Transcripts For BLOOMBERG Bloomberg Surveillance 20170222

I cannot be in favor of it. Plus, britains got talent, and france wants it. Residential hopeful emmanuel workers tos skilled return to france after talking to theresa may. Fore are the figures germany, Business Confidence coming in at 111. Stronger than the markets were expecting. They were expecting a figure of 109. 6. It is stronger than expected. A little bit better than expected growth figures. This is the picture for eurodollar. Lets get straight to your markets. Yesterday, we had record highs for the u. S. , and that means it is probably still going through a little bit when it comes to european stocks. I want to show you movement on japan as a haven. Volatility yesterday was gaining 4 . Brent crude, if you are looking wti. At markets, look at brent at 56. 53. This is my favorite bloomberg. This shows you the german twoyear yield. Is further into negative territory. This is the zero line for the german twoyear yield. The three main reasons for this it is a haven, there is support, and the ecb is using them as collateral in the euro area. The ecb is buying german for qe. This is probably a reason we are seeing this in the twoyear. Keep an eye on this. Will have plenty more on your markets, but lets get straight to the first word news. The u. S. Government has outlined a sweeping crackdown on undocumented immigrants. Donald Trumps Administration would seek to swiftly deport many more people without Court Hearings, and target migrants charged with crimes who are thought to be dangerous. Secretary johnty kelly also ordered the hiring of 15,000 more Border Patrol and immigration agents, and the building of a Mexican Border wall. The ceo of French Oil Giant total has warned that opec and russia will need to prolong their sixmonth deal to cut crude output if they want to use the global inventory glut. Speaking exclusively to bloomberg, they said the oil market is still facing headwinds. We are in a volatile market. A positive trend. And i think the markets are willing to go up. You have some negative impacts, potentially. U. S. Shale oil increases, libya could come back as a market come really compliant. High inventory. Our policy or strategy is to be [indiscernible] hong kongs former chief executive has been sentenced to 20 months in prison for misconduct in office, as he was convicted for failing to disclose a conflict of interest that arose when he was negotiating rent for a luxury apartment with a landlord who had applied for a broadcasting license. A stunning report from officials helped steer the former british colony through a series of financial shocks. In the u. K. , the government has won its first battle with the Upper Chamber over the plan to trigger brexit. The house of lords agreed the draftvote to let bill to invoke article 50 to move to the next stage. Theresa may faces a fight to pass the law unchanged, and some in her own Ruling Conservative Party are likely to attempt to rewrite it. Ma says hecon macronon emmanuel once banks and others to move to france after brexit. He fought to shore up support from french voters living in u. K. His visit came as one poll showed him slipping back in third place for the tumultuous race for the italys a palace for the elysee palace. I am nejra cehic and this is bloomberg. Francine the cleveland fed president says policymakers do not want to suppress the markets on Interest Rates, and have to be nimble to adjust their outlook among global and domestic risks. Our job is to be as transparent about the rationale for our policy task. We never want to suppress the market. Most people, when they are thinking about the u. S. Economy, see it on a good and sound footing. In that sense, i think our job at the fed is to base our policy on the medium run outlook. Membere voting fomc Patrick Harker says he sees three rate hikes in 2017. The economy,ave more or less back to normal, i continue to see three major rate hikes, each as appropriate for this year, 2017. We need to assure things stay on track. Francine it is still a live meeting, but the market only sees a 38 chance the fed will move next month. We will get to that in just a second. We are getting some breaking aws out of ba the bae, globally recognized company. They are saying the wrong get a new ceo they will get a new ceo, mr. Woodburn, who will start in july. The share price is reacting to that. Pretty much unchanged, but a little bit positive, gaining 0. 1 . There are changes at the top of the bae system. Lets go back to the fed, to the markets. This is a function we are watching on bloomberg. We are by the managing director and Portfolio Manager. Great to have you on the program. When you look at fed officials function, what is priced in on the markets, does that probability of a hike convince the fed to move in march . I hike in march, no. We do think they will eventually hike three times this year. March is probably open. On data has been were mixed the u. S. The pmi has come down a little bit. Retail sales are very strong. We will see. We take the cues from the data coming in the next few weeks. The probability is likely to go up instead of staying that low. Francine the market, we went into january 20 17, they were aligned. The market believed the fed and the dot plot. Then, something happened. Do we see uncertainty around what donald trump will do to the labor market . Is facing a lot of uncertainty on a global scale. There is the uncertainty around trump politics, around the regulation, tax reform. We are waiting for more details on this. The we have the border adjustment tax or not . These are big concerns for the market. On the other side of the atlantic, europe has uncertainty , giving a bit to u. S. Treasuries. Francine we have talked a little bit about this when you were on last time. Global trade wars. Extreme case. The would it simply the political turmoil in europe that would make havens again the place to be . Geraldine holidays at the moment seems to be number one on the agenda for markets. We had a lot of surprises during 2016, and it is keeping people nervous. The French Election is the biggest worry currently in europe. Seem to showll that Marine Le Pen will not become the president. But holds have been wrong in the past. Until it comes through, that possibility remains in europe. Francine and on whether you would be buying some of the yields we will determine twoyear in just a second. For treasuries in the u. S. , are there any good deals out . Geraldine we are cautious on rates in general. We think they are on the rise globally. That said, we like inflation protected securities. Buy a safeood way to haven, but have a bit of protection on inflation. Adjustment tax could lead to significant pickup in inflation in the u. S. Over fiscal stimulus, all these things that people are worried about. I think compromise at the moment. Francine have you changed your call on dollar at all . Have you changed your call . Geraldine we were quite bullish on the dollar. Through 2017, we view it much more rangebound than anything. Our favorite currency calls are in emerging markets, not in the major currency. Francine which emerging markets . Is it the ones that have already gone through structural reform, or is it a pure play because they are undervalued . Geraldine there are a number of undervalued ones which happened to be highyielding. This would typically be our favorite, like the ruble or mexican peso. Francine geraldine stays with us. We will get her thoughts on what Marine Le Pen does next and what it means for a lot of the french yields. A reminder, if you are a bloomberg customer, you can watch the show using tv as video streams and charts and functions. If you have a question for geraldine or any of our guests, you can ib us right there underneath this screen. It also comes to me and tom. We will try to get that question to our guests. You can look at our data checks and cool graphics. Lets get to the Bloomberg Business flash. Hasa Lloyds Banking group a Fourth Quarter profit even as it faced more than 700 Million Pounds of content and restructuring charges. Ins largest Mortgage Lender said pretax profit was 373 Million Pounds, compared to a loss a year earlier. Did. Analyst estimates for 1. 30 8 billion pounds. Lloyd boosted its dividend. Rwe has booked impairments of four point 3 billion euros of to its european power plant, and said earnings would be curtailed significantly. The writedowns were a result of german power prices at plants. The utility also said it will pay 6. 8 billion euros as part of nuclearonsibility for Waste Disposal to the Nuclear Energy fund by july. Buyer off has risen 14 , beating analyst estimates. Including some costs, and it rose to 2. 7 billion euros, thank you demand for prescription medicine as the Company Works to secure approval for a 66 billion takeover of agriculture giant monsanto. The bayer ceo joins us here on the program at 11 30 u. K. Time. Facebook wants to stream Major League Baseball it is the latest sign that her personal sports teams are embracing social media as a way to reach viewers, as they struggle to adjust to massive changes in the way consumers view video. That is the Bloomberg Business flash. Francine Emmanuel Macron has told compatriots he is ready for a tough fight in the coming weeks yesterday. With just over two months until the first round of voting, one poll shows Francois Fillon ahead of macron, and back on track to qualify for the runoff. U. K. Prime minister theresa may has won the first stage of her class with the house of lords. After about 20 hours of debate over two days, lawmakers voted to let the brexit bill move on to the next stage. She faces a fight to get the law passed without amendments. Joining me today is the managing director and Portfolio Manager at pimco. You were saying one of the biggest risks is political europe. What are your concerns about france . Francois fillon is the centrist in the race, which could take votes away from macron. How do you play that on the markets . Geraldine one thing we have been highlighting at pimco already, almost from a year ago, was to keep out of france. The uncertainty is going to bring volatility to the markets, and you want your powder dry to take advantage of potential opportunity that may arise. Of course, we have a cautious stance on your. We have on europe. We have been taking profits in , andds we deem to tight there is pressure to focus on other areas of the credit spectrum, like Mortgage Backed securities in the u. S. , for instance. We are waiting and taking our cues. The base Case Scenario is still that a mainstream candidate will be elected in france. To 30 have about a 25 chance of le pen winning the election. The base case remains in line. But this is too high a probability to ignore. Francine i showed the service yields, and it is in negative territory for some time. It keeps going lower and lower. We saw a new record just a couple of minutes ago. Talk us through this. Is this a safety play . What is happening . Geraldine i would agree. The ecb, the right has contributed to this factor. Thislearly at the moment, is seen as one of the safe havens in europe, the bond. Bund. Leaveen presidency would the euro. There would be a lot of hurdles for her to achieve this. The likelihood of this happening are probably much lower than even her winning the presidency. So maybe there is a little bit of sentiment in that yield, and it is not where it should be fundamentally. European Economic Data has been fairly strong, and it is really waiting fundamentals, joe looking pretty good, and the best they have been in a long while, versus the Political Risk in finding balance. Francine talk to me about the germanfrench spread. The first circle is mario draghi goes to london and says he will do whatever it takes. Does it need to go higher, the spread . Geraldine you cannot say it wont. , itl we have the election is quite likely that Marine Le Pen will make it to the second round, so this is unlikely to soothe the markets at this stage. So far, the second round polls are showing a rather big gap, but people are very cautious when they look at polls, and they do not really believe them. So i would think it is going to be very hard for this to rally significantly until we have the result or the polls show a growing gap, which is not happening at the moment. Francine is there anything you are buying in terms of yields . I do not know if you are looking at italian or spanish yields, because they look undervalued at the moment. Geraldine we are a cautious stance at the moment. At those levels, i would say it does not warrant to necessarily step in. Francine geraldine from pimco europe stays with us. Up next, oil may be enjoying its longest rally in two months. Is president of total warning that production cuts need to be extended. Here more from our interview, next. Francine this is bloomberg surveillance. Oil is on its longest rally in two months. Hotel sayswill the ceo of telltale says they output extend the cut in if they want to reduce the industry glut. He sat down for an exclusive interview with bloomberg. I am convinced we will have to do it. Certainly opec and also russia. November is an agreement with opec and nonopec. The driving force was russia, the fact that russia for the first time in the story, under the leadership of Vladimir Putin, accepted to make some cuts. Itd say the argument gives the argument for saudi arabia to change its policy. It is opec and nonopec. But if they want to impact the markets, we need to see the inventories going down, because the inventories are quite high. We would need to expand it beyond me. Beyond may. It is good news for the industry. What about the shale . Does that play into that at all . Patrick it plays. The industry in the u. S. Is very dynamic. At 55, you see money coming back in this industry. You said you think it is quite expensive . Patrick what i said is that if you want to invest to acquire position, it is expensive. Today, if i want to acquire position in the permian, i need 80 per barrel. Of, the step to invest is very expensive. It is a business where the winners for the time being are the winners. 45 40,000 for an acre is very expensive. You increased your dividends. You beat analyst estimates. You have just described how it looks like opec will probably continue beyond made. May. Do you think the bad times for the oil industry are over . Patrick i think we are in a volatile market. The markets are winning. Yes, there is a positive trend. The markets are willing to go up. You have some negative impacts potentially. U. S. Shale oil increased. Libya coming back to the market. Will other countries be really compliant . We have high inventory. The strategy is to continue to lower operating costs. It is an industry, a commodity, where my job is to be sure we are profitable whatever the prices. The answer is being disciplined. Francine that was the ceo of total. Pimco, is still with us. It seems more difficult to change the price of oil because of show producers. We know russia and opec are doing everything they can to try to comply with these cuts, but every time the price of oil goes up i have brent in purple and wti in blue oil rigs in the u. S. , shale oil, is very quickly you can turn them back on very quickly. Geraldine absolutely. We think that we have been quite constructive on oil price in the past year. But we think that sustaining for a long time prices about 60 per barrel will be quite complicated, for cicely because of what you just pointed out. I think we are at the levels where we are now between 50 and 60 a barrel, and we are likely to remain there for the foreseeable future. A strong Global Economy is keeping up prices, and that is good news. We will also have to see what is happening with opec and their ability to comply with their promises. Francine you are telling me like emerging markets. Is this linked to a recovery in the price of oil . Forward a yes, going lot of the motivation for this is the carry that is currencies offer. Veryare veering highyielding. He showed a german twoyear yields that is deeply negative. That makes those countries relatively attractive. We think Commodity Prices are not going to go down that much. They are more range bound. What could be more attractive now, given new policies from the mexican central bank, is the mexican peso, which happens to be very cheap because of the troposphere. It could be hit by a because of the trump fear. They could be hit by a border adjustment tax. Francine even if trump goes too far, with deportation, you believe mexico is a good place to be in terms of currency . Geraldine it is one of the most undervalued currencies in the e. M. World. It is at risk if trump wants to go the hard way on nafta and the wall and all these other things. But it would seem that, more and more, what we hear, or what seems to transpire, is the approach will be softer. Francine geraldine, great to have you on the program. Thank you for coming on. The managing director and Portfolio Manager at pimco europe. Interviewexclusive with a ceo. We will be talking technology and French Elections. I also want to get his take on conflict of interest, on whether there is m a activity reported with one of his rivals whether conflict of interest are difficult to manage. Lets say there is a big m a deal, and you were advising both. What happens . We talk Global Economy and donald trump. Francine this is bloomberg surveillance. Credited to the bloomberg first word news. Government has outlined a sweeping crackdown on undocumented immigrants, Donald Trump Administration will swiftly deport many more people without Court Hearings and target migrant charged with crimes or thought to be dangerous. Homeland security secretary ordered the hiring of 15,000 more Border Patrol and immigration agents and the building of the Mexican Border wall. The ceo of French Oil Giant total as moved opec and russia will need to prolong their deal to decrease output to ease the inventory glut. They set the oil market is still facing headwinds. Market,e in a volatile there is a positive trend and i think the markets are willing to move up but you have negative increase,e u. S. Shale libya coming back to the market, will the country be compliant and high inventory. The strategy is to continue to lower rates. The cleveland fed president says policymakers do not want to surprise the market on Interest Rates and have to be nimble to adjust their outlook and the global and domestic risk, they spoke to bloomberg earlier from singapore. Our job is to be as transparent about the rationale for our policy path, we certainly never want to surprise the markets but i think most people, when they are thinking about the u. S. Economy, think about it on a sound footing. In that sense, our job at the fed is to base our policy on outlook. Harker says patrick he sees 38 hikes in 2017. Sees three rate hikes in 2017. With the economy back to normal, i see three modest rate hikes of 25 basis points each as appropriate for this year. Assuming things stay on track. Hong kong warmer chief executive has been sent its to 20 months in prison for misconduct in office, that was since he was convicted for failing to disclose a conflict of interest for the rose when he was negotiation rent for a luxury apartment with a landlord who was applying for a broadcasting license, that is the stunning downslope for an official who was a former british colony. U. K. , the government has won its first clash with parliament over the plan to trigger brexit. After debate, lawmakers in the house of lords agreed without a vote to let the draft bill to invoke article 50 moved to the next stage and now the Prime Minister faces a fight to pass the law unchanged as some of her own conservative party are likely to attempt to rewrite it. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. This is bloomberg. Francine thank you. We are getting some figures and the interview of the day. Rising 0. 4 inp the Fourth Quarter, better than expected, we have not for the moment of the effects of the vote on june 23, june 24, but brexit has not started, negotiations have not started, the pound versus u. S. Dollar. Macron saysaid he wants talented people to move to france after brexit, he was speaking in london yesterday as he met theresa may and thought from fresh voters living in the u. K. , the visit came as one poll shows him back in third place in the race for the presidency. The ceo of frances Largest Company has set a move toward protectionism would be a huge mistake and spoke to our editor in chief John Mickelthwait. Total is one of the winners of the global world, i am not in favor of any it would be a mistake to come back to National Frontiers for the world, this trend to have countries around the world thinking it is better to be inside their borders, in a bubble, we need to leads to catastrophe, i cannot be in favor of it. It is important but developed countries like france and germany, the u. K. , we have a responsibility in the emerging world, they will not think about antiglobalization, they have there are less poor people in the world because there is a global world so we can be selfish and we need to protect ourselves. We are in favor of open trade and fair trade and global world. Seem to rule out Marine Le Pen as a possible everything is possible. Francine another great interview for you, more than 40 years he has built the firm into Third Largest Advertising Company in the world in over 110 countries come a joining us from pierce is the ceo of publicis, maurice levy. , the interview i was looking forward to the most today. Give me a sense of the french politics and how they are waiting on spending in france and are you worried that we could get some kind of populist prize like the soft brexit and donald trump . Mr. Levy we have seen all over changes in lot of the polls have been wrong all the time. I believe that france may be an exception. I believe the surprise we have got with populist in the u. S. And the u. K. And in italy is not something that will happen in france. I am pretty sure of that. I believe sincerely that france will stick to the usual government bodies and parties. Thatine we understand centrist candidates the centrist candidates will declare whether he will join the race at a News Conference later this afternoon, will this complicate matters further for france . Mr. Levy i know him very well. I like him a lot. I believe that if he wants to be politics, the french he should abstain from being a candidate. He represents only for the time being 5 or 6 . The situation is already quite complicated. I do not believe it will be very positive to have another candidate. Even if he is of the quality of himself. Francine what does that mean if he decides to run, what does it mean for voters, will it be more difficult to predict the race . Mr. Levy for voters today, the situation is complicated. On the one hand, you have a populist of the two extremes, on the right wing you have Marine Le Pen and on the left wing you melan then you have a traditional governing fillon. on, with and a newcomer who is quite interesting. Who is making a different offer in the markets which is brandnew. Surprisingly he has been able to reach the level where he can be a very serious contender to become the next president. Francine what does france need to do to change its image . A lot of people in the anglosaxon world see it as a country that does not want to reform itself. Where labor laws are archaic and difficult to navigate. You launched yesterday a conference, why are you trying to promote a new image in working with startups in france . Mr. Levy there is two different aspects. If you look at the country and the need for transformation and reform, there is a consensus from all of the Political Parties and all of the great politicians that there is a need to transform the country. They are quite sincere when they are talking to the idea of transforming. And reforming. When it comes to the election time, they changed progressively their minds, with the exception of fillon, and to a certain see, whenron, and we they are in office, there is a lot of talk of resistance to change. It takes courage to change. I believe the french people are politicians, to change the country and to make the reforms. Obviously, people do not like reforms, do not like to see their old stake will be changing. They do not like to see they will be changing their situation. The way they are working, etc. , not something that pleases anyone. Nevertheless, if we want a bright future, there is no choice. No other option. We have to make very serious and painful reforms and we know the reforms painful. Our painful and they will hurt a lot of people but we have no choice, we have to do it and we have to do it in a clever way. Smartly. And at once. We should not believe that, if we take five years to change the all the we have to make reforms immediately after the election. Then we will take five years to build on a reform country. Francine thank you so much, the ceo of publicis stays with us and we will talk more about they, they are asked have a conference in june and i want to ask him if france and paris can benefit from brexit in attracting a lot of the tech talent. We will talk more with maurice levy after the break. This is bloomberg. Francine this is bloomberg surveillance, ifrancine am president gauck walked in london, the focus on the advertising i am Francine Lacqua in london. Lets get more with maurice levy , the ceo of publicis, the worlds thirdlargest Advertising Company who joins us from paris. Talk to me about vivatech, a conference started by publicis last year and yesterday you unveiled the second year, how important is it to have the ,acking for a lot of startups especially when youre fighting for talent with the u. K. . Mr. Levy the u. K. Is a different story and we will come back to this. It is very important to be part in the landscape as a country which is really believing in startups, believing in digital, innovation, a sign the government is behind it, we are seeing this in most countries, in the u. K. Where cameron was important in fostering digital and making sure that investment were flowing in, it is the case in israel and the nordic countries, just about time that france is taking the same kind of options. And we have seen the french ronernment pushing and mac has been instrumental in pushing the direction of supporting digital innovation, startups, investment. And we launched last year vivatech which has been a tremendous success. We have 45,000 visitors. More than 5000 startups. A lot of investors, innovation. We are moving in that direction very strong. It we decided that it should be good if the government could back it. The president has offered to better there is no symbol of the support of the government and taking the press conference there and it was a very good moment. I think people have been tremendously impressed by what we have been doing. There is a lot of new aspect in the new solutions. The second edition will be 15, 16, 17 of june and im pretty sure it will be very successful. Francine when you look at your clients, there is a report in one of the u. K. Papers this morning, the financial times, the arrival could have been working on both sides of the unilever deal, how does publicis handle conflicts of interests of this kind . Mr. Levy i think that since a few years we are seeing some blurring lines when it comes to conflict of interest. And sometimes it will go too far. Particularly when it comes to an operation such as a takeover, we have to be extremely clear and we have to support our longtime client. Honestly, this is a deviation that is unacceptable in our world. I do not know if it is true or not, i cannot believe that wpp worked against unilever. This is something for me is unbelievable. I do not give credit to such news because i cannot believe that this can happen. Francine thank you so much for your thoughts today and we will get you back on, congratulations on the second edition of vivatech in june and i hope to see you in paris in a couple of weeks. Heaking news as maurice levy needs to go back to his day job, we heard from tom hayes, former ubs and citigroup trader, jail for 11 years for conspiring, he is suing the u. K. Regulator and tried to get an overturn for the order banning him from working in the industry for life. We will follow that closely, and Interesting Development as we see more fines and people going to jail. Of next, lloyds rises and britains largest lender swings to a profit but misses estimates, we break down the numbers next. This is bloomberg. Francine this is bloomberg surveillance unless get to the Bloomberg Business lets get to the Bloomberg Business flash. Expectations,lyst exporting some cost climbed to 2. 1 7 billion euros helped by demand for prescription medicines as the company worked to secure approval and funding for its 66 billion takeover of agriculture giant monsanto. We will speak to the bayer ceo at 11 35 u. K. Time here on bloomberg. They say earnings fell 3. 6 last ,ear to 3. 9 6 billion euros about analyst predictions of 3. 8 billion euros, that is a late surge and aircraft deliveries failed to offset cost from ramping up output of the twin model and engine glitches that curved handovers of the latest narrowbody. They spoke is in talks to scream Major League Baseball games according to a person familiar with the matter, the latest sign a professional sports leagues are embracing social media as a way to reach viewers as they struggle to adjust to massive changes in the way consumers view video. That is the Bloomberg Business flash. Francine lets get straight to mark barton for a check on the markets. Mark stocks rising for the fourth consecutive day, stoxx 600 since its highest level since the summer of 2015 that by tellology shares, i will you that britains largest Mortgage Lender Lloyds Banking group swung to a fourthquarter profit, even as it faced more than 700 Million Pounds of conduct and restructuring charges, shares up 3. 6 . Rwe booking another billion euros, 4. 3 billion to be precise on sliding power prices, it will forgo a dividend on Common Shares for last year, earnings for 2016 will be her tail significantly curtail significantly. Created this glut by boosting the supply of solar and wind power. Before the announcement, rwe and neon had written almost 30 billion euros on the value of the Power Generation assets shared. This is just another chart showing investors in the euro getting increasingly concerned about the risks surrounding the upcoming French Election. According to pricing and the option markets, risk reversal which is a measurement of the attractiveness of core over put shows investors are the most pessimistic on the euro dollar in almost two years. The other line, the white line is the arts on le pen winning also on relocating which is up to 34 . Francine Lloyds Banking group has had a fourth or profit as a base more than 700 Million Pounds of conduct and restructuring charges and britains largest Mortgage Lender says pretax profit was 973 Million Pounds, compared to last year of 507 Million Pounds, that fell short of analyst estimates and lets get more with the u. K. Banking reporter. He follows this very closely. The share price, what do investors like . The outlook, the future from lloyds, today they see the back that can withstand any pressure in the u. K. Economy from low Interest Rates, bank of England Governor Mark carney cut rates to a stark low, 0. 25 last year after the brexit vote in june. Lloyds management today saying that, despite that, they will theirhe profitability on lending and that will help boost dividends in future years. Francine investors like the dividend, or the Business Model . Thehey like a bit of both, dividend is a good thing for investors, paying up 2. 2 billion pounds, that is worth 2. 55 pence per share, ordinary and a 0. 5 pence special dividend. People do not think they would pay a special dividend this year because they just bought a u. K. Credit card business, they bought them from bank of america in december. That will help them again because in dna as high margin credit card which is helpful for the earnings story at lloyds and we are getting dividends, earnings growth, the positive that investors are reading today. Francine did we hear about any pay cuts for the ceo . Hey reduction for the chief executive and the group as a whole, the bonus will would have been around 19 higher for the group, however, there was a reduction that the board took because of historic conduct charges. We saw a small amount in terms of lloyds. In conduct charges in the fourth ,uarter, 475 Million Pounds they took one billion pounds of payment protection insurance provisions in the third quarter. For the year, quite a high amount of charges. You have to remember that input is years, boyd said taken much taken abouttal have 17 billion pounds for payment protection insurance since 2011, a huge amount, coming down but still a little bit, that is why the reduction in the bonus pool. Francine thank you. Our u. K. Banking reporting team, we are joined by Stephen Roach, this is bloomberg. Francine guiding the market, the fed president says there will be not surprises on rates while Voting Member patrick are says gradual increases are prudent. Shaping policy, the Credit Administration announces a crackdown on undocumented immigrants and says the new version of the travel ban is due soon. Reinvigorating the campaign, macron races residential pushimo london, todays announcement from centrist rival could do rail them. Derail him. I am Francine Lacqua in london and tom keene is in new york. Not a huge move in the markets but a move that means we need to watch out a little bit and german yields and these u. S. Equities, new record highs, and then the political things. Tom the euro at 104, breaking down like my bowtie, weaker euro is what we have but no other story in the United States of america then the new interpretation of what to do with illegal immigrants, this will be across all of surveillance today. Francine this translates into our world of economy and finance , this as you just the glove huge invocations on Labor Participation and entries that rely on the workforce. Lets get to the bloomberg first word news. In asia, a downslope with the man who once led hong kong, the former chief executive has been sentenced to 20 months convicted of was misconduct in a conflict of interest case involving a luxury apartment. His wife says he plans to appeal. In the u. S. , the Trump Administration has announced a sweeping crackdown on undocumented immigrants. According to new guidelines, the u. S. Will try to swiftly to port more people without Court Hearings and target migrants charged with crimes or thought to be dangerous, not just convicts. In europe, british retailers facing a tax hike on stores in april will not get much help from next months budget, according to an official familiar with the matter, hammond will not be offered significant concessions, the taxes on commercial properties are being revalued, they are determined by the rental value rather than sales generated by the site. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. I can is, bonds, currencies, commodities, a long get a check that too much to go, lucky we have andre nagar to start strong on for exchange, the euro weakens further, 105. 08 with a brief 104, not on a parity watch, we will find out if he is. Oil churning, John Mickelthwait with his important total interview, we will do that across surveillance and the next screen, please. The vix, 11. 58, and elevated with a down year 21,000 and euroyen comes in big, 118 handle. Mexican peso is stronger. From 20. 3 down to 20. 1. Wrapped around the immigration news. Francine on mexican peso, i spoke to pimco, a Portfolio Manager from pimco in europe that she told me that she is buying mexican peso. This is her number one by worldwide. My data check, european stocks 0. 2 , global stocks extended an alltime high yesterday. That rally is following dollar slumping, one other thing, check out brett, down and i would urge because of the rolling over of the futures contract. Tom the buzz around the crowd immigration news, david in the New York Times working off of tyler cowan and nicholas aerstadts research from aei, commentary magazine article, a chart not in the article, the why of america. To lbj at, gdp back almost jfk, the exceptionalism of the american experiment to 2000. We flatline, the strapless and of where we are is right here. The extrapolation of where we are is right here come a massive 50 lost decade of eco 15 lost decade of economic might and the United States. Francine i like the way you sell Say Something happen, we had the initial crisis, are we paying the price still of the u. S. Financial crisis . This is my terminal, i know it was yours yesterday. Tom important today. Francine it is, a new record low for the german twoyear yield, for their negative territory, that is the zero line, thank you for the chart, a very nice chart, i stole of the chart from tom, three reasons thenhis, it is a haven, the repost support, german notes on the top assets for use of collateral in the euro area and the ecb is buying securities for the qb. Qe. And a spread between france and germany as we look to a lot of this for look risk in europe. Considering the uncertain political landscape, it seems the Federal Reserve is wanting to manage expectations, the cleveland fed president that policy makers do not want to surprise the markets on rates, speaking with us in singapore, nonVoting Members say the central bank will have to wait to see how the economy plays out. Our job is to be as transparent about the rationale for our policy path, we certainly never want to surprise the markets but i think most people, when they are thinking about the u. S. Economy, see it on a pretty good and sound footing. In that sense i think our job at the fed is to base our policy on the medium run outlook. Francine we are joined now by the head of fx strategies at Morgan Stanley. Great to have you on the program. We have a lot to talk about. Immigration, deportation, but ,ets look at the function given what she was just saying, well they only fight of the probability for march is that 60 or 70 . At the fed you do not want to surprise markets, you do not want to introduce volatility in the market by surprise rate hike by the fed. However, that means the fed may be in a situation where they could create an environment where there is a higher probability price in an contract which does not mean they will act but it creates reason to act. You look at the developments she was giving, the initial setback in the u. S. Dollar because people interpreted that it will take march for a may out of the fed calendar. It could equally mean that the fed is using today fed minutes to increase the probability. It does not mean the fed is going to execute in march and may but it may find it more comfortable to have the option to move if required. The data we are seeing out of the United States, looking impressive. Theonly that, globally situation looks much better at it is not comparable to the situation a year ago were headwinds from abroad were significant. Francine lets listen to the philly fed president about keeping march as a option. Given the state of the economy, more or less back to normal, i continue to see three modest rate hikes of 25 basis points each as appropriate for this year. Assuming things stay on track. Francine why are the markets not really believing them . Why is march to see for the markets . Hans thats too soon for the markets . Hans see what the fed delivered in the past, we have no rate experience, six to seven years for the market was overpricing the fed, at one point in market was getting to a situation where they said, we are not doing this , maybe we are now in a different stage. Maybe people should take the fed more seriously. Tom back to the euro, just a one of four print on the euro, tell me about the trust within the liquid system right now in europe, i see spreads widen, the euro breakdown, are we going to see parity on the euro . Hans of course. I am not changing my opinion, last time we spoke there was the height about sterling depreciation and the eurosterling breaking, our view was eurosterling would break significantly lower. You showed the twoyear sector of germany and you see that twoyear shots are breaking ,ower, at the same time japanese investors are holding about 12 of the entire french monarch it, outstanding in the bond market. If you look at the volatility in the market segment, the japanese , they have seen significant losses in the Fourth Quarter because of what happening in the United States and they will reduce value at risk which means that they will sell euros and those positions. Tom take me to the derivative and the shortterm paper space. We had this chart of francine just showed under german negative yields and the france germany spread, do you see in liquidity or a lack of trust in the shortterm paper system of europe . It has a lothans to do with position adjustment more than anything, political uncertainties are playing in but what i regard as much more important is the inner the virgins and economic the virgins in Economic Activities which does not apply for france but for italy. When you look at what the European Central bank did in december, some interpreted that as starting to the tapering process, took one week after the ecb decision and we saw be spread widening setting in which has a lot to do with the perception of japanese investors. Japanese investors are heavily exposed into the french market, 12 of total. They will look they are the masters of understanding deflationary trends, there is a measure between inflation and core and deflation in the peripheral, that is difficult for japanese investors to trade and they are getting out. Tom brilliant, i love this, no idea japan had such an exposure to france. Within your decades of experience, are these smooth curves, or are we getting to tip points where the end of an age of condition . If we go 1 30 german twoyear and parity or a 102, whatever the number is, are we getting the strategic points within the correlations of the european Financial Markets . Hans you have to think about in the following way, we have economic divergence which means you need to make sure the weakest part of europe will stay afloat. This is a political project and we have to ensure that the europe will stay up front upload which may mean that the euro is part of that. I understand that people are looking into the euro and saying it did not move for 1. 5 years or two years, now all of a sudden it may move and as often the marketplace, you have where volatility comes down, people are getting sleepy on the issue and concentrating on other currencies like the japanese in, they forget about the euro and all of a sudden it moves. Today it is happening. Francine when do you expect parity . Hans fairly soon. Francine by the summer . Hans yes, given where we are trading, three weeks ago testing at the one await level and 108 level, the euro is going heavily down because you have to consider the in the European Growth differential which seems to be more difficult to camouflage and another was reflationary environment. When you have quantitative easing by the European Central bank as an instrument, it is buying a time in bonds, if you are tapering, the European Central banks has less ammunition to buy italian bonds. The market will ask, easing of the ecb or the bond spreads widened out. Tom a lot going on, the euro through a 105 this morning with spreads widening, the german to. 902 for those of you on global wall street, you know that is a big deal, his former colleague, Stephen Roach former of Morgan Stanley n. L. Of yale university, important conversation with him on donald trump, immigration policy, the new enforcement policy of the president. This is bloomberg. This is bloomberg surveillance. Annual earnings fell almost 4 at airbus, the resurgent aircraft deliveries was not enough to offset cost from ramping up production of the a350 jet and the unexpected engine glitches that the late handovers. They book more than 2 billion in charges because of delays in the military transport. A report that billionaire investing carl icahn has taken a stake in bristolmyers squibb, the dow jones says he sees the company as a possible takeover target with no word on how large hasstake is, Bristol Meyer lost about 30 billion in market value after setbacks with its cancer drug. That is your Bloomberg Business flash. Francine thank you has lost. The donald trump demonstration has outlined a sweeping crackdown on undocumented immigrants, department of Homeland Security secretary john kelly announced that with few exceptions, the u. S. Will no longer will exempt classes or categories of removable aliens from potential enforcement. Joining us is the managing editor of bloomberg. About whatknow happens on the ground . What happens on the ground we know the headlines will be much more aggressive enforcement. There of peoples immigration status. One of the things that has to happen first is donald trump has to hire many more the government needs to hire many more agents to enforce this policy and that has to be paid for and it remains to be seen whether congress or how congress will pay for those agents. At the same time, state and local Police Officers are going to be deputized to enforce federal immigration policy and the kind of changes that they have on the ground in terms of actual local policing remains to be seen. Police officers at all levels are being an extremely amount of based ondetain people who they suspect is a threat to security. It will be a different world for many people. Tom at bloomberg, new york, paris, london, maybe better than anyone within our organization, how will this change the dialogue of the president within europes . We spoke to tony blair and we asked him about donald trump visiting london, visiting westminster hall, does the shock of this announcement changes dialogue with the european capitals . I do not think it necessary changes the nature of the dialogue because, especially with the they are already so many the leaders are already so confused to say the least about what his you is toward europe and nato. Their skepticism tom it is already so far, it does not matter. Picking people up on the street in queens or the bronx, that is emotion but a very large part of america agrees with the president , is that equivalent to what you see in germany or the netherlands, or the United Kingdom where the need all of the media analysis there is actually a lot of support for these policies . Countries these in all of these countries, the developed west, there has been a strain of antiimmigrant views through the body politic. Gets attention that in a lot of cases there is more of heat than light. Deal. Think it is a big economically, for example, immigration tends to help an economy. That said, the people who voted for dollar prop, this is what they voted for and now they are getting it donald trump, this is what they voted for and they are getting it. Francine tom thank you. Radio, linking in immigration policy to diminished gdp, we will speak with vincent economist,heir chief looking forward to it. Stay with us. This is bloomberg. Tom Francine Lacqua in london and i am tom keene in new york. Stephen roach than enough our. Changes in the next hour, changes in immigration policy. On the dynamics of europe, he has been brilliant, hans with a great observation on the japanese exposure to france. Let me go across the channel, we wase with tony blair, he opining on where sterling would go, and number of houses looking for a political move which gets us to furtherets depreciation instrument, down to 110 or 108, do you agree . Hans no. Thinking about what is in the happen, itrexit will will be a hard brexit, you have the cliff edge, slower demand from abroad and you would say the current level of sterling is justified under all circumstances. You have the negotiation and you have to ask yourself, who has the interest of creating a big cliff edge . Europeans with their parental problems have a big interest . U. K. Based the banks are a big funder of the peripheral of europe. If negotiations go badly, you will have implications on the europe peripheral office as much as you have on the u. K. Yesterday a speech in the parliament in belgium, dead wrong, saying that europe has a position where it can run very tough negotiations. Europe and the u. K. Have to think about what they can win and lose. ,f there is a mutual agreement a friendly agreement and that is much better than the opposite because from a european perspective it means he u. K. Would become an offshore center, a supply driven economy which would generate a lot of Capital Imports and that will strengthen sterling. Francine thank you so much. The coop, we speak with of bayer the ceo of bayer. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london with tom keene in new york. Total ceo said opec and russia need to prolong their sixmonth deal to cut output if they plan to trim the global glut. They spoke with John Mickelthwait. I am convinced we will have to do it, opec and also russia, we have to understand what happened in november is a necessary agreement between opec and nonopec and the real problem was russia, the fact that russia for the first time in history, and the leadership of Vladimir Putin excepted to make cuts, was the driver which is the argument for saudi arabia to change its policy. Not only opec but nonopec. If they want to have an effect on the markets, which means the inventories going down, the inventories are quite high, it will be to expand it beyond may. , they seems to be good news for the industry. What about shale . It plays into it, the shale oil the industry in the u. S. Is dynamic, consistent, 55 you see money coming back in the industry. You think it is quite expensive . It if you want to invest to acquire position it is expensive, if i want to acquire position in the premium i need matter of the, a step to invest is expensive, it is a business for me, the winners for the time being have been the landowners but 40,000 for an acre is very extensive. You increase your dividends, you beat analyst estimates. You just described how it looks like opec will probably continue beyond may. Do you think the bad times in the oil industry are over . I am not fully convinced. We are in a volatile market, the markets are willing, yes it is a positive trend and the markets are willing to go up. But you have negative impacts potentially, the u. S. Shale oil increases, libya coming back to countries, will the be compliant, and high inventories, our strategy is to continue to lower our breakeven. It is a commodity where my job is to be sure we are profitable whatever the prices, and the answer is lower you breakeven. Francine that was the total ceo speaking with our editorinchief don mickelthwait. We are back with hans redeker who won a prize, congratulations on becoming number one at Institutional Investors for fx predictions nine speaking to you about oil. Let me bring you to my chart. This is the rig count in the trade great we saw we saw, broken up by the out that goodbye opec and russia, is the range at 60 . As these the price goes up the oil rigs follow. Hans if the rate has gone for the United States, north american rig situation, it looks more impressive. Rigs have doubled from the may lows. Thatint on raising is there are two factors coming in, the High Oil Prices and secondly funding conditions in north america have significantly improved. The availability of capital has improved significantly. If you look at the spread for shale companies, they have to pay a year ago, you look at and compare that to the 30 basis points which is currently demand by the marketplace. You have a very good excuse to invest in rigs. The point is for increasing compliance by opec and their oil partners, you see at the same time, america is increasing output potentially dramatically. That is another factor which will drive the u. S. Dollar simply because it means more activity to the United States and that will explain why dollar and the price of oil has split away. It used to be the inverse relationship for many years and that is no longer in existence and that is a good reason producers of oil is very likely to become the United States of america with serious investment piling into that area. With t therumpre the trump strong dollar policy. This is brent crude, this is the blue line on francines chart, this is brent crude, 100 down to 29 and up to the range we are in right now. How does oil dynamics dovetail into a trump strong dollar reality or strong dollar policy . Hans if you went into a strategy where you are trying to improve domestic demand conditions in the United States and if you are simultaneously considering to cut taxes and potentially increase your fiscal deficit, the last thing you want to have is the deficit is increasing significantly. When you have less oil imports and when you have more Oil Exploration taking place, then that could help death and the impact on the current account. That will improve the funding conditions in the United States simply because you would have less of a risk premium to pay because there is less of a current account dynamic going to come up simply because america does not need to import energy to an extent a couple of years ago. Tom as we see a 104 print on eurodollar today. Hans redeker of Morgan Stanley in london, lets get to the first word news. Taylor the Trump Administration announcing a sweeping crackdown on undocumented immigrants him according to the new guidelines, the u. S. Would practice with the newport more people without hearings and also target migrants drive with crimes or thought to be dangerous, not just congress. The Foreign Ministers of mexico and canada presenting united front when it comes to revising the north American Free trade agreement. They say President Trump want to change nafta and it should be done with all three countries at the table. Last week, the president said trade with canada needed a tweet as opposed to a more thorough reset with mexico. The british Prime Minister theresa may has won the first part of her battle with the house of lords over the brexit bill, parliament unelected lawmakers agreed without a vote to pass the bill on to the next stage, that is where some members may Vote Conservative Party may try to rewrite the measure. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Francine thank you. Has brought his campaign to london, the independent french president ial candidate told kraus that the coming time will be heartening and today could be a a centrist rival is will declare whether he will join the race to. We have the Government Team reporter in paris and hans redeker is with us in waste we spoke to the ceo of publicis early on and he likes the new candidate the potential candidate but it would muddle things further if he entered the race. Do not know what he will say, announcement at 4 30 this afternoon in paris, normally by this time there would be a leak within the french press about what he is thinking and this time there is not, it is a mystery. He may be from your because he ran in the last two president ial elections but he has been on a downhill trend with almost 18 hundred 10 in 2012 and the latest polls put him at about 5 . He would not be a huge player , byin such a tight race taking 5 or 6 away from other people, it would muddle things up. There is complete mystery to what he will announce this afternoon. Francine give us a sense of how the poles are moving, they can points, if or three he moves in, we saw over the last couple of days, macron fell . The bulls yesterday, polls yesterday, fillon has jumped overmacron. Marine le pen will get the most votes in the first row, the question is who she will face, fillon ran into legal problems and macron joakim and fillon is up again. Macron has been hit hard by other candidates because he was in second place, everyone was speaking up on him. Weade a few gaps which are talking one day polls. Tom immigration is cultural, very nation to nation different. Help me with the effect of the trump Immigration Enforcement policies, what the president proposes to do with immigration in the United States, how will that affect the debate in france and the rest of europe . Does it intensify the focus in europe on immigration . A focus on already immigration, you will not have all these populist party so high in the polls if there was not. I do not know if anyone is that focused on the details of what donald trump is proposing but trump has his followers in europe. You talk to people in europe who say that they think it is great that i has come in and is shaking up the system. He is not from the establishment. There are people in europe at that say that. Not the majority but he would not have these populist party so high in the polls if there was not a sizable number. Tom thank you so much in our paris office with bloomberg news. Let me go to hans redeker of Morgan Stanley in europe. Someone was trying to quantify yesterday be diminished gdp because of diminished immigration and labor from immigration in the United States. How you in Morgan Stanley experienced that or qualified quantify that quantify that, the less gdp due to restrictive immigration policy . Hans the difference, various factors, when you have declining the potentialool, for an economy to grow will shrink. Meansill happen and that a Slower Growth potential for the u. S. Economy. On the other hand, an immediate effect will be a labor market which is tight. The labor market will be more tight. Tells you that they may go up at a faster pace and if it does do so, what will be the impact of those guys in the lower and middle income environment, potentially more and therefore in the near term, the impact of the policy could be a positive and the longterm it will run into a longerterm negative effect. The fed will observe this. If wages are going to go up, and at one point you have an effect on inflation and a one point a tight Monetary Policy in the United States at back to the u. S. Dollar where it goes up because of this. Francine what happens if Marine Le Pen becomes president , does it collapsed the next day . Hans former in the pen, she will not be former in the pen, she will not be in a position to take france out of the euro because the risk of parliament and she would not control the majority. There would be a government which is maybe of a Different Party than she is. That will complicate things. The main point i would make is that the relationship between france and germany will be much more difficult. Be a paralyzing factor for the reform process in europe which we so desperately need. You come back to the peripheral countries and say, what will france do, what is the outcome for European Central bank policy, then you are back to a weaker euro. Francine thank you, hans redeker of Morgan Stanley stays with us and we will talk currency and a million questions for him, if you have a million questions, go to tv , if you are a bloomberg customer, you can ask him questions. Producers and tom and myself and you can follow the cool data and graphs. We will be back in the second. This is bloomberg. Tom good morning everyone francine in london and i am tom keene in new york. Oka singlegame migration, a huge enforcement change within the nations immigration policy and in europe and spread widening. He taught for years at Brandeis University and a tour of duty at the world bank. Hans redeker of Morgan Stanley in london. I have eight ways to go this morning. You are in a first on nafta, an expert of the dynamics of immigration. How do we deport someone . Do they get a Business Class ticket to mexico city . What actually happens when we deport someone . You raise a fundamentally important question, deportation requires the receiving country be willing to accept the folks in the United States is seeking to get rid of. It requires corporation on the other end. That School Operation on the other end and they want assurance that whoever is being deported into their territory is one of their citizens. Some of the initiatives the administration is proposing will require Significant International Cooperation Among key partners. Tom is it a bad tom hanks movie . We go to el paso, six guys lined up ready to go back to mexico, they have to accept them, right . That is right. And i think this concerns the bigger overall question between the u. S. Mexico relations. At the same time we have big concerns and discussions over immigration, we are worried about nafta. And what the United States and the Trump Administration and the potential renegotiation of that agreement or as well. All of these are tied together. Tom from where you sit at peterson, can we do normal stuff . And all ofax reform the other good things everybody wants to do . Repatriation of corporate earnings . Can we do that with the distraction of an immigration debate . We do not do hard, tax reform all that often in the United States. The last major tax reform we undertook was in the reagan administration, it is a tough slog and there will be a lot of interest lining up. We have already cnet in the United States with the House Republican proposal. We have big business lined up on both sides of the debate over this, in particular the border tax adjustments proposal. We have importers, retailers that have come out strongly against it. We have big exporting companies, boeing, ge, pharmaceutical companies strongly in favor of it. It will require ultimately leadership by the president , by the congress to push forward on tax reform and, if they are being heavily distracted by other matters like immigration, or the Affordable Care act, it will make it equally tough. Francine quickly, go back to the undocumented immigrants, reports, one said it could cost the economy as much as 5 trillion over the next 10 years, what is your Research Tell Us . The research on immigration is next. Mixed. A lot of studies suggest that the net contribution of immigrants into the u. S. Economy is a positive fiscally, they contribute much more to fiscal revenues and tax receipts then they draw out of the system because they are undocumented, they do not get access to programs like Social Security upon retirement. The labor market concerns are one. I think the overall concerns about uncertainty this kind of policy will introduce, if it is a major disruption for certain types of industry, agricultural, heavily reliant on seasonal and migrant labor. This could have big cost, Economic Cost for the u. S. Economy. Francine do the cost of being protectionist outweigh the benefits of tax reform and spurring animal spirits . Chad any tax reform debate, it is to be seen. Economist really like this general idea that the tax reform proposing, to a cash flow type system. The difficult is coming in order to get there, we have to have a big move ins and Exchange Rates and prices which are likely to lead to some shortterm adjustment pressures. Potentially shortterm impacts on trade flows. That is why we see certain elements of the Business Community being very uneasy about how this may play out in reality. That is where the pushback is coming from. Tom thank you so much. With the peterson institute. A remarkable discussion on the news flow, a coronary on immigration this morning. Coming up, conversation with the real estate tycoon of chicago, maybe they will talk about the chicago cubs as well. In the 8 00 hour this morning. This is bloomberg. Francine bloomberg surveillance from have hans redeker Morgan Stanley, global head of fx, which means we talked fx and euroyen. In terms of parity, we talk about Dollar Strength and found, if you look at euroyen, a ghost to the two extremes that it goes to the two extremes, where do you see that going . Hans euroyen is driven by the holdings of japan in the eurozone. Increasedgs have been since the year 2012, an increase in the term in the pace, it is about when youre talking by the french Government Bond market, 12 are owned by japanese accounts, 82 of that is currency hedged, you would say why isnt there the currency impact . The currency impact is coming from the liquidation impact that has on bond spreads and with that you have a potential instability in the eurozone. And an increase in commitment and European Central bank to keep things stable. The u. S. Is showing the twoyear roman shots which is wrecking significantly lower. In is the points playing the funds bank is factoring in that segment. When you are buying a negative yielding bond, you are making losses. That means the profitability of the funds bank will be reduced and that explains why the Court European finance ministers are so hostile against this policy. You have to think about the cost , what will happen if the ecb would change that, the result would be tom we will have to leave it there this morning, not enough time, congratulations on the accomplishment of Morgan Stanley within the Institutional Investor beauty contest, he will be putting in a new mantle above the fireplace because of the trophies have gotten heavier. In the next hour, he has a few trophies himself, Stephen Roach on donald trump immigration. Tom the u. S. Government will find, arrest, deport thousands of illegal immigrants. President trump takes the shackles off federal agents. Do your mission and follow the law. In this hour, Stephen Roach. Drive yields continue to ever lower. We will do that in the data check. Negative yields are front and center in europe. The euro, weakens against the u. S. Dollar. Finally, the american consumer, they need brunch. Wait a minute, no dishwasher. Also, no gdp growth. This is bloomberg surveillance. I am tom keene. With me, Francine Lacqua. There is no other issue in the United States of america this morning. Those four lesser immigration deportation. Frankly, a large body of americans support the president. Francine frankly, this is something that plays out worldwide because we are having similar concerns on immigration here in europe. I would say, tom, it has a huge application for the fed. If you look at the charts, this could take a lot of flak out of the participation force and could change timers for the fed which is why were not seeing me markets believe they will hike in march. Tom i do not disagree. You saw Morgan Stanley yesterday drive for the september rate rise away from the hysteria of march or june and maybe this folded to this in an odd way. Our update on washington. Heres taylor riggs. Taylor we are going to start with immigration crackdown here in the u. S. The Trump Administration has announced a sweeping crackdown on undocumented immigrants. According to new guidelines, they will try to swiftly deport more people without Court Hearings. It will target migrants charged with crimes or thought to be dangerous, not just convex. In the last hours of the obama administration, regulators wrote tough rules of aimed at pipelines bills. The industry is fighting back. It was President Trump to roll back the regulation. An Industry Trade group says the popeye network is safer than ever and problems can be quickly contained. In europe, retailers facing the tax hike on stores in april will not get much help from next months budget. According to an official from a year with the matter, the chancellor wont be able to offer significant concessions. Taxes on commercial property are being revalued. Theyre determined by the rental value rather than sales generated by the site. In asia, a stunning downfall for the man who once led hong kong. The citys former chief executive has been sentenced to 20 months in prison. He was convicted of misconduct in a conflict of interest case involving a luxury apartment. His wife says he plans to appeal. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Tom this go to the data check. To make abouthat this. Equities continue to grind higher. The euro, oh 104 print earlier. The yield is widening. Bring on the next screen. There is the peso. Stronger mexican peso over the last 24 hours. Francine if you look at Global Markets promote the european stocks come european stocks, a mixed sentiment. Political risk sending the euro and the german twoyear bond yield lower. Global equities the dollar edging higher. Tom very good. Before we get to Stephen Roach, we need to check in with washington after the historic afternoon yesterday with kevin cirilli. Kevin, what is the remedy that democrats and people opposing the president have . What will be the process of protest against general kellys actions yesterday . Kevin you said it, protest. The Progressive Groups im speaking with says that is what theyre going to be relying on in order to come back against these new rounds of executive orders. Yesterday, ice with one progressive i spoke with one Progressive Group against the immigration reforms and they were given no warning at all about any of this that was in the pipeline. Movingeline is very very quickly. Tom i would assume theres a Large National support for the president s general actions, particularly away from the socalled sanctuary cities. But you have got to pay for it. How does the head of the omb, house ways and means committee, how do they finance these immigration actions given a traditional republican austerity . Kevin the head of the omb is actually a tea Party Conservative and someone who has quite frequently pushed against government spending, not only against the democrats in the obama administration, but with republicans in his own party. The budget we saw yesterday in the New York Times alludes to key Government Programs being cut. That is coming directly from mole they need. A lot of moving parts in the party,he republican particularly on policy, is not necessarily unified with how to pay for President Trumps initiatives. Tom can there be a judicial response to these actions like what we saw two weeks ago in San Francisco in the ninth circuit . Isin is a administration hoping there will not be and they are hoping they learned their lesson, if you will, from the first round of executive orders. Of course, those first routes that were struck down by then i District Court but enough District Court likely to make their way up to the Supreme Court. Silicon valley is against this. , againsterberg immigration for this particular policy, already speaking out against this. This fight is going to continue. Francine it seems it is the farmers that will lose out the most, right . Absolutely. In terms of high skilled workers, i think that is another airy we consistently hear about. It was just a few short years ago that we had things like the gang of eight and a bipartisan groups, calling, if you will, the u. S. Immigration in order to keep high skilled workers in the United States. Obviously, this is something this administration feels that President Trump campaigned on. They want to return to law and order. They feel they want to get the socalled bad dudes, as President Trump has said, out of the country. Printing go how will be francine how will the institutions act . Statebystate . Is how theink it industries will maneuver this. They are caught off guard regarding the timing. They were given no advanced warning. Silicon valley is already speaking out against this. Groups speaking out against this. You alluded to agricultural groups. Yes, democrats are out in full force and hoping this will go all the way to that Supreme Court case. Tom kevin cirilli, greatly appreciate it. He is out of the university of wisconsin at madison. I believe the president was put over the top by michigan and wisconsin, so Stephen Roach as a passing knowledge with the geography that supports the president on these actions on Immigration Enforcement. Stephen roach, arguably invented Marketing Economics at Morgan Stanley and now at yale university. Moments,round these the david brooks article. Of the a chart i made up work. This is the why of where we are. Per capita gdp. This is young steve roach. Then something happened. I want to backup. Nick was ever set talks about we should bnp are. We had a 15 decline in our per capita gdp. Steve, what the h ell happen in 2000 or 2002 to flatline for capita gdp . What happened, tom, we did have some weakness in productivity as pressure on real wages and jobs. As i look at that Inflection Point in your chart, what happened was politicians and policymakers felt that was unacceptable given the social contract and the american dream. So they went to a new arrangement. They decided to boost economic asset economy because the income economy was not doing that. In doing that, they took huge risks with asset dependent consumers levering them off of first and equity bubble in the late 1990s, then the big one, the credit of property bubble in the mid2000s. With the nightmare we are still picking up the pieces from. That Inflection Point you vote a response from the body politic that said, we have got to do something else. Tom what is the same approach of fair and balanced sane are . Ach of the you this is not about janet yellen. Were going beyond that. The article talks about the opiate crisis, the drug addiction of a list list and distraught america. Theres a primal scream over immigration now. You have been way out front on and gdp. Ampen consumer how do we jumpstart ourselves back to a better america . Stephen i wish i had an easy answer. Tom if you have a good answer, you can start running for office. Stephen the discussion you have had and i been listening to about immigration, really, underscores a very tragic turn of events in the United States. It needs to be put in a broader context. Justmmigration issue comes a few weeks after the inaugural address. And i quote where the 45th president said protectionism will lead to great prosperity and strength. His words, not mine. You wrap that together with the push back on immigration, the going after americas Major Trading partners and providers of surplus saving like china, germany, and japan, the objections over nafta and you have got a fabric of pushback they call it america first. Forget the rather unfortunate antecedent of that phrase that is reminiscent of one of the darkest periods in our history. The late 1920s and early 1930s. History does not repeat itself, but it often rhymes. The rhymes are what are frightening me today. Francine what do you think will come out of protectionism for america . Stephen if we do it, and i think there is a strong groundswell of support for that in the socalled new National Trade office in the white house, it will be an absolute, unmitigated disaster for the United States and the Global Economy. It will be the functional equivalent, francine, of a tax hike on beleaguered American Consumers. If you think things are bad now, you have not seen anything yet if in fact we go down the road that we did in the early 1930s with tariffs, countervailing reactions from our trading partners, and precipitous contraction of global trade. Rinsing go how long will francine how long will your scenario play out and can it be canceled out by the positive effects of the reforming of taxation . Stephen absolutely not. If we go down the road of imposing tariffs on our Major Trading partners, including china, they will retaliate on us. They will begin to diminish the purchases of u. S. Treasuries, which we need to find our deficit which, by the way, will get larger in a Trump Administration. And the virtuous circle the stock market is now so frothy over will suddenly become vicious. Who knows how long this will take . And for what period of time it will play out . This is not good news. ,om Stephen Roach with us talking about diminished gdp. We will talk to dr. Roche about consumption later in the hour, the challenges of u. S. Consumption given the immigration debate in the nation. We drive that conversation forward. Stay with us. This is bloomberg. Our job is to be as transparent about the rationale for our policy half path. When theyst people are thinking about the u. S. Economy, see it on a pretty good and sound footing was not in that sense, i think our job at the fed is to base our policy on the median run outlook. Francine cleveland fed president saying policymakers do not want to surprise the market on Interest Rates. Stephen roach, former and Morgan Stanley asia chairman. When youre looking at what the fed is trying to say, they are like meetings, but theyre worried about something. Are they worried about the uncertainty that the new administration has put in place . Stephen i think a little bit. Their biggest worry is, how do they get back to a normal Monetary Policy . They have been at zero Interest Rates with the vastly expanded Balance Sheet since the crisis. This is a policy approach that was put in place in the depths of an emergency. The emergency is long past, yet they still have their policy on his emergency setting. How do they get out of that . How did they wean the patient from the drug echo this is a political economy issue. It is an issue for an independent central bank to grapple with. They are sort of agonizing over what it is going to take. Do they have the guts to do it . It does not look like they do. Francine if we go back to this weaving crackdown that President Trump is trying to put in place on the undocumented immigrants, how much of a strain will it put on a very tight u. S. Job market . Stephen look, i dont think we have a real understanding of the breadth and the speed of this program that is now being talked and inn shows like this the newspapers and around the world. President ande his advisors are delivering on a pledge he made in the campaign, but this will be a very disruptive development. I think the fed will say this is another source of uncertainty, but not one that is of a immediate consequence. Tom we have a confused audience. The vice chairman, stanley fischer, by all means one of our lead academics, says we are fully employed or near full employment. David blanchflower is hysterical over this. He says it is wrong, wrong, wrong. Nicholas ever stat in his stanleyry article says fischer is wrong. Here is the chart that supports vicechairman fischer. This is unemployed greater than three months. 15 weeks. Heres the 1981 recession. Here is other recessions. Loose in theks recession. But we are very near norm. This supports chair yellen and vice chair fischer. A lot of smart people say, no. Which is it . Stephen we call it the Labor Force Participation rate, which is low. Our Employment Statistics ignore those who have given up looking for work. Tom when chair yellen goes before the Economic Club and uses the word slack six times in the speech, does that mean the slack is still there . Stephen her view is very important and she is a great student of the u. S. Labor market. But this unemployment rate, which again, severus from a very serious distortion from the way it treats those that are no longer in the workforce, is a problem if that is all you are doing to ss the potential impact of the economy on one of the feds mandates, which is inflation. If you look at the employment population ratio, which extracts from that, it has come up little bit from a low but it is still terribly low. And wages, by the way, are not rising. Where is the Wage Inflation . Tom 9 million to 10 million is the working number. We will continue with dr. Roach. Stay with us, this is bloomberg. Tom everyone. Ng, yields lower in germany. Heres the morning mustread. This is the buzz of america the last two days. David brooks about every three or four months, he just kills it. He killed the yesterday. Around 2000s of the, shifted, if america had been able to maintain post or 20thcentury rates, u. S. Per capita gdp would be over 20 higher than it is today. We show that earlier on the bloomberg terminal. Steve roach, the answer for the president and a lot of americans is a zerosum mercantile, some would even say neofascist america. Do we overplay the neofascism angle of our present politics . Stephen lets hope not. It is a warning from a dark path that we need to take very seriously. We need to look at what happened to the United States, what happened to the world the last time we embraced concepts, constructs like protectionism, like america first. Where were we at that point in our history where the world at that point right on the precipice of darkness. Tom is the adult in the room u. S. Dollar . Nevertheless, Dollar Strength that will amend the debate among republicans . Stephen the dollar has a way of creating headwinds and tailwinds that certainly must be addressed by the central bank and by our congress and president. It is unlikely, however, to provide a Strong Enough signal to differ these powerful political winds that are growing. We need a major, major spike. Tom i know france he wants to talk about china as well. We will continue our discussion with dr. Roach. It is a beautiful new york this morning. This is bloomberg. Francine this is bloomberg surveillance. Lets get to the markets. Time for our morning must listen. Weighing in on the Upcoming Elections in france. One of the winners of the world. I thinkin favor would be a huge mistake to come back to for National Frontiers for the world. These countries thinking it is better to be inside their borders will lead to catastrophe. We have a history of it. I cannot be in favor of it. I think it is important, but countries like france, germany, u. K. , we have a certain responsibility with the emerging world. The emerging world, they dont speak of the globalization. There are less poor people in the world because of a global in china and india. We can be selfish and want to protect. They are in favor of trade and fair trade and global would seem to rule out madame le pen as being a possible everything is possible. Surely, you cannot support for le pen Marine Le Pen. It is not in favor of anybody. World. Favor of a free powerfulhe euro has a currency. We need to continue to invest. What i also have to recognize, and then me things to vote for le pen and brexit. Wrong. Something i think it is back to what is havetment in which we grown our companies. Total is a global company. We have people around the world. I think we have a special responsibility. We need to take give an answer to that. This is our answer to mrs. Le pen. As a french company, i do not want to be francine voting for to tell is a good thing total is a good thing. Lets get back to the u. S. And yields. Stephen roach, you look at donald trump, when you look at brexit and Marine Le Pen, is of the same fear . What is going on in developed economies where we are seeing populism, into globalization sentiment . Stephen slow growth, francine, andes people to look inward the fear of these global pressures as being a threat to perpetuation of continued slow growth. We are a dangerous Inflection Point. It is no accident you have had the rise of donald trump coincide with discussions over Marine Le Pen, the brexit phenomenon, the pushback against global institutions, global migration, immigration, refugees. These are all hugely contagious social issues with vast economic implications. Again, it is no coincidence that all of these discussions are coming to a head right now at the same point in time in this tough place we are in in the march to global prosperity. Tom how do you respond . How will this president be overcome by events . President bush the younger was clearly overcome by september 11. It was a massive change for all americans. How will President Trump have to amend the servitude of the message we have heard in less than 100 days . Stephen he is incapable of backing down on his convictions. It is more of a psychological approach than a rational approach. It you are right. The events will be powerful. The harder he pushes against events, the more likely there will be a collision course blindn reality and this push to control as were seeing from the white house right now. Francine thank you so much. We will be back with Stephen Roach shortly from yale university. Lets get out to some Corporate News and buyers aiming to pull off a bigger deal, the german drug acre which posted a jump in profit today is trying to compete complete its takeover of monsanto by the end of the are. Theres concern regulators may not approve the 66 you dollar deal. 66 billion deal. Werner baumann joins us. Give us a sense of whether you can keep momentum for earnings going. How did the next six months, 12 months look . You for thenk question. 2016, wea very good feel confident that will keep the ball rolling in 2017. Were just released our guidance for the current year. Insee continued growth pharma very much present by our topselling products. We see continued growth in Consumer Health as well, more in line with the industry, likewise for health continues to be in an Industry Environment that is characterized by slow growth. It also here, our mission is to grow faster than market. If you put it together, it leads to low digit growth for the company as a whole. Instill have a 64 stake cholesterol francine what is your biggest concern on the monsanto deal . Are you concerned about regulators delaying the deal too much, meaning, financing will be more of a struggle . Well, im happy to report back to you that we are totally in line with our original planning. If i look at a few things that are very relevant for the consummation of the transaction, first of all, we of taken the first steps on the financing side with the placement of a mandatory convertible of about 4 billion out of a total of about 17 billion euros. That is a fairly big step. Secondly, we are on schedule with our regulatory discussions. We filed in 2016 in the u. S. We are responding to the second request. We are preparing for the filing in europe as we speak. That should come in quarter 2. Beyond that, whether you look at brazil or canada two thirds out of the 30 jurisdictions that we have to file in, we have already filed. Making good progress. Tom it would be rude of me to ask a foreign buffett has called in the last 24 hours. He has had a bad week in europe in m a. You have exploded cash flow. Youre one of the few European Companies with doubledigit dividend growth. What are you going to do with all of your cash so that Warren Buffett does not call you after going down in flames with unilever . Well, it is not up to me to comment on Warren Buffetts approach to unilever. We are, of course, a very Attractive Company and we have a strong cash flow generation as we also saw in 2016. But to be very specific in answering your question, i was not called by Warren Buffett in the last 24 hours. Tom that is terrible to know. We are trying to make news this morning. What is going to happen to companies, wellrun companies gdp ander, given tepid a weaker euro . If you get a weaker euro, does that change the m a, the transactions, and the commendation calculus for europe . Well, tom, as a company and as a Management Team that has a lot of responsibility for a lot of people that work here and also for our shareholders, we have to go with the money is. That means we have to have effective products. Ideally, some that have protection because they are innovationdriven. We have to bring those products to the market where there is growth. You are fully on the point that europe is not necessarily the place right now that drives a lot of growth. We are positioned well in asia. We had a very good base in the u. S. Where we see more growth these days, of course, that we do in europe. We are ready to take advantage of it. If you look at our guidance for 2017, i do believe that is reflective in our guidance. We are optimistic for 2017. Francine your acquisition of monsanto may mean you have less room to do an acquisition in the pharma industry, in the pharma space. Are you worried you may miss out on a good deal . All, ourell, first of First Priority is to actually get the acquisition of monsanto to us in sexual to a successful close by the end of the are. We have a very wellrun operation that is been growing above market for the last three or four years. We continue to see a above Market Growth in 2017. Weve also profiled the next wave of new products in the next years to come. The short answer to your question, we are not in need of an acquisition, but we will always look at opportunities to further strengthen our days base. It is nothing that we need because we are building on the operation strength of our business right now. Tom thank you so much. Let me show you some of our new technology here. You need to take two bayer aspirin before you take it. Tv. This is a superb service. I cannot say enough about the ability to bring up a previous block. Here is Stephen Roach and blanche flower of dartmouth. I cannot say enough about this bloomberg to watch tv. You can even send love notes to Francine Lacqua. This is bloomberg. Taylor lets get to the Bloomberg Business flash. The largest Mortgage Lender in the u. K. Showed a profit in the Fourth Quarter. Earnings came in higher than expected for lloyds. Blackrock has replaced the British Government as lloyds largest shareholder. Luxury homebuilder reported betterthanexpected quarterly earnings. The only Public Company in the u. S. Building highend homes. It sold 12 more houses than a year ago step the average selling price was down about 11 to 774,000 dollars. That was due to changes in the types of homes being built. There is a report that billionaire investor carl icahn has taken a stake in bristolmyers squibb. Dow jones says he sees the company as a possible takeover target. Bristolmyers lost about 30 billion in market value after setbacks with its cancer drug. That is your Bloomberg Business flash. Tom thank you. One day dr. Kissinger got on an airplane and went to china. That was the beginning of a generational change on china. No one was in wall street economics has known the fabric of china and our change relationships with the nation than Stephen Roach now at yale university. If you are to write the next asianale, how do you in the new america . Stephen it is in denial over what asia is doing to support its standard of living. As you know, tom, we dont save. To compensate for this shortfall in our savings, we rely on nations like china to provide us with their surplus saving and, by the way, chief goods that stock is shops at walmart to help makes me for Income Constrained American Consumers. Take china, which is the engine of asia out of the equation, how do we deliver on the social compact for American Families . Ii the postworld war social compact, whether it is called the washington consensus or relationship with shanghai were dealing with the realities, is the basic idea of getting along. I dont sense that from dr. Navarro who has been advising the administration. There is a rigidity in policy here. When did the adults enter the room . Stephen he is the author of a tabloidlike book called death by china. That tells you where he is coming from in terms of trying to get along with americas most important trading partner and the fact that he is now in a senior position in the white house as the director of the new National Trade council, is very, very worrisome. He is the economic counterpart to the infamous stephen bannon, who is advising the president on political ideology and social issues. It is a dangerous and worrisome combination. Francine how will china react to Peter Navarros comments . If you look at 2017, the National Peoples congress in china, the president needs to show a force of can also to show to his people that actually his firmly in charge which may mean he would react more aggressively toward antagonizing u. S. . Stephen so far, china has been the adult in the room. They have not reacted to rhetoric. They will react to actions. If in fact the Trump Administration moves aggressively against china with ludicrousiffs or this claim of currency manipulation, the china will respond in kind with tariffs of their own and with restrictions on the capital that they are loaning us or i should say, donating to us because we are not paying them any Interest Rates for it. That will cause serious problems, very disruptive problems for our Capital Markets and for American Consumers who need those cheap goods made and assembled in china. Francine would that lead to a u. S. Recession or even a global recession . Stephen i dont think we know the magnitude of it. The risk would be in that direction. Inack to history when the early 1930s that exacerbated and turned out to be a 60 decline in global trade, which made a deep recession into a great depression. Tom lets talk about the american consumer. You are already seeing people not forecast, but think about reduced gdp off of some of these immigration and announcements of the past. Conversation will continue on Bloomberg Radio this morning. Francine lacqua joining me. Vincent reinhart. Stay with us. This is bloomberg. Suddenly, the parity watch, there it is, the euro. 100 four, rounded up to 105. The vector is in the right direction. That is weaker euro, stronger dollar against that stronger, stronger peso over the last week or so. You can see it elevated dxy grinding higher. Foreignexchange giving us a lot of information right now. Coming up shortly, bloomberg daybreak. David westin and Jonathan Ferro and alex deal. David, i know you have an exciting show. What are you looking forward to . Avid go we have sam zell we will talk with him for a full hour about his investment, trump trade. Were going to start off with immigration. I know you have been covering it a lot on surveillance. Strong visions. He himself is the son of immigrants from poland. We will talk about what it means for the housing market, the u. S. Labor market, if trump goes through with his plan. Tom strong visions. He himself is the son of immigrants from poland. Im worried about if you give your opening day tickets to the chicago cubs. You have to talk to him about the midwest and commercial real estate, dont you . David we will. Of realeen pulling out estate. Does he want to come back in . What is the right time . He is negative on new York Real Estate in particular. Lookingid westin, forward to the conversation with a gentleman from chicago. We need to do a single best chart. I call it the roach chart. This is american consumption right now. This is what we remember. This is a good time. Trumpthat is where donald wants to go. The president down here with a reality of the last decade. Weve seen let me start. Can immigration reverse the recovery vector we have seen in consumption . My answer is, it has got to. Stephen it is a headwind, no doubt. Look, this whole i am the one who continually has questions about the socalled consumption recovery. Weve had 30 six quarters of growth and real consumption and a 1. 6 annual rate. 36 quarters. That is the slowest in the riod of conser demand since world war ii. The last few numbers have been better than that, but this is a longterm a laser for the american consumer. Malaise for the american consumer. Tom stay with us. If you have an immigration debate, and my right the most i is onimpact of c the it is what is affected by angstar in the blanket of an immigration, and i right . Stephen it will definitely have an impact. The magnitude of it is something that we do not are not able to factor accurately into our models because we have not had an experience like this in the past that would inform our judgment, tom. Francine it seems crazy that we forget we went through a financial crisis. Chart, showing gdp brought it back 40 or 50 years. Are we still paying for the financial crisis . Stephen look, francine, the growth rate of this economic recovery has been 2 since the financial crisis. That is half the historical norm. Laboringonomy is still under the pressures that were opened up in that crisis. There is no question about it. You would think by now we would have healed. Thethe work of two suggest healing process is much longer than you might think and that has certainly been the case. For thank you so much stopping by. It seems like every time we are with you, there is major news, whether it is cree campaign or campaign or day of the election. Stephen that was a painful day. Tom look at what we witness today. This is a huge debate across america. We will continue this is should discussion on Bloomberg Radio. Visit reinhardt will join us. Tomorrow on surveillance the new low german yield and the ever weaker euro. Suddenly, europe is front and center. From london and from new york, stay with us across all of our platforms today. This is bloomberg. Jonathan turning the screws on a tight labor market. Why a crackdown on undocumented immigrants could cost the United States economy trillions of dollars. The euro falls and german bond lds plunged to under record lows. Good morning and welcome to viewers worldwide. This is bloomberg daybreak. Jonathan ferro with alix steel and david westin. Slightly negative and the euro declining by 0. 3 . Balloons bunds in the spotlight. Alix a record low. Yields backing down by five basis points. The yen moving