen a huge jump in chinese growth. We have seen a huge jump in chinese stockpiles. Those do not sit well together. Tom help me with the money question. Many talking about a commodity super cycle. Bring up the chart right now. We can do this on the bloomberg. You can take this chart. You can steal this chart from the on tv. I understand the downtrend in the debacle. This is back to 2008. There is a chinese downturn and recovery. Is this super cycle in place . Are you ready to say all clear onthere is i am not. The other thing we talked about, how sustainable is this . Not in terms of going back to very low prices we saw a couple of years ago, but will this rally continue . The oil market is a good indicator. They have been trading sideways waiting for more news about supply. Demand has held up well. The super cycle, i would not put my bets on that. I dont think there is another china out there. I dont think anyone is able to step into that. In the absence of that sudden surge on demand on a dramatic scale, i dont see how we get back to the prices we had in 2011 in 2012. Tom we are going to interview the head of opec here. They are dealing with the technology of petroleum and the technology in the u. S. Is the same technological revolution going on in australia like metals the same as petroleum . It absolutely is. It is probably not as dramatic as we saw in the shell revolution. There has not been a single piece of technology or process that has allowed lots of new reserves to come out. We are getting hugely efficient. Going to a steel plant today in most of the western world, 20 or 30 people are operating this enormous plants. Go back 20 years, it is thousands of people operating this. The same in coal mining. They have produced huge amounts of coal in a way they have not been able to do 50 years ago. They have to keep costs down. As you see wages rising as Commodity Prices come up, there will be an intense pressure to come up with technological processes to contain costs. Francine i remember seeing , it was like dantes inferno. We are discussing how far can this bounce in commodities take us . In oil and gas collapse after 2013. You saw significant drawdowns there. That reduced capacity growth. Some of that capacity was mothballed. We have not got to the point where enough has come out to really hang your hat on this for the long term. If what we have seen is a bounce to oversold levels and depressed prices, that counts is still at the moment. Earnings across theng globe. If it does not get about 60, i there will be companies out there struggling in terms of cash flow, dividends, sustainability. There is a lot of output available in this sector. Some companies will struggle, some will survive. There is m a here, if not huge deals. Im not sure it is fantastic place for buy and hold for the next two or three years. Francine thank you. David stubbs of jpmorgan stays with us. If you are a bloomberg user, please go to tv , where you can follow some of our current interviews. You can also get in touch with our show producers. You can get in touch with tom and me. You can give us thoughts about politics or possible graphics. This is bloomberg. Francine tom is in london. He went to the burglary shop and spend a fortune. Since one of the new ones the creative director decided he would step down as ceo to make place. Plaid . M where is the francine they have some pretty good figures. As is because there was more demand in asia. This is exactly the point. He worked for such a long time across the building, saying it is too oldfashioned. Yesterday was a car the most International Fashion show burglary has ever seen. Tom this is like our staff when they come in at 4 00 a. M. Francine we are very stylish on bloomberg surveillance. The french president ial election approaches. Investors are a little worried, and they are piling adoptions protecting against equities decline. That has climbed to an almost twoyear high over bullish calls. With macron charlie. Is Marine Le Pen doing better than she was last week . Marine le pen is doing extremely well. The data they polls are showing she is five points ahead in the first round. The second round holes are tightening. Ory still show fillon macron will win. She is gaining ground. Tom she is gaining ground. Check out the chart. This rarely captures it back to 2007, but you see the new leg up. As a political beast, do you care what the markets say about this . Do the markets overemphasize when you look at french politics . The question is do the french people care. I think they do care. Things have not gotten scary enough to make a dent in the political debate itself t. Francine how do you look at this . Is the vix fully priced in for a shock politically . It is not priced in at all. They will get started with this rush Political Risk as we enter april. Lets remember, markets really only look at thethey will get sy happens. First round is late april, the next is early may. They have significant foreign earnings. If you have some kind of scenario where they reassure the frank. Oft will provide some sort index level as we saw with the ftse in the following pound. The best way is to short the euro out right. Debt,ay French Foreign because that spread will widen. Those are the two things to play at. The message for the insurgent campaign is it is easierthose ay francine what is macrons message to london today . He is coming to london to get votes. 300,000 french people live in london. They all vote for the president of this country. He is coming for votes and to convince people, his people. He needs to get them on board. Tom thank you so much. From paris this morning. David stubbs, thank you for getting us started in our second hour of bloomberg surveillance. Coming up in our next hour, a conversation with the opec secretarygeneral, and Richard Haass will join us on the disarray of america. Stay with us. This is bloomberg. This morning, german yields collapsed as Marine Le Pen changes the calculus of the French Election. Moves to a record low yield. Aretrump administration laboring to extricate themselves from disarray. In this hour, Richard Haass on the everchanging trump order. You are behind, i am behind, but Richard Haass is not. Good morning everyone. This is bloomberg surveillance. I am tom keene with a fiveday work week in london. We will go over to kevin in a moment. We have another general in the white house. An active general. We will learn about whether he will get along or not with the president. Both are very straightforward talking. I dont know if he will wear the uniform or a suit. I have only seen pictures in uniform. Tom he is an active general, which is different. All on washington with first word news, here is taylor riggs. Yes, President Trumps choice to be National Security advisor is an army general with a reputation for speaking his mind. He has been named to replace michael flynn, who resigned over resignations that he misled the Vice President about contact with the russian ambassador. One of his toughest critics, john mccain, calls him an outstanding choice. Saysalias Prime Minister its exchanges with President Trump are not with a public deal. Malcolm turnbull has had several conversations but he will keep the details to himself. As you would expect with good friends, we are fairly certain we are very circumspect about what we say in public so it is important to give very frank advice with our american counterparts. We dont lecture them through the media. It is very important to be able. O, as good friends should four years australia has walk the line between supporting american interests in the asiapacific and trading with china. A push for Nuclear Power may be pushed to nextgeneration reactors. There is a plan to greenlight eight reactor project this year. They plan to bring online a thirdgeneration of reactors but construction delays have slowed the process. The outlook for the economy has become the biggest worry for britain. Nine months after the brexit vote, 28 of those surveyed by nielson said the economy is either their first or second biggest concern, that is up from 16 a year ago. Terrorism is ranked second, followed by immigration. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs, this is bloomberg. Much. Hanks so we usually gloss over earnings. Nobody cares. But if you care about home depot earnings, i am going to rip up the bloomberg and come back to home depot. What you need to know now is what is really important is they will reallocate their dividend from 50 to 55 . That is exactly the use of cash mantra that you see. I am not sure that would have happened without a trump administration. We will come back to this. Let me get to the data check. Lets go to francine quickly. This is an important announcement from home depot. You will see that advance on home depot, the euro, 105. 37. I noticed the german spread, indicating those stunningly record low german yields. Francine . Francine i like that you are looking at twoyear yields. I also put in some earnings. I think it is the biggest loser in europe so we need to keep an 6. 7 . It, down there was a brilliant piece showing that none of this Political Risk looking at the german twoyear yield is priced in when it comes to volatility and then i will show you the dollar on the back of those comments. Tom let me go back to home depot. This is incredibly important. As an indicator of the trump confidence you see out there, they actually say the gross margin will be down a little bit. Here to a low, 40 global audience, dont confuse lows with lows of the test family. This is lows of Retail Stores of Richard Haass every weekend. Heres the underperformance of lows. Their margin is in a little bit but they are adamant that they will deploy greater cash. You only do that in the confidence of a big deal this morning to launch this week. Raising the dividend, that allocation of 55 , i will have more details about that into the statement. Francine . Francine the dividend for home depot is significant. I have a simple put option for france. We are looking at Political Risks and yields. This is what i want to show you. As the French Election approaches investors are piling into options for protecting against equity declines. You can see that gage has climbed to an almost twoyear high and this is basically the latest poll showing Marine Le Pen is going up. I wouldnt say it is a huge move. But it is something we need to give an eye on. Us, kevinoining cirilli, our chief washington correspondent. Let me jump forward on the news of the weekend. Will there be a change in the politics, the dynamics of the old office of the oval office with the Lieutenant General joining the fray . That is what the administration hopes. With h. R. Mcmaster joining the administration after a series of missteps last week, President Trump is looking to turn the page following the fallout from general flynns resignation. He faces tough questions on capitol hill with republicans now increasingly more vocal in their opposition and their questions to President Trumps relations with russia. We are talking about people like senator john mccain. Tom maybe he got a promotion. Brigadier general bannon has to deal with this. How will this general fit with the style of mr. Bannon in the white house . There was a great article highlighted in from aal in politico good friend Daniel Whitman and they are saying this is an outspoken general. Is someone who fits along is just an increasingly more vocal military group of generals that again, President Trump is hoping will be able to coincide with his more rash rhetoric. Francine will he get along with the president . I think you will. I think he will. At maralago where the president was staying, he had several meetings with people like the tenant Keith Kellogg and, of course, mcmaster. He ultimately settled on this guy and we will see where that goes. Tom we look forward to talking to you about all of this week. He is our chief washington correspondent. Richard haass has wonderful timing. Not only is he talking about the new trump order but his wonderful book on the world in disarray was incredibly welltimed to come out here within. Is the republican experiment writing it shipped over the last few weeks . The short answer is no. The world hasnt comes down. Washington has added to it and the dynamic between the two is a world in disarray and it would have gone up. Tom i thought of you when i saw this. I was at the meeting of the council on Foreign Relations years ago when you relaunched your website, which to me is the place to go to get a briefing on Foreign Policy. All the president does is what cable tv. You are a beast of cable tv. , what would of it you say to President Trump to wean him away from eight screens a morning . Many things but it tends not to be reflective. It tends to change the urgent rather than necessarily the importance. It is one of the reasons we will get comfortable in this relation with the television with the Intelligence Community. Francine how are people in the u. S. Reacting to the swedish saga . It is just the latest example of an administration that gets distracted, that get . Ors by some piece of news. A credit ability problem. The president has to be careful that people in the United States and around the world dont start discounting what he says because the days will come in his tenure as president where he will have to be taken carefully and literally. Hes going to say we have information about this in the United States is doing that. That is where things like this will come back to bite him. Francine but will it change . People who have been waiting for donald trump to pivot for two years versus a candidate and a transition as president , i dont think you are going to see fundamental changes. The question as it connects with the news of the day with the National Security adviser, not that he can do a 180 or a switch but whether there can be some violating back some piling it back. Francine what do we know about the u. S. Relationship with russia . It seems to have taken a turn for the worse. Will it fundamentally change . It was just rhetorical. Mainly on the american side. There are real issues between the United States and russia and you will know, russian tensions are particular in europe. Whether it is the United States and the french and german elections, whether it is the middle east, they have been turning up the temperature in ukraine. I think this is a troubled relationship and i think the goal for this administration is to push back on russia at the same time they open more communication, get the balance right. Tom one of your ambassadorships was to Northern Ireland and dealing with the delicate issues there and the linkages with the Intelligence Community. On my weekends, with all that is going on i am reading jefferson and watching Robert Redford three days watched in the congo. I am suggesting the president needs to get a briefing on the Intelligence Community. It is not Robert Redford. How would you prefer president on the reality of these people who really face some tangible danger . Field doople in the faced tangible danger, even more important than the short run as he gets comfortable with the analytical side. The Intelligence Community has various silos. The most amount of one, the james bond one is the operational people. The more important one for president is the academic one. Is. Hich is what redford when the president did his Daily Briefing he gets regular interaction with his intelligence people and that is when hes got to get comfortable. They are going to speak truth to power and give him context and they will connect dots for him but he just may not see. He may be confrontational in this relationship from the getgo. He has got to get comfortable. Tom francine, you can expect this that we would get Robert Redford into our discussion. He looks like bob redford. [laughter] francine he maybe does have a point. Ambassador haas. Coming up on bloomberg surveillance, a conversation with the opec secretarygeneral ourmmed barkindo live from International Petroleum week here in london. This is bloomberg. This is bloomberg surveillance. Lets get to the business flash. Toshiba hopes to raise a . 8 billion from the sale of its memory chip. Familiar,to a person the Company Wants to complete the transaction by march of 2018. Toshiba is grappling with its caused byvision, massive cost overruns in the construction of Nuclear Power plants. The Worlds Largest fund company has been holding europe. Vanguard has a passive investment model which will become more popular in the region. New regulations will probably increase the cost of managing money in europe. Chair ofving up the the market from 15 almost a third. Hsbc is defending the stock buybacks. The bank announced a billion dollar buyback after repurchasing 2. 5 billion last year. We spoke to cfo ian mckay. We continue to focus on investing capital in the growth of our business and that arises from time to time. We will contemplate as we have done share buybacks. They posted fourthquarter profits, cost cutting the target by a billion dollars. That is your Bloomberg Business flash, tom, francine . Francine lets go back to Political Risk in europe and talk about top risks for 2017 starting with france. Investors are worried about the upcoming election, saying they have risen along with yields on the front end of the curve. We are back with Richard Haass from the council on Foreign Relations. Let me bring you to my bloomberg terminal. Polls but this is the odds. Macron, le pen at 34, she is crashing the alleged scandal with the suns and the wife at 28. 8. It seems that markets are discounting Marine Le Pen becoming president. Are they wrong . Somewhat. She is clearly getting into the second round and she is going from someone who had a negligible chance to know being one of the two finalists. I dont know if her odds are four out of 10 or five out of 10 but they are in the range. How whether to see people rally around macron if he is the establishment alternative. Second of all, like with frexit, we have issues like turnout and how people respond. I think her odds are at least four out of 10. There may be getting close to five. Francine are there similarities between Marine Le Pen and what led to brexit . Immigration and fears of immigration . You are both right. Obviously immigration issues, the lack of integration of immigrants in france is an issue of constant security concern you , you have the behavioral performance of the French Economy for not just years but decades now. That is the kind of fertile soil are you get populism and nationalism so it is just so predictable that a candidate like le pen is doing well but she is incredibly sophisticated. We did an interview with our magazine of foreign affairs. It was so subtle she has really learned how to navigate in ways her father never did. Francine for jonathan masters, i cant say enough about the background. Tom let me bring up your nominal gdp. This is the animals spirit of the United States versus france. Here is the lassitude of france through the 90s and the 2000 and i do it again after the financial crisis. Analyst onto your france, did they see any structural change out of this election or is it business as usual . Is there a why that leads to structural change . This is not going to be fought unless i am missing something on competing views of economic reform. There is much more visceral. Afterwards you have the same forces pushing back. Tom help me here, there is an angst thatepening led to the Trump Victory and the support of bernie sanders. Do you detect the same anger in france . I dont see it. Not quite but there are elements of it. The fact that le pen is doing so well is a sign of frustration with politicians as usual. There is precious little support. The fact that trump did as well as he did here and brexit as well as it did in britain is momentum. Now she is conceivable. It has changed the way people look at le pen. Francine why doesnt donald trump support Marine Le Pen . He alluded to it in tweets. Does he benefit if the eurozone breaks apart . No. His Vice President was traveling around the continent over the last day or two making the case that the United States supports the European Union, we should be supporting it. The entire project is one of the most significant pieces of statecraft of the last century. The president is a disruptor. I disagree with him fundamentally on that point. We ought to be more of a preserver. That is why he was so sympathetici disagree with him fundamentally on and why he sent certain signals that he is going to pay with le pen. My guess is what you see going into the French Election are continued mixed signals. Ofhave nods in the direction the european establishment but one way or another the president will suggest that he would be ok with a le pen victory. Francine this printing back to your book and talking about the new world order. If the disruption continues what would the world look like six years from now . Disarray. If it is only disarray, we are lucky. We have already seen a major hit to the Global Trading regime. Weve got questions about american alliances. We have questions about the future of the eu. That is because the internal european dynamics. Important elements of the old order will have unraveled but we dont know what will take place. It is almost the analog to health care. We will have a repeal that we dont yet have a place. Tom this order, whether you disagree with dr. Kissinger, cox follows on with a brilliant idea on world order 2. 0. There are eight ways to go in this glorious essay off of his book. World order 2. 0 is the sovereign obligation, the notion that sovereign states are not just rights but also obligations to others. It will have to wait for trumps successors. Such an approach would be second best and would lead the United States and the rest of the world worse off. How do we get ourselves back to an american obligation now rather than wait until the end of trump . It is going to take congress pushing back. Mr. Tillerson, does he need to do something unique . It is not clear what authority he has. The europeansason or Asian Countries couldnt pushing a world where sovereign states have obligations. My argument is this is not an act of it is an act of self interest. Stuff that happens inside of the countries affect us and everybody so when i dont see is the connection between what i am doing and america first. If we dont push it then congress, mayors or governors or other World Leaders will have to push it. Otherwise we have to wait until the 46 president. Francine thank you so much. He stays with us for the rest of the hour. Today marks one of the most important events in the global oil and gas industry, the Petroleum Week where it leaders share their knowledge and discussed the industrys toughest challenge. We are by with the opec secretary general, mohammed barkindo. Thank you very much, welcome his excellency to bloomberg. Great to have you with us. Lets continue the conversation we were having. You are trying to get it going and that is not gone. The overhang is not gone in this next six months. Will you have to extend the agreement as it stands right now . Thank you very much for having me. First things first. The preoccupation of all the 24 participating countries in the declaration of corporations, into the 10th of december in is the full and timely implementation of the obligations of these participating countries. We have just received the preliminary numbers for the period. Nth of this january numbers. These january numbers, in origin, therefore, it is pretty much for us to talk of what will happen in the next five months. All i can tell you is the air of commitment we have received from are inuntries and we regular contact with them, tomorrow we have met in vienna and we will talk about the technical commodity. We are willing to go for much higher levels of compliance because of the very high level have broughtt we over from 2016. When will you get to 100 compliance . 100 inpe to achieve due course. I hear opec members are exporting in the month of february. Can you say where the market stands . This is just the first month of the limitation of the position. The numbers that we have received so far confirmed that all the participating countries are struggling very hard to ensure that they implement their obligations 100 . I want to align myself with the thattation of saudi arabia anything less than 100 is not satisfactory. The market is driven by a number of facets. One is compliance, and the betting in the market. There are two things in the market at the moment. One is the hedge fund and two is your theme. Without an extension of the deal and the hedge funds being fully committed, you will find it tough to sustain 50. Can the market sustain a new bandwidth. Are we in a new bandwidth of 50 . After the contrary, we have also seen expectations of the Fund Managers including the Money Managers in the long positions, despite the high level of inventory in the United States. That demonstrates to us and the markets the confidence that the timelyhas to fully and lament the obligations. You take me on to the other issue, which is supply storage in the United States, at the highest since the 1930s. We are talking about the microeconomics of the oil market. The technology revolution, the fractures are back in force in the United States of america, can opec divide this level of storage in the United States of america and the Technology Development . Fracking . Ound after , in think shell oil is general, always playing a role in future demand for oil. I think one of your biggest threats. We are in this boat together i have just told you the response i got from independence players in the United States. I look forward to meeting with them. They have fully aligned with us on the decision we have taken. Because they know they are also beneficiaries to these decisions. Compliance is a key thing for the market. Deal, i wasp to the all over the middle east. Lets talk about some of the commitment to video. 210,000 submitted to barrels. But they are not hitting 90 yet. Do we expect 100 soon . I have brought commitment from the highest levels of there will bet implementations of their packages. They will implement their obligations. Therefore, we have seen the airport we are making in achieving their targets. Each countries have their own and iraq is not an exception. Do you fear a great drop in the price of oil. The market seems to think we are in the band of 50 or 60. What could be the most disconcerting fact of the market and bring us below 50 . I think there is a glowing industry thathe the low level of prices we have seen in 2015 and 2016 was in a nickel to growth and was inimical to growth and of element this injury of producing countries and the health of producing companies. There is a consensus on the issue of the high level of talks of inventories that continue to weigh on this market. Begun is justust a work in progress. We will finish with this. The share market is back. Do you see that opec is going to have to fight as it did in 2014 clear market share . We were dealing with mr. Trump and the fracas. Are you going to have to fight for market share again . We are here to resource ability to this market, to minimize what we have seen. It is to be a will to encourage investments. We have seen these sharp contractions, the future of this industry that is not in the interest of producers and consumers, this is what we are focusing on. Andave no price objective at the end of the day, the market will decide if fully room price. Mohammed barkindo, thank you for joining us. Those are the latest lines coming from the secretarygeneral here. A broad and extensive conversation. Everybody is compliant. I know you like 100 compliance on the surveillance state. Surveillance stage. Tom we do like 100 compliance. Francine i am the compliance officer, tom. Now Richard Haass with us on the council on Foreign Relations. Im putting up a chart we put up years ago. This is basically price of adjusted oil. This shows you the strap that opec faces. Back we go, down we go precartel and the world is coming to an end in the 70s and then we get the second bout of oil here. Then we get what they are really afraid of. Downwas a shocking plunge and we are right back there as they should be right now. Is this still a cartel . It is a cartel that has lost a lot of its way. Not because of compliance issues we used to call it cheating that is always going to continue. Things are changing. Context has changed in the United States and every time the price starts getting higher people in this country come out of the woodwork and start producing. essentially has lost its stranglehold, a lot of its leverage that it used to have over the market. Francine but at the same time, we heard opec cuts of had a big impact on the oil market. There was a sweet spot in early 2000 where they did have influence and they lost that influence because they never veered. Could they come back or is that game over . I think the word is influence. They are not irrelevant. Influence and control. The house young years of opec are gone. They are not going back to that domination on the markets. We will see what happens in this country as well as things like geopolitics. If isis gets hammered in places like iraq and syria, they are putting more pressure on saudi arabia. There is always issues about nigeria. We look at Geopolitical Uncertainty and it just seems to me that opecs position is not nearly what it was. Im not saying it is relevant. Francine they managed to get russia on board. That is one thing that the oil markets wanted. Russia is putting production ahead of schedule. Is it a sign of desperation or do they want that influence . The russian economy, for the last couple of years it has been shrinking and it is still essentially one dimension. Mr. Putin does not want to make russia great again. That would require real reform. He wants russia to be perceived as great and that means an energy on trial on Higher Oil Prices between russia and opec is not surprising. Tom we will do a skew with christopher perrone. We do that with the great trend analyst. He and i agree on the theory behind the chart and christopher varona, chris, very quickly, what is the oil pulse . What does the chart look like . Inyou have the 70 decline then you had 15 years of very little. You had a break between 1030 you dont have a hedge fund enthusiasm. There is a long low right now and it hasnt been lost on me despite what has still not broken out here. Nobody hates earnings enough. This one today, wasnt boring and it goes to you work. Bring up the chart, home depot. Ok. I want to sell here. I want to get out here. I want to get out here. I want to get out after this pullback. Here is the trend. You have been brilliant about staying on trend and bowl stocks. Let me get your attention. If you want home depot shares 20 years ago, your cash on Cash Dividend is 31 . The fundamentals of this beast with your trend analysis. Until it breaks you have to stay involved. You have not been rewarded for owning hd, basically since late 2015. The change, the break out of the last week or two is important. Thoseo take from here, remain being relative leadership stocks in the last number of years. The homebuilders are actually showing some signs of improvement and taking the last couple of years off as well. I want to go back to john mackey, all the heroes you and i have one analysis breaks. There is a trend up. Haass, who has loaded the boat on home depot, when you get out of a trend it looks like that chart. When you stop making money. That is the key with home depot. It has been one of the most consistent uptrends in this market until it penalizes us for owning it. Given the benefit of the doubt and that is what you do. What do the Technical Levels tell us about dollars. Im sorry, i missed you. Francine im asking about dollars. About the Technical Levels and how they give us a sense of what a dollar can spread early from here . What is key with usd is despite all the reasons it should have gone up the last 12 weeks, it has gone down. The dollar is not as strong as people are making it out to be, and in particular if you look at the emerging market pairs is actually sold off. Now, the irony is if you look at dollar behavior post prior fed rate hikes, the dollar has done exactly what it tends to do post fed rate hikes. It tends to rally into the height and selloff post hikes. I think the dollar is weaker than people give it credit for at the moment. Francine if you look at some of the currency pairings, dear member, last week we had deutsche bank. He is talking about pound levels and i was asking jpmorgan about it today. Look, maybe ong, a technical if it goes through barriers it will fall in variable. But otherwise it makes little sense at the moment. Low, you canrterm make the same argument for the euro. I dont think these are being secular terms but i do think there is a lot of bearishness with respect to sterling and in the bottom, at the very least, we are in the nearterm. Bring up the chart here on sterling. June 22, short sterling, that was really good that you and i were there. This is how you make money. In home depot, going up, here is weak sterling. Compared to equities, how do you know when to get out of the trend on a currency . Is it whenever but he is low in the boat on that trend . Iswhat has struck us here despite all the bearishness of sterling over the last number of weeks and months, sterling is going to stop going down here and we wonder at the very least from a mean reversion standpoint, tom bring up the chart. , here is the trend. Here is the amazing deutsche bank. In hsbc, how do you judge the equities,t on commodities. Is that easy to do . It is not easy to do and that is why we look at a number of indicators to get something quickly. The key with sterling is when something doesnt behave as it should we should see a little bit of attention. Despite all the bearishness sterling has stabilized. Tom but is the politics of england stabilizing . We spoke with prime mr. Blair the other day and it was emails of angst and dislike we got out of england on what Prime Minister blair spent. Answer is the politics of the United Kingdom have not stabilized. We dont know in a couple of years if we will have a United Kingdom. Northern ireland is in the worst shape it has been in quite a while and scotland is waiting to see what happens. We still have an article to trigger. Process. Several your i cant sit here and tell you what that is going to mean for the sterling but if anyone thinks that britain process. Politically and that is what they are placing their bets on, that is questionable. There was, i know, a lot of emotion and angst. But a lot of it was not because of what they were saying about brexit but also his legacy is Prime Minister and the war in iraq. Talk to me about the 10 year yield. We heard from larry fink saying it could go between two and four. What do technical analyses tell us about the 10 year yield . This is a major regime change in bond yields. Not just in the u. S. But around the world as well. The equity markets actually seems to be leading the bond market is telling us. Look at the relative weakness in utilities and staples. I think the leadership within the equity market has the deals coming up. Fromyou noticed on my log but helpder, theories Chris Perrone here. Home depot is out today with a massive use of cash. Can Corporate America just ignore it and generate the good trends that mr. Baran sees . Corporate america is making a safe bet that there will be deregulation. You can see some individual tax breaks. You could see a degree of infrastructure spending. You think this is a benign environment for us. The details are unclear. Pharmacy executives have not worked anything out. And these changes in leadership predate donald trump. Leadership was very cyclical into the fall before november 8. I think this is more than just about who the president is. Tom this is what surveillance is about. Two people with different skill sets talking about the advancement of our economic state. Thank you so much. We greatly appreciate it. We will continue on Bloomberg Radio news. Francine lacqua, listen to that. David gergen is not here today. Bloomberg daybreak today, Robert Shiller. Dont miss it. This is bloomberg. This is bloomberg surveillance. Lets get to the business flash. Fortune for the mining giant. A recovery in commodities. It no longer needs to sell up assets to reduce debt. At one point last year investors questioned whether the company can survive. Former attorney general eric holder to investigate claims of sexual harassment. A Software Engineer says she was propositioned by her manager and that her reports were ignored by human resources. It is the latest in a series of accurays of accusations. That is your Bloomberg Business flash. Missede hsbc has fourthquarter profit estimates thanks to an unexpected drop in revenues. The asian focused banks shares buyback with 1 million. We continue, and running us now is senior banks analyst jonathan tice and Richard Haass is with us. What we bring you over to my terminal. At the book ratio you have european banks in white, the blue one is the u. S. Financial sector. Where does hsbc fit in this . Hsbc would be at the upper end. It is trending above book. For the next is couple of years and if you compare that to jpmorgan where you meet a 11 to 12 , you can understand that the higher forecast has been in the u. S. Our people in charge unlucky . There has been significant restructuring. They delivered on their 290 billion asset reductions. A lot of revenue disappeared. I think management are doing a good job. The fact is you got a very large group. You have that interest margin pressure in asia. They talked about the gearing to rising rates tomorrow from the u. S. Asian deposit franchise but the fact is the market will be looking for extra costs in here. Tom jonathan, the ballet over the president ial weekend in the United States was kraft, heinz and unilever. Are we ready for some major bank mergers . Are they the limited in and cutting costs . Are the dinosaurs mating . Few fields, so commerzbank and deutsche had a few fields. That abm i dont think we will see anything. At the moment we are looking at generali. In europe the cost base is too high. Structurally, european banking needs to change. Tom greatly appreciated. Let me show you tv. His is a great function you can go back and look at a segment and you can own that chart. How cool is that . If you have a bloomberg terminal , this is Oil Inflation and it comes down here and you can you love notes, and it has a hate mail button for me. Tv , cant say enough about this. Use of work on this by concepting that. Tv. Francine the foreignexchange report. Euro, euro, euro, weakening again. The headline this mornings record low yields in the german twoyear. It is extraordinary. First is well under a. 80 . Coming onot that much right now. Tom it is bloomberg daybreak americas with david westin, alix steel and Jonathan Ferro. Youre talking about rate hikes. Going on. S a lot we are talking of morgan stanley. She has a fed call. She sees the fed going first in september. The investment thesis for the fed also very interesting. Mortgageng to end its security reinvestments, lots of granular data to dig through as well. Weekw of fed speakers this. Very interesting. Linking it in with commodity oil,at morgan stanley, on it is brilliant with the opec bet. What about the one way long bet on oil . You are not seeing that reflected in the price. There is Different Energy aspects. It is going to take a lot to shake them out. We have more data to get that coming into the market. Looking forward to that this morning. Richard haass is with us on the council on Foreign Relations, a terrific out on the world in disarray. Of course, ambassador elerian talks a little bit about the unknown unknowns. What is the unknown unknown for the democrat in the liberal elite . We are going through this political swirl in the focus is all in the president and i get that but what about the other side . What is their unknown . The big challenge in the United States and in many European Countries is what is the alternative to populism and nationalism and antiimmigration . You can say we are tough on security but we want to be more open but what are the ideas . How are you going to make trade a politically viable concept . What are you going to do for the millions of people losing their jobs . What is the corpus of ideas in front of us . What is the centrist alternative . What is the optimist oberland. David is getting the viral buzz of the morning with commentary talking about our miserable 20 21st century. That is the most antihaase comment i have heard. Is an important essay, very consistent. There is a slice of this country, particularly white and male that just doesnt make it. You see it with longterm unemployment, more people on disability. What the essay does ask is, why and what should we do about it . That is the conversation we have to have. I have had it with the scapegoating of trade. We need a serious conversation in this country about education, trading and wage insurance. What is the combination of Public Policy measures to break what has become a new cycle of poverty . Is a news ago, this version of two americas. We have to figure out how do we intervene as a government and as a society to break this that are. Francine . Is better our emotions not a more useful weapon than facts . They only get you so far. At some point youve got to deliver. One of the interesting things for this president will be if he cant bring back a job, if he cant bring back certain jobs, that are not going to come back in manufacturing, what then . Emotions give you a way to ride on but sooner or later people are going to want a bottom line and want to see what is different. Again, people in opposition, i believe now is the time to think of serious alternatives. Francine this has been fabulous. Thank you so much on this tuesday morning. I cant say enough about ms or hospiras book. Book. Assador hosss he didnt expect what we are serving day by day in washington. The world in disarray speaks to a lot of challenges of americans. We have an exceptionally busy day for you. I daybreak, i cant to cant wait to see what she says on policy and then we start strong. Tomorrow morning, Stephen Roach , on the nextrsity Federal Reserve. Stay with us through the day. This is bloomberg. Jonathan wall street gets back to work. Futures game, the Dollar Strengthens as Federal Reserve officials keep a hike on the table. Rising Political Uncertainty in europe is contrasted by a buoyant economy. France outpaces germany. A just be stocks dropped the most in all eight years after the bank misses revenue and profit estimates. A messy quarter. From new york city, a warm welcome to bloomberg daybreak. Im Jonathan Ferro alongside david westin and alix steel. Equities sitting at alltime highs and futures market higher as well. About five points on the s p 500 , about 131 for european xps as well. Despite that number in europe, that pmi data, a sixyear high is a weaker euro story this morning. Asx new borders were up well and prices increased the most since 2011. We are also waiting for walmart earnings to cross, we will bring them to you as they cr