Transcripts For BLOOMBERG Bloomberg Surveillance 20170228

The former u. K. Prime minister slams Theresa Mays Brexit plan as unreal and overoptimistic. Good morning. This is bloomberg surveillance in london. Our guest host we will get to him in a second, but we have breaking news out of norway. This is the norwegian wealth fund. Returns are about 6. 9 . Normally, the sovereign wealth fund, very invested in oil, diversifying into other parts of the world, for instance real estate. They were able to return 6. 9 percent. Objectively speaking, that is not bad. Lets gobout stocks, to your data check. It is 9 00 a. M. In london and caution seems to be creeping into a lot of Financial Markets ahead of Donald Trumps address to congress. A rally in tokyo melted. Yen strengthening a touch. , 112. 41. N after a losing streak, i wanted to watch for vix. Until the french elections, that is one thing we need to watch out, at 12. 18, a touch higher. Here is nejra cehic. Nejra billionaire wilbur ross has been confirmed as u. S. Commerce secretary by the senate. It clears the way for a key trade official to take office. He is slated to be officially sworn in later today, as the president prepares for his first address to congress. Chinas top diplomat met President Trump last night. It is the highest level contact between the worlds biggest economies since the election, since concerns over north Koreas Nuclear program overshadow tensions over trade. Starbucks Ceo Howard Schultz says now is a time to build bridges, not walls. He revealed plans to hire 10,000 refugees in the wake of President Trumps immigration ban. Schultz spoke to bloomberg in milan as he announced the Country Company was entering the italian market for the first time. Howard we are living in a world that is very fragile. There is a lot of uncertainty. And i think we have an obligation and a responsibility as a company to add value to humanity. I could say it in my own parlance. This is a time where i think we, as private citizens and as Business People, need to build bridges, not walls. Former u. K. Prime minister john major has attacked Theresa Mays Brexit strategy, warning she is making undeliverable promises and should prepare people for compromises that will come out of her negotiations. Majors brexit accused brexiteers of contempt, saying british people have been told to expect a future that is overoptimistic. Obstacles are breast aside while opportunities are inflated the unreasonable expectation of delivery. Sendmusks spacex plans to two private citizens on a trip around the moon in late 2018. The passengers each paid a significant deposit. There will undergo health and fitness tests and begin initial training later this year. To go into space, a new rocket in development that spacex has yet to fly. Local news powered by more than 2600 journalists in more than 120 countries. I am nejra cehic. Francine . Francine the world will be watching later as President Trump delivers his first speech to congress. He will outline his what it plans after yesterday planning to start spending on infrastructure, big. We will have coverage from 2 00 p. M. U. K. Time. Bloomberg users can follow all go. News on t5 go tlive myself correct 2 00 a. M. U. K. Time. The dow jones has the longest winning streak in 30 years on expectations about spending, tax plans. The market finally seems to be taking the chances of a march rate hike seriously. Fed funds futures show traders now see a 50 50 chance of a move by the u. S. Central bank next month. Last night, the fed dallas president , Robert Kaplan, said rates should be raised sooner rather than later. Robert it will take us some time to remove accommodation. That when i see we are making progress, i start saying, as i have said publicly, we should be moving sooner rather than later to retake the next step. That is within a context of slow, gradual, patient removes. Francine without a doubt our interview of the day. Boarder member of the ecb. Thank you so much. I do not know how you price and risk anymore. If you were still in a central bank, what would be your takeaway . Has it always been this difficult to set policies . It is particularly difficult ,ight now in europe, at least because we have a series of elections Political Uncertainty is much more difficult to take into account. On the other hand, the economy is doing relatively well. Domestic demand is growing. The low oil prices is helping consumers. So we have this contrast between the economy and the prospects which are getting better. Pointsre are a few dark or tail risks we see down the road with the french elections and germany, the netherlands, italy. Francine we will come back to europe. We have a big section when it comes to french elections. How would you deal with donald trump, in terms of what he can do to the economy . Lorenzo what he has been promising in terms of macro policies is relatively good for the world economy. A bit more spending, tax cuts. We have to see, from a budgetary point of view, how he is going to be able to finance this. On the other hand, on the trade side, that is much more concerning, i would say. So i think we just have to wait and see. In any case, we are still in a world flooded with liquidity, with savings. I am surprised that longterm rates have started to come down after an initial freeze, in fed rate increase. We are still in a world of severe glut. Francine is the fed following the markets too much . I want to bring you over to my wirp function. We see the odds of a rate hike in arch have increased. There were 36 last wednesday. Now, they are at 50 . If you are a central bank, if you wait for those odds to be at 80 because you do not want to scupper them is a good for a central bank to say, it is time to raise, even if markets do not believe me . Lorenzo i think there is a game. I think that the markets, the onstar increasing because the markets are perceiving that the fed is ready. Probably, the numbers coming from the economy are good. Expectations from the market do not come from the man. They come from just observing the reality and trying to interpret the reaction function of the head. And of course, if i was in the fed, i would be comforted by these developments. Central banks will not want to surprise too much, because this would create kind of a redistribution of income that you do not want to happen in the markets. Francine is it not bizarre that the market, we are seeing record on record, especially in indexes today, and yet the fed still seems to be quite sensitive of hiking . Lorenzo i think they are signaling that they are going to do it, and it will happen. I think they do not want to precommit to early. I think the direction is clear. Francine is there something markets are mispricing . Lorenzo well, that is difficult to say. You know, if you think that you can beat the market, you should be doing another job. [laughter] lorenzo maybe being a traitor. Trader. I think markets have a difficulty interpreting what is going to happen in the u. S. , macro policies. The extent to which this fiscal expansion will have an impact. The u. S. Forget that is, what, 17 , 18 of world gdp . When reagan was president , it was 25 or more. So the macro impact of u. S. Fiscal policy is has to be balanced much more than in the past. China is close to 15 . Europe is more than 15 . We have a much more distributive world economy. We have to see what is happening in other parts of the world. What i know is, the rest of the world is saving a lot. On the one side, the u. S. Wants to spend. But china and europe is still saving a lot. So how these forces will impact world Interest Rates, that is going to be very important. Lorenzo bini smaghi, we will come back with you, chairman of Societe Generale. We will talk more about Political Risk and how the market should position itself ahead of that. Stay with surveillance. Many ofr that voters in europes largest economies head to the polls, should the ecb hedge Political Risk . We will ask our guest host, lorenzo bini smaghi. As italys secondlargest bank abandons the idea of a merger with the biggest insurer, we will focus on the future of europes banking sector. And what would a le pen presidency mean for investors in europe and france . We speak to a key Business Leader in the National Front. Francine this is bloomberg surveillance in london. Here is nejra cehic. Nejra south koreas special prosecutor plans to invite the defect ahead of Samsung Group on bribery charges, along with four other executives. Jay y. Lee stands trial over accusations of involvement in bribes for government favors. Samsung will disband the Strategy Office which oversaw longterm planning and coordination, and dealt with government. Lee and samsung have denied wrongdoing. The head of the worlds biggest Mining Company has intensified warnings that u. S. Trade protectionism under President Trump will threaten Global Growth and the fight against poverty. Bhp billitons ceo spoke to bloomberg. Andrew longterm Economic Growth for the world is probably around 3 . If we are going to continue on the journey to move people out of poverty, we have to get that to her percent, and that will not happen under a protectionist regime in the United States. It sounds pretty awful. Byra the brokerage owned chinas civic security will shut down its Equity Research operations. It dismissed 90 employees, most of whom worked in research, as well as a few traders. They face revenue pressures including from a proposal in forpe to make investors pay investment analysis separately from trading commissions. Francine with just over two weeks until the dutch election and pulls in france painting a and polls in france painting a volatile picture, investors are closely watching the european risk story. What what does that risk mean for the ecb and Monetary Policy in the 19 countries that make up the eurozone . With me is the chairman of Societe Generale, lorenzo bini smaghi, formerly of the European Central bank. At the difference between the french and german 10 year yield, you can see the spread widening, which means he are uneasy. Are you expecting that to widen as we get to the first round of the french elections . By midmarch, we will know who will run, and that will clarify a few things, especially on the left, whether there will be an alliance or not. And of course it will depend on the polls. What you have to clarify, compared to the u. S. Elections are brexit there are at least four elections in france. The first round, president ial. The second round, president ial. After one month, the first round parliamentary and the second round parliamentary. It is a long process. And it is not necessarily the case that the one who wins the first really wins the second or the last. These polls have to be interpreted in a relatively more complex way. And of course the lessons of the suggests thatmp polls have to be taken with care. I think they were much closer than what they say today about europe. Of course, you never know, with these election campaigns in polluted by being different news coming from other countries. Maybe some news francine do you think polls are volatile . Because we are faced with unknown candidates more than in the past, that they could move very quickly . Not that the polls are wrong, but that they could change . Lorenzo remember in the u. S. , the last two weeks, the fbi news coming in. I think the uncertainty is about unknown unknowns, in the sense that there may be some strange things coming out about the personal life, maybe of some about, more than really changes in the mood of the campaign, or special programs, special announcements. I think it is kind of, is there something we do not know that up in the end come news in the last few days that may really change dramatically . But here we are talking about differences in the second round of the president ial elections, more than 10 percentage points. I think this difference was never there, neither in brexit nor in the u. S. Francine dealing 2017 will be a game changer for europe, because project to realize the may fray at the edges . What does it mean for mario draghi and the European Central bank . Lorenzo i think in the end, it will not. Everything has been blocked in europe, waiting for french and german elections. And then we may have the italian elections in 2018. For Monetary Policy, you do not want to add additional uncertainty in this environment. So i think the steady hand that he has played, together with the rest of the governing council, i think has been pretty good. Proved it has actually the opponents wrong. Those who wanted an early tapering, i think, proved wrong. This would have added additional tension in this environment. And with this kind of volatility francine when would you have started talking about tapering . Lorenzo i would have waited first to make sure you are closer to 2 inflation, the target of the ecb. I do not think we are there yet. Probably around the end of the year, we are going to Start Talking again about, what is the speed of withdrawal of qe . Francine lorenzo bini smaghi, chairman of Societe Generale, is our guest house today. We will talk brexit next, and european banks. Next, a brexit warning. A former u. K. Conservative Prime Minister theresa mays plans are unreal and overoptimistic. Francine this is bloomberg surveillance. Former u. K. Conservative Party Minister john major has attacked Theresa Mays Brexit strategy, warning of under liberal prop undeliverable promises and saying she should warn of compromise. Ofor accused brexiteers treating losers with contempt, adding the british people have been led to expect a future that seems unreal and overoptimistic. Obstacles are brushed aside as of no consequence, whilst opportunities are inflated beyond reasonable expectation of delivery. Still with us is Societe Generale chairman lorenzo bini smaghi. We spoke to someone from the bundesbank last month last week on this program. He seems to have softened his stance a little bit. The you believe the u. K. Will get a better deal when negotiating, when it comes to banks . Lorenzo i think it is going to be difficult. One of the issues at stake is the delegation of power, for instance, for managers to manage well wealth. Can you delegate from Continental Europe to london without some kind of agreement, a mutual agreement and recognition of the Supervisory Authority of england . I think this is going to be very difficult. I think people are starting to realize that. Of course, i think everybody would like to have a good deal. It is no reason why we should not have what we should have a conflicting attitude. The practicalities and the accountability to authorities, visavis the taxpayers, in terms of supervision, will make it difficult to have this delegation to a country which is not abiding by the same legislation. Have its ownnts to , then its own legislation this delegation of power cannot really be exercised. Francine but in terms of regulation, has the u. K. Not always been more difficult than even the european regulators . Lorenzo yes, but there is some kind of, within the european change your you can regulation as long as it is consistent. ,his allows mutual regulation with delegation. If you are totally outside, that makes it very difficult legally. I think it is going to be very complicated. And on top of this, there are some issues to be dealt with even before starting a negotiation. We know about the funds and the issue of the residents, nationals living in the u. K. We are probably in the u. K. , they are underestimating the complexity. In two years, it is going to be very difficult to find a solution. On top of that, i would add we are in a different world after trump. I think the trump element may be should not be underestimated, in the sense that life outside the e. U. May not be that easy. Thank you, lorenzo bini smaghi. Next, we talked italy, Political Risk, and mergers and acquisitions. Francine i am Francine Lacqua in london, this is bloomberg surveillance. Here is nejra cehic. Nejra billionaire wilbur ross has been confirmed as u. S. Commerce eric does commerce secretary. Commerce secretary. He is slated to be officially sworn in later today as the president prepares for his first address to congress. Worlds biggest Mining Company has intensified his warnings that u. S. Trade protectionism under President Trump will threaten Global Growth and the fight against poverty. The ceo Andrew Mackenzie spoke to bloomberg. Longterm Economic Growth now for the world is probably around 3 . If we are going to continue on the journey to get people out of poverty we need to get that to 4 , and under a protectionist regime, protectionist leadership in the United States, some good but pretty some pretty bloody awful. Nejra chinas top diplomat met the u. S. President last night, the highest contact since the election as concerns over Koreas Nuclear plan Howard Schultz is it is time to build bridges, not walls as he plans to hire 10,000 refugees in the wake of Donald Trumps immigration plan. He spoke to bloomberg. We are living in a world today that is very fragile and there is a lot of uncertainty. I think we have an obligation and responsibility as a company to add value to humanity. If i could say it in my own parlance, this is a time where i think we as private citizens and as Business People need to build bridges, not walls. Korea special prosecutor plans to indict the de facto head of Samsung Group on bribery charges along with four other executives. Charges would mean lee stands trial over accusations of involvement in bribes for government favors. Samsung denies making donations to win government support. Spacex plans to send two private citizens to a trip to the mountain in 2018. Ust to the moon in 2018 they will begin initial training later this year. Any rocket and development that spacex has yet to fly. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am nejra cehic. This is bloomberg. Francine thank you so much. We are just hearing some news from Charlotte Mary hogg. She is due to be the Deputy Governor of the bank of england march 1 of this year and she is currently the chief operating officer. She is being grilled by lawmakers and answering questions on brexit. She is saying brexit is one of the biggest risks facing the u. S. Economy, and is also talking about households, the income squeeze coming from inflation. The past ofieves u. K. Business investment is unclear so of course we will keep a very close eye on this and a close eye on any breaking news. Of saor news, shares that is the countrys biggest insurer. Data concluded there was not sufficient value for the deal and they are going to focus on creating organic growth. We are back with the chairman of Societe Generale. There has been a long held belief that european regulators are against systemic growth, allergic lay against all of this big m a either within a domestic country or prosper. Are we wrong . Certainly the way they have interpreted the regulation has discouraged crossborder mergers, has rather encouraged banks to concentrate on the domestic market. Phenomenon,mporary is this something that regulators are really encouraging for the longterm . I do not think so, because one of the mandates, key mandates for the ecb is not only Financial Stability but financial integration. If you want to have a Banking System in europe which is more integrated, more efficient,elpful for the markets projects of a Single Market in europe, i need more european banks. There are not enough today so i think the regulators are going to concentrate more on trying to foster these crossborder mergers. Francine more european banks . The common belief is that we are over bank. How many banks will theyre actually be left in five and 10 years . Lorenzo some countries there are too many banks. Germany, italy, there are too many. If we look at the u. S. As a model, probably would could see in the future, which is not too far away, maybe Something Like 10 systemically important banks in europe, and smaller, medium and Smaller Banks like in the u. S. So with we want a market which is supported if we want a market which is supportive of clients in a strong way like in the u. S. , we need banks that are able to operate crossborder. There are too many obstacles for that. Francine this would be a combination of two strong banks . Lorenzo i think it would be the survival of the fittest. Lets not forget, we are competing with the u. S. , and europe is much more open than the u. S. To competition. This is going to be an issue that we will look at very closely, the regulators, we have to look at it. American banks have an open field in europe. The u. S. Regulators have been very tough with european banks lately. Francine this is a very simple price book u. S. , what we are seeing in blue and in white is the price bank for european banks. What does it take for these european banks to become more expensive, a Business Model that investors need to understand or a wave of consolidation . Lorenzo i think we need more certainty on regulation. Committee was supposed to close this year and now the u. S. Are saying, we have to think about it, we have to look again. This creates more uncertainty for europe than the u. S. Of course, Interest Rates are going up in the u. S. And helping profitability. In europe, for a series of good reasons Interest Rates are not going up. Francine the we catch up . Lorenzo i think over time it is inevitable, and concentration dealing with nonperforming loans, this has been taking too long. I think over time we will see a catching up. Some banks, already this is the average and there are still too many banks below average in europe that are keeping the average to low with respect to the u. S. I think is the issue of nonperforming loans as the economy recovers, the uncertainty about regulation when we close i think we will see a convergence. Francine 20 billion is how much the Italian Government is planning to spend on italian banks. Will it be enough . Lorenzo we have seen unicredit going up in the markets and raising money. So if you have a bank which is relatively sound, which has a clear project, which is able to convince the market about its future, has no problem. The problem is that the banks that have not cleaned up early enough and do not have the capital to clean. For monte dei paschi, this would be enough, probably a few other banks, but i think the situation has been stabilized and this is a strong to restructure as soon as possible and clean the Balance Sheet. Francine thank you so much for joining us, chairman of Societe Generale. Stay with surveillance. What would a le pen presidency mean for market and investors in france . We speak to a key business aid to the leader of the countrys national fund. Plan,cks grandee social they are going to build bridges and not walls. Later we are joined by the evercore chair on what to expect from trumps congressional address. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Lets check in on your markets. Mark a very good day, stoxx 600 little changed. Caution ahead of president. Rumps address to congress the white house began sketching out plans yesterday and trump wants to spend big on infrastructure while adding the tax details in the cost of affording the of Health Care Affordable health care act. Wonderful chart, investors seem to be waking up to the idea of a fed rate hike in arch, the ultimate increase in march, the ultimate increase jumping a 50 on monday. That is according to futures prices. Speechs include trumps later, we have the dow jones rallying for 12 consecutive days. Robert kaplan think policymakers should raise Interest Rates sooner rather than later without paying excessive expansion attention to market. The longest streak since 1987, which by the way was a 13 day streak. The highest set of high closes ever. 1929, 1970, and in this period the dow is only up by 4 . The and 9. 5 respectively, 1987 record saw an appreciation of 1 . Decline. 1 china, among Global Benchmark indices, china, eight shares hold the crown for best rally in february, the handset has and sect china index francine thank you so much, mark barton with all of your market checks. Untiless than two months the voting starts in the french president ial election the polling has consists play shown that Marine Le Pen of the National Front looks to top the first run balance but come second in the runoff that follows. What would a le pen presidency mean for markets and investors . Joining me is a key aid to the leader. Thank you so much for joining us. What are the real chances of Marine Le Pen becoming french president in two months . Thank you for having me, francine. Me tell you one thing, we win this one. This one is for us. Nothing will stop us from winning this one because if the almighty in person had written the script for that election, he would not have written anything otherwise. The odds are great, and what we look at with some enjoyment is that the markets look at our project for the country with a lot of interest. Francine i want to get back to that in a second but im still looking at the polls and trying to figure out what are the real chances of Marine Le Pen winning. You said this one is for us and i look at the polls they are not that close youd she would make it to the first round but would lose in the second. Does she have a better chance, and im looking at the odds and probability, does she have a better chance against Emmanuel Macron or Francois Fillon . Sportsman. M a we will take whoever comes and we will defeat him. Talk about the polls, i want to remind you that being on brexit or the election of donald trump, they were completely wrong. They have been consistently priorfor weeks and months to those two major elections. I can tell you one thing, they will be this they will be wrong this time to because i think an election is about dynamics. It is clear to all observers and to all french citizens that the dynamic is really on our side. , both forthe polls brexit and donald trump i think were a lot closer. Maybe the markets that not want to see it but they were a lot closer. A were within the margin of error. Give me a sense of what you think the french people will go vote for in the first round and second round, the economy,s nice, or security . Mikael it is actually both. We witnessed the situation in france has been a continuous downward slide for the last couple of decades. The french are weary of that. They cannot have it anymore. The subject of immigration weighs heavily on the french community, and also talking about business and the economy, it is going from bad to worse. We have now something close to 7 million unemployed in this country. It is just unsustainable. We have 9 million considered to be under the poverty level. This is completely unsustainable and our project for france, if you forgive me for quoting President Trump, to make france great again, and we will achieve this by making it grow again. Francine did you meet with advisers from blacklock, weclays, and ubs, who understand where advisers to Marine Le Pen . Mikael yes, we did. We have a lot of interest from investors and advisors. We have had interest for the last few weeks and months. Tois quite a pleasure discuss our project with these people, because they are very pragmatic. They are professionals. Theyre very businesslike, and this is the approach we take. We are on the team of Marine Le Pen, who is going to be the coming president of france, and we are to be making france grow out of its misery, and we will do it in a very professional and businesslike manner. The talks we have with investors and their advisors very pleasant. Francine what was the one thing that actually all investors wanted to know . I imagine it is how you return france the monetary sovereignty and whether that would be disastrous. What was your answer . Mikael sure, it is definitely something that want to know but before we get to that topic, they really lend a very close the year to our Global Project to our Global Project which is tax breaks for households. It is a pro business toward small and mediumsize businesses what we need to do to make sure the boost ondemand, and offer benefit, to the French Economy. And a faireasonable amount of protection on our borders, and we want to regain our sovereignty over our borders. If you couple these two approaches, it makes our economy grow and it creates jobs. This is something they very well understand. And when they talk about the currency, they understand also that like 99 of countries in the world, france is the fifth economy in the world, deserves to have its currency. We will handle returning to our monetary sovereignty in a businesslike kind of way. Francine i want to take the steps one by one. Would it be a very pure antiimmigration, antirefugee , closing ofsures the borders that Marine Le Pen would want to do, and d not actually accept that france is not the u. S. . It would be quite difficult to spur domestic demand within the country all by health. All by itself. Mikael spurring domestic demand is pretty simple. If you cut taxes by 10 on all french household except of course the top bracket, which does not need any tax break, what you do is you give the french their money back. It is the equivalent of two months of taxes that the french will get back, especially the lower incomes. That money they get back go straight back into consumption. Of and all who is aware economy knows that when you cut taxes on the lower income go straight back into the economy. The boost will work. It is really economy by the book, economy 101. Nobody denies the fact that it will work. At about the borders francine lets stay on that for one second. Where is the money coming from . Your tax gets down, so you have tax receipts which means you have a hole in the budget. How do you make up for that money . Mikael you know, thank you very much for asking the question it is a real pleasure to be on your show because you and i know what we are talking about the e. U. , as it is now is costing the french 9 billion euros a year. We stop that, that is one thing. Fiscal evasion and fraud to the welfare state is costing our nation over 40 billion euros a year. Immigration, be it legal or illegal, is costing our nation several tens of billions of euros a year. Insecurity and criminality is costing our nation tens of billions of euros a year so if you add this up sorry . Francine would you cut the welfare state, benefits . Mikael no, we will not cut the welfare state for two reasons. One is an economic reason. France has a welfare state which economy fromench brutal downturns, like the one that was experienced in most of the world in 2007, 2008. It acts as a bumper because in france if you lose your job, you will not be out on the street in two weeks. Or if you have a health problem, we have a Health Care System that makes sure that you can get paid while you recover. Our welfare state may be costly, but it is efficient in economic terms because it dampens the downturns. It can maybe take the French Economy a little bit more time to recover, but it is useful. The other thing is 80 of the french want to keep the welfare state and this is where Francois Fillon is losing because he wants to privatize it at the french people do not want that. Francine i have about a million other question, and i want to ask you about the referendum on europe. Come back, we have a lot to talk about. On to the starbucks Ceo Howard Schultz, he says now is the time to build bridges, not walls. When President Trump sign the immigration order he announced lands to hire 10,000 refugees. I spoke to him yesterday as he revealed the company is entering the italian market. Howard starbucks has created a Business Plan over the years that was based on the balance of profit and social impact. The First Company to give equity in the form of stock options, Health Insurance to every employee, free college tuition. In china we just gave Housing Allowance to our partners traveling long distances. Not every decision in my view is economic. I think the price of admission is performance but i do not wake up every day saying, how are we going to wake make more money . I wake up saying, how can we create a deep sense of loyalty with our people and customers based on our values, and guiding principles. We are living in a world today that is very fragile. There is a lot of uncertainty. I think we have an obligation and responsibility as a company, to add value to humanity. If i could say it in my own parlance, this is a time where i think we as private citizens and as Business People need to build bridges, not walls. Francine is that why you announced the hiring of 10,000 refugees . Howard that decision was not a political decision, it was a decision based on the values of our company and our guiding principles. I believe very strongly that your station in life, your sexual preference, the color of your skin, the country you were born in should not define the opportunities that we have as people. If starbucks as a company can create an environment where the entrepreneurial spirit and the opportunity for everyone is based on merit, that i think we are doing a pretty good job. Francine d. C. The fabric of you seechanging . Do the fabric of america changing . Howard i am still very optimistic. We are go through we are going through a change politically but i am the quintessential optimist about the American Dream and i want to do everything i can to advance that, and be a symbol for american entrepreneurial ship. Francine do you think a lot of ceos will follow through . Howard i think more people will realize we have a responsibility not just to make money but to add value to our society. Francine that was Howard Schultz, ceo of starbucks talking to me in the long. Caution seems to be creeping into Financial Markets ahead of Donald Trumps important address to congress. We saw a rally, tokyo stocks melting, the yen strengthening a touch. You see the vix gaining 0. 8 . Bloomberg surveillance continues. Tom keenes knee joint tom keene joins the other new york, and we will be talking with davide serra about european versus United States banks. Great expectations, the dow rally hits 12 straight session, the longest in 30 years. Smellrket wakes up and the coffee about a potential march rate hike, the odds jumped to 50 . Wall street versus europe, will Donald Trumps moved to ease regulations widen the gulf between europe and the United States . Thede serra joins us for hour. I am Francine Lacqua in london, tom keene in new york. Even japan and japanese stocks are just waiting for President Trump and some kind of flesh on the bones when i comes to how he plans to reflate the u. S. Economy out of what we saw in the last eight years. Davide serra and on to add harmon, i will lead with a chart today off the bloomberg. Go,e is this weight, but and are we going to see that in a sort of state of the union speech tonight at 9 00 new york time . Francine people in europe will have no sleep, 2 00. Tom you will be up for that. You were up for the oscars. Francine lets get to the bloomberg first word news. Taylor in the u. S. , President Trump will discuss Foreign Policy, security, and more before a joint session of congress tonight. He is still working on the speech and they are not sure how specific he will be on policy goals. He is expected to increase healthcare talks. Ceo Howard Schultz came out against President Trumps executive order on immigration but he says his decision to hire 10,000 refugees was not a political one. He says is all part of Starbucks Company culture. Howard we are living in a world that is refrozen and theres a lot of uncertainty. I think we have an obligation and responsibility of the company to add value to humanity , and if i could say it in my own parlance, this is a time where i think we as private citizens and as Business People need to build bridges, not walls. Taylor schultz spoke with francine in with a open their first store in italy. South korean prosecutors are set to deliver a blow to the countrys largest conglomerate and will indict the head of Samsung Group on bribery charges. Four others will also be charged. Lee is accused of directing tens of millions of dollars to a friend of the south korean president. Consumer confidence got weaker again this month. The appetite for making major purchases decreased. It is an indication that the drop in the pound and week pay growth is beginning to weigh on Consumer Spending. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. One data aboard board, lets keep it simple. The german twoyear is a record low yield. Churn and the curve flattening, churn on the euro. I am done with that. Francine i am done as well. Stocks are giving up gains so i think that is a bit of news. And thel about trump, banks in europe are flat as they await, guess what, trump. Tom i wanted to show you the spaces in the markets and you can do that many ways because it is midmorning in london. Here issterling, rate brexit, june 23, up top. Is the normal volatility, two standard deviations of volatility looking back a certain number of days. There is the normal volatility before brexit, down we go and over we go, and look how quiet it is right now. We see this in the equity markets grinding higher. It is just remarkable series the series, the quiet out there waiting to see which way some of these bigger strategic views go. Francine i think you are right, and we did a similar chart, charting it to the volatility that we had last year in stocks compared to this time. It is my chart for the next hour but it is a brilliant chart because people are waiting for the moment. You do a pound chart, i do a fed, this is truly a global show. This is w. A. R. P. Wiro. This is the rate hike from the fed and this is or as. There was a huge repricing the last couple of days. The markets are looking ahead to President Trumps address to congress of whether he will put flesh on the bones of his policy. The market is trying to see whether the fed will raise rates and ever do in just two weeks. With us is davide serra, great to have you on the program. The markets are a little bit all over the place. They are rallying, you see indices high, and they are trying to figure out what comes next from President Trump. And you take a pause with equities or will they continue rallying . Davide i think we will take a pause, particularly in the u. S. Because we are close to pricing a global scenario. Cuts,will believe in tax more spending, and lower rates longer. Francine but will he, will he deliver . Or because so much of it is already priced in. Davide i think he needs to deliver because so far it is only words but i think the market has priced in this scenario, meaning rates alltime low. It is very hard to see what is next. As a result from our perspective, what we have been doing is buying protection on the s p. Spreadou can buy assuming the markets are between five to 10 and get paid almost eight to 10 times. We had at a time with alltime volatility, alltime up market. On the fedintment hiking as they should, as i think they should, will lead to a market drop. Tom that key phrase, it is unheard of, and i think a lot of people in global wall street agree. Are we in the territory of a market, looking at equities, bonds, currencies, commodities, are we in some territory that does not signal a further bull market . Davide i think the issue here, some Asset Classes lets take high yields are pricing basically no risk. They are close to alltime highs. At the same time if you look at the inflation data and employment data, we think the fed is behind the curve. On their own numbers they say they need to hike seven times over the next two years, so that ands probably another one 75 increase. We look at the bond market, they are not signaling the same. They are thinking they will not hike as many times and this time i think the central bank will have to go. Question, doical we see or will we see the gdp growth to justify that fed scenario . The conundrum is, if you look on the bloomberg, essentially it is just under 2 gdp growth, not good enough to get us to the scenario you speak of. Davide if you add inflation, employment, you are in a scenario where you actually need a hike in rates. You will probably get that from theecb, or at least tapering of the ecb is sometime in 2018. I think globally you are in an environment where you are pricing all the high margins, all the high multiples, and you have the trump effect, unless elon musk gets us to mars very fast and i think we are due for a pause. Thecine 2018, davide is on first spaceship to explore the moon. We heard from Robert Kaplan yesterday reiterating his view that policy makers should raise sooner rather than later. Robert it will take us some time to remove accommodation but when i see we are making progress i have said publicly, we should be moving sooner rather than later, to take the next step. That is within a context of slow, gradual, patient removal. Francine is there a danger that the u. S. Economy overheats and the fed has to raise rates quickly because they are behind the curve . Davide i think due to the technological changes, and slack in parts of the economy which probably led to the trump vote, i do not think that is likely. You are seeing a dichotomy in the economy, parts of it are overheating and parts are not heating at all, it is a cold winter. There is nothing you can do if you are in the rust belt. New uys will not get a to work for elon musk or facebook. Eventually you need to get pragmatic and real and spend more on education and retraining , and renormalize your Interest Rates curve so people can think about investment. All this Interest Rate adjustments that the Trump Administration wants to do well maybe eventually lead to a reduction in the u. S. Because they have massive amounts of cash sitting outside because of the tax code. Not as simple as it is, and i think markets are pricing the scenario. October,o september, the market was way too bearish on trump. The guy is a businessman. Incannot be the dream deal february. Francine well put, davide serra stays with us for the hour. You can watch the president s speech on bloomberg tv and radio, 9 00 p. M. New york, 2 00 a. M. London. Taylor this is bloomberg surveillance, i am taylor riggs. The only place where british finance jobs are under threat because of brexit. According to a report published by city u. K. , about one third of the finance workers are located outside the city of london. Underld put theresa may pressure in brexit talks. Bagag maker takata, one thee more one more company also agreed to pay 1 billion. A Michigan Company, key safety systems, has agreed to buy takata. One question is whether it will be restructured their bankruptcy. Fidelity investments is cutting the cost of trading in u. S. Stock and a strange traded funds by almost 40 , from 795 a trade to 495. Lowerty says the 50 commissions then e trade or ameritrade. Francine we are just getting a hogg, beingarlotte grilled by lawmakers. This is the treasury select committee. She says half of u. K. Business investment is not clear. The mpc see steadily growing growth and she personally can and visions ceremonies in which the actions of and vision situations we will keep a close eye on the bank of england deputy designate. Lets focus on france and in general Political Risk in europe. With less than two months before the french election, polls. 2 Marine Le Pen topping the first oint toallot polls p Marine Le Pen topping the first round ballot but losing and a second. We spoke to a and eight. We spoke to an aide. Is the almighty had written the script to the election, he would not have written otherwise so the odds are great. What we look at with some enjoyment is that the markets look at our project for the country with a lot of interest. Francine davide serra is still with us. I spoke to one of the key advisors to Marine Le Pen and he said she will win no doubt. I pointed to the polls and he pointed to the polls for brexit and trump and says there is momentum. How should the market position itself if this is true . Davide i think the key issue is once you stack up an agenda and you want to please everybody at one time and you get to power, what can you actually do . And justioned the euro renaming it. Basically given the same value. It is like calling the same currency Something Else. It is not a bright idea. It might appeal to those who understand zero about currency, but de facto, what can they do . They want to call a referendum on the euro. It is impossible unless they have more than two thirds of the General Assembly which they will not have. Again, words are cheap. Facts are what matter. From a market perspective i think le pen would be negative in europe, and in a way it is already priced in. The issue is, will french Voters Decide to go extreme right . I do not see it. Anecdotally i have spent lots of time in france and paris. Some of the frenchitalian, we do a lot of business in france. Speak to, who are they are mentioning macrond more mac run because he is not a politician. Tom how trump like his france . Cuttrump stunned america to stunned america. He took michigan and wisconsin, who showed up to vote and who did not. Is the real risk for france a certain block does not show up to vote for macron . Davide there is a risk. It is a fight between basically the state employees, and everybody else from the private sector which keeps on getting taxed more in order to pay for the benefits of basically whoever receives state aid or state employees. It is a fight inside france. The favor of integrating taxes and a bond year within france has added to a xena phobic twist. I think ultimately it will be a french fight, domestically, a bit like brexit. We shall see. But the odds of going extreme right in a country that has historically been socialist, i think are rare. In france you still have a very high part of life. If you have 10,000 you are in the top 10 of the world population. If you have 60,000, you are in the top 1 of global population. France remains a very rich country. To break all of this, to get out of europe, the issue is what we give them next . Tom the bonus round, the coffee is good. We continue this discussion forward, but with an important event. Us and iiman will join want to talk to him about make America Great again, the idea of an enhanced nominal gdp. This is bloomberg. The decision about refugees or things of that nature, i think it is important to embrace your core purpose and your reason for being in all aspects of the business. Leadership and being a strong leader cannot be when it is convenient. It is easy to be a great leader when you have the wind at your back. It is harder when you have the wind in your face, and i think leadership is defined many times when you have to make a tough but just decision. Francine that was the starbucks Ceo Howard Schultz addressing the backlash he faced for his recent hiring plan. A survey indicated starbucks took a hit because of that controversial policy. 2017 i guess we are rethinking the merit of globalization. What does it mean being a leader . Davide i think being a leader is basically to take into consideration the key trends. 1900 we were 2 billion people on this planet. Are 6 billion and we are projected to be 9 billion by 2050. That will put a strain on planet earth. You see that across resources, from water, air. We live on one planet. , the specific evidence is way too strong. Increase,ius degree you can see miami wiped out it will impact america. It is not just for africa or india, so i think the issue is take this huge longterm trend and come to a conclusion to work together. Tom davide serra with us, lets talk about particularly on banking. The president speaks tonight at 9 00 p. M. It is a good time to speak with libby control of pimco. She does not do some Libby Cantrell of pimco. On washington, policy, and the defense of the department. It is a beautiful, chris, late winter day in new york. This is bloomberg. Tom good morning, bloomberg surveillance. Edward hyman with us in the next hour, davide serra with us now. , i amne lacqua in london tom keene in new york. Malaysia plans, to charge two women with murder in the death of the half brother of the north korean dictator. One is from vietnam, the other indonesia. They face the Death Penalty. He was killed by a powerful nerds nerve agent they say was provided by north korea. A fundamental shift in the communist partys approach to family planning. China scrapped the one child policy that had been in place. The u. K. Has resisted proposals that would raise e. U. Tariffs on underpriced chinese deals. A trade group and lawmaker warned that britains embattled Steel Industry could suffer. They say that may lead to more below cost chinese steel being imported. Spacexu. S. , elon musks plans to send two private citizens to the moon next year. They have paid a significant deposit. This will be their first attempt at space tourism. Spacex is working with nasa toward a manned mission to the International Space station. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. Joining us now for a long day, martin shanker, bloombergs editor for politics. President this evening at 9 00 new york. Looking forward to that speech. I want to know how the president will react to however the democrats act what is the backstory on the marching orders from senator schumer, Speaker Pelosi . How are the democrats going to act to this tremendous speech . Martin there is going to be some elements of protest. One of the republican representatives, female representatives said every democratic woman should be wearing white in reference to the suffragette movement. Whether they will stand and give him an ovation remains to be seen. I sort of doubt it. The i look at the gossip of hour and you and our team have done a good job of keeping it on policy and the reality of economic investment, but yesterday was a to present to president day. Thene bush out and President Trump went after president obama. I can barely keep up with this. Is anyone actually going to be listening to policy within the speech . Martin i think it will be ultimately a political speech, and i think that the expectations from people that you will get a lot of detail on policy, ie, on tax think those expectations will not be met. What really matters is what people on the ground, regular americans, feel about their prospects. Records,ets that peoples 401 k s at record highs, people actually out in the marketplace are feeling pretty good. Francine will donald trump actually focus his budget speech as you can call it, on National Security and Public Safety . If that is the case, will he offer more money for defense . Martin there have been various reports that he is going to ask for a 10 increase in the defense budget. Still below what some key senators in his own party say is needed to rebuild the u. S. Military. You can expect to hear him say how he plans to rebuild the u. S. Might in order to confront the world, but some people think he has not gone far enough, which is interesting. Francine if that is the only thing he delivers, will it disappoint the markets . The markets seem to be expecting more. Martin i do not really know what the markets are expecting. There is this theory that doing nothing in washington is great for the market. Whether it is the prospect of Infrastructure Spending and tax reform and regulation reduction, or basically stasis, is what is propelling the market. We will have to wait and see. Tom people do not know that you have been doing this 1884. Marty and i both agree that professor feldman at harvard is pretty good in our constitutional effort. Lovehateents relationship with the first amendment, the government cannot target certain ideas because of the perspective that they embody. The court calls this viewpoint discrimination there is the legal jargon. The reporters in the gaggle arent just passively listening. They are actively speaking, limiting attendance to preferred News Organizations is deeply in conflict with principle of viewpoint discrimination. We saw john mickelthwaits comments off of the uproar last weekend and we have to move forward to a new press white house discussion. Is there any inkling we will get that . Martin there were some reports that we might get another spikes cer gaggletoday spi today. As our editor in chief said, we will not take part in any kind as far as whaton kind of News Organization will get access. There were such a furor over it and sort of lost sight of the fact that the gaggle itself was worth virtually nothing since the press secretary sent almost inane comments at that briefing. It does not amount to anything anyway. The relationship with the press is stormy and that is just the way trump wants it. Tom what is the message the president wants to get forward tonight . What is the single goal of the president tonight . Martin by all accounts, he wants to take an optimistic and forwardlooking approach, lets like president reagan did. Anhe is able to provide uplifting and optimistic viewpoint, i think he will feel he has made a successful effort. Francine marty, thank you so much. He had all of our government coverage worldwide. We are back with davide serra. We were talking a little bit about what the market was hoping or not. The single currency that people watch most is mexican peso. Is it now time to buy into these because we think that maybe some of the straight hours have been over concerning . Davide we think actually the mexican peso where it is offers longterm value. We actually have credit risk in mexico through both santander bonds and bba bonds locally. Ultimately, because the only thing from devaluing the mexican peso is you increase the competitiveness. Politically, that accelerated the willingness of europe and china. In the longterm it has only benefited mexico. Hispanicty is the population will probably be 30 to 35 within the next 20 years in the u. S. It is an economic area. In the shortterm rhetoric, it will not do much to longterm trend. Francine the rhetoric hurts who the most . China, because the president is also fighting internal forces . Davide here the issue is again, the perspective is from historical noise. I think whether history broke in europe, it is a recipe for disaster. Wars, whoeverorld says you want to break up europe you are going against history. I would love to hear some of those who wish we have a third world war. We want to keep europe together. Even in the case of brexit. We will be out of the e. U. But not out of europe. One thing is to keep longterm perspective. I think ultimately europe might come out stronger because they need to find, revive the european soul. Francine davide serra stays with us. You can watch President Trumps speech live and in full on bloomberg tv. 9 00al coverage begins at new york. This is bloomberg. Francine bloomberg surveillance, francine and tom from london and new york. Lets talk about european banks because we have not done that in about a half hour. That operatebanks freely across the region to fend off competition from u. S. Lenders according to the Societe Generale chairman. I spoke to him earlier on. If we want a market which is supported, and client all over europe that are supported in a strong way like in the u. S. You need banks that are able to operate cross border relatively easy and there are too many obstacles for that. Francine beer with davide serra we are with davide serra. What arethe markets the markets missed constructing . Will we see more consolidation, is their appetite because we are over banked in europe . Davide think about what happened in the states. They put a trillion dollars of capital at preferred levels so they basically injected capital. Immediately they reset the economy back up, engaging quantitative easing and the economy restarted. There was a mobilization over the past seven or eight years. In europe, we were late in the game in revitalizing the banks and we only did it at equity levels. Then we relate to the qe game. That led the euro to over appreciate and it caused a crisis. I think we are at the point where the number one driver for Bank Stability is net gross margin. We need normalization on Interest Rate. Normalization means you are looking around 1 as the longterm gdp, between 1 and 2 . If that were to happen then european banks profitability will probably go up by 40 to 50 . Francine 20 billion for the italian banks, why dont we have more on the table or will 20 billion be enough . Davide italy has been late to the game and i blame both the companies who kept on saying everything was fine. You have about 260 billion in nonperforming loans. I know performing basis that number will be lower than 120. Calculations, 30 billion to 40 billion is more than enough to cover for market losses. Where you get 30 billion is ven billion asset disposal 7 billion asset disposal. 40 conclusion is basically billion. You still have to go through, and this will take at least 10 years, in order to digest all of these npls and recover any value. Tom here is a chart of unicredit. I bought it right here, up top here. Here, thatht it down is why he is sitting there and im not. Off the cash call we have a rollover in 2070. I get a billion here, a billion there. What is the ethical, what is the constitutional, behavioral game change of the management . I do not see italian banking, german banking, whenever banking management with an account attitude adjustment. Do you discern that . Davide in the case of unicredit, i have known him almost 20 years. 1990s,ere here in the he was one of the most academic, straight to numbers, no bs approach. I think coming to unicredit, there is deep value in all his assets. Willis a company i think play within the consolidation game in europe. His operation span from germany, one of the largest in bavaria, to northern italy. I think it has lots of lever from capital costs, down to eventually the next two to three years to do a proper european merger. Tom will they do a bank roll up . I look at france and bnp paribas, and wonder why they do not just roll up Credit Agricole for a song and dance. Rocket unicredit to market improvement . Companyonce a global like unicredit gets properly capitalized, eventually business flows to the strongest banks. The top five banks used to have less than 25 of the profit pool and now they have 50 . Basically by over capitalization, over liquidity, overregulation, at the beginning you pay the price. About sevenu have hundred 700 or 800 banks and many will be under strain. Clients will move to the stronger banks. Francine how many will we be left with in five years from now . View you will get four to five key banks in each key market and he will start seeing crossborder consolidation. I will give an example. It has been an example where europe got it right, they made one product that they can so easily across the country. U. S. , japanese asset managers, they all adopted it and now it is a global standard. You do not need the institutions to merge, you just need private regulation. They can do a european credit card, a european revolver. The product itself can be passport it across europe so you do not need to merge company culture, just make product regulation that works which is something in my view that would unify the european banking market. Francine if you are a bloomberg user, and i know most of you are, you can just type tv and directly link to tom and i and our producers. That is davide talking, some really cool charts talking about some of the banks we are watching. If you have anything specific, tell us directly. This is bloomberg. This is bloomberg surveillance, i am taylor riggs. Consumers have won the first round in a Court Case Involving google and privacy rights. A federal judge ruled google must face claims it violated the privacy of millions of users by gathering and storing biometric data without their consent. Facebook is fighting similar claims in the federal court in san francisco. Japanese Technology Giant softbank is in talks to merge with satellite provider intel fab. The agreement hedges on the prices of the bonds. That would value the deal between 10 billion to 14 billion. Walmart is hoping to attract more shoppers with its mobile phone app. They are updating a software so customers can use it to refill prescriptions and skip the line at the pharmacy counter. Once their orders have been placed the can use new express lanes at the store, they can to hash checks and send money without paperwork. That is your Bloomberg Business flash. Tom we are on the edge of march, on the edge of the First Quarter of this year. I have read your many emails and tweets saying, can you just talk about the market or wall street or the city and stop talking politics . Lets try to do that. Right now, David E Sarah with us. Davide serra with us i want to know the future of transatlantic finance and where the u. S. Banks fit in strategically in taking the marginal revenue and marginal profit margin from the european banks. How is that going to play out over three to five years . If you are a large European Corporation and you want to do a transaction of 10 billion to 20 billion, there are only three banks they can write you a check jpmorgan, bank of america, and citi. N europe, the only one is hsbc if you look at the advantage the u. S. Banks have developed, it is huge. The Market Capital of jpmorgan of bank of america, they are worth more individually than the largest banks in europe. Jpmorgan is worth more than any of them put together. Inflection point. I think the recent developments with federal law leading the fed , a strong advocate for making more and more regulation in europe, i think with him leaving europe will strike back. Putting a status quo on regulation, europeans should be able to fight back. Tom i love what you said. What you just heard him saying bank of america, citigroup, and hsbc is a reality. It sounds to me like consolidation, most out of the 1930s. When do we see the u. S. Banks start buying bolts on european banks that are dirt cheap . Davide i think you will see scenariomy view, the in 2018 2019 if we were to have a stable political union, basically you get out of the election and france, the netherlands, and germany. Assuming a status quo scenario at that point i think there is massive value in your and you will start seeing in my view, u. S. Banks looking at both. Alternatively, i will give an example. Amorgan does not have european on shore regulated entity. They are operating through the branch of the london break. Brexit,the hard jpmorgan will need in on shore regulated bank. You will see more and more the need to be present in europe. Europe is about 10 to 50 of global revenue for this large multipleen the price in which the firms operate, i think we will give them an attractive deal. Tom we will continue this another time, davide serra on transatlantic banking. Coming up, my conversation of the day, and our discussion of with with edward hyman. This is bloomberg. Tom this morning, quiet market s await animal spirits, a new american confidence to drive Economic Growth. President proposes, the Legislature May dispose tonight. A bump in guns, and americas ceos to toe through the minefield of support. Good morning everyone. This is bloomberg surveillance. In new york, i am tom keene. What did you learn from Howard Schultz . Learned that tom keene love sue landor. Zoolander. Howard schultz in particular good form. We talked to taxes, Business Models, and china. China he believes will be a bigger market than the u. S. In a short time. Overand the uproar refugees. We will get to Kevin Cirilli in a moment. Right now, heres taylor riggs. Taylor we start in the u. S. President trump discusses Foreign Policy and security before a joint session of congress. White house Officials Say the president is working on the speech and are not sure how specific he will be on policy goals. The president is expected to incorporate his recent talks with Health Care Leaders and lawenforcement in the address. You can watch live on bloomberg tv at 9 00 p. M. In new york, 2 00 a. M. And london. Schultz came out against President Trump the executive order on immigration, but says his decision to hire 10,000 political refugees was not a political one. We are living in a world that is fragile. There is a lot of uncertainty. I think we have an obligation and responsibility as a company to add value to humanity. If i can say it in my own when we, this is a time as private citizens and Business People need to build bridges not walls. Taylor he spoke with Francine Lacqua in milan. Prepared tosecutors deliver a blow to the largest conglomerate. They will and died the de facto jay y. Leesung group on bribery charges. Four other executives will be charged. Jay y. Lee is accused of directing tens of millions of dollars to an entity controlled by a friend of the south korean president. British Consumer Confidence weaker this month. The index fell in february. The appetite for making major purchases decrease. It is an indication that the drop in the pound and weak payrolls is weighing on Consumer Spending. That is the largest part of the british economy. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. I am taylor riggs. Tom thanks so much. Let me get to one board come markets very quiet, stasis settling as markets grind higher. Spreads a little flatter, in the euro there. Im sorry, francine. Im bored. Francine im not bored. Investors hitting the pause button. Investors are waiting for what trump will say when he addresses congress. Kevin, is trump going to give a Campaign Speech today . Is the trump default to go backr months before the election . Is that what we will get tonight . A joint a dress to congress, but he will outline his vision for this new administration and for his legislative 40s. In greatscuss detail a range of issues. What is the goal of the democrats . To be graceful . Do they want to disrupt this guy so he gets a tremendous speech about tremendous things . Which way do they want to go . Kevin it depends on which democrat you ask. Arehave democrats who willing to work with this administration on a couple of areas, including infrastructure and energy deregulatory policies. Have pretty much everybody else, people like andabeth warren, liberal progressive. They want to block the president at every turn. Francine talk to me about what we are actually expecting in the speech . Does donald trump go to congress and ask for money on defense . Sources say what we can anticipate his President Trump will call for a 54 billion dollar increase in military spending and advocate to cut costs at the state department as well as the Environmental Protection agency and to lower costs for foreign aid. A policyis setting up war between different factions of the republican party, people , who has mulvaney advocated for deficit reductions and cuts in spending, and more bullish republicans, people who have advocated for progrowth spending. This is the first time he will have to rougher read that. Francine does he want to please the markets . Are the markets pausing because they have priced in something . He says he will give details, but also claims credit for the strong stock market. If he does not give details tonight, that will cause more frustration among capitol hill republicans. Tom thank you so much. Get the official surveillance nap in this morning. Usis an honor to have with edward hyman. He has set the benchmark for Market Economics. This is the secret sauce of ed hyman. Isi propaganda. Here is the good news. Here is the bad news. Ed used to do this with scotch tape. Look at this. Anis is the famed hym marker here. Youre doing it the way you did it 40 years ago. No, im not. It is electronic. Tom you are doing Market Economics like when we had 4 gdp. Thats right. Deliverl guys like you to the president a raft up economy . Bit, but not much. The prospect for a big thing out havee Trump Administration gone down a lot, but the economy is still on a slow and steady path. If anything, it is picking up a little bit. In our next block, i want to focus on animal spirits. Let me go to the global franchise francine has in london here. Chair yellen is central banker to the world. His donald trump a politician to the world . That itffect so much will affect all Global Economy and global trade . Ed that is too much. With theic now and market being bubbly, china is improving, japan is improving, europe is improving, the u. S. Is improving, and the started before trump came along, so he has been given a nice wind at his back. Francine why have the markets rallied so much . They thought it would have been a disaster when donald trump got elected, then the day after he got elected, in rallied and has not stopped. Factor, but a focused on so much with that we should look at other things. First, growth has picked up globally. Secondly, earnings are picking up. Early, Central Banks like boj, crazyntinued to pump like , and policy rates are at almost a record low, said those three factors before you get to trump have and pushing the market up and continue to push the market up. Whenine lets say that Donald Trump Addresses Congress that there is a lack of detail and he focuses on defense, but does not tell the American People and the markets how he will reflate the economy. Will we see reflation or not . You could see disappointment if he disappoints, but so far trump has been able to sense when he needs to deliver, a promise or whatever it might be, so i would not go into this expecting it to be a , but one of the problems with the market is that violations are so high that you could have something. Something you do every day, the linkage of the bond market. Bill gross would suggest we have financial repression, subdued real rates, savers flat on their backs. We have shown this a million times, on Facebook Live yesterday, here is the election, the day after come at the trump enthusiasm, and there is this rollover. Do you just assume subdued negative rates in the foreseeable future as bill does . Ed no, i dont. That chart is a great chart. Tom thank you. Why is that a great chart . Bond yields speak. They have a message. On the yields got up to 2. 60, then come off, so that indicates that from that Vantage Point that the economy is not taking off, just picking up a little bit. At the same time, the odds of fed tightening as you reported have gone from 25 to 50 in a couple of weeks. Tom should the fed raise rates or wait until september . Ed i think they should go. The important thing is that the market thinks they should go, and you said you were bored this morning, it is pretty calm out there, but the odds of fed tightening have gone to 50 , and the stock market is still up. It is ok with it, so that is an Important Message for the fed to set, ok, we will think about going in march. Edom hyman with us hyman with this for the full hour. I have been sweating for 24 hours, no, not over the oscars. Ed hyman, i have to have a good chartered we have a great chart next, and we have that next on make nominal gdp great again. Tonight, Kevin Cirilli and our team. This is bloomberg. Francine lacqua london isnt the only place where finance jobs are under threat. Taylor according to a report, only two thirds of the countrys two point 2 million finance workers are located outside the city of london. Putindustrys reach could theresa may under pressure to defend finance and brexit talks. Takata,e airbag maker atak one more obstacle has been removed. The company agreed to pay 1 billion. A Michigan Company has agreed to buy the company. One question is whether it will be restructured through bankruptcy. The Largest Online Retail Brokerage Firm is slashing commissions. Fidelity investments is cutting the cost of trading by 40 . That is your Bloomberg Business flash. Tom that is amazing to see. Time for the single best chart. Rights forever core isi. This was on the capital goods recession. Here is a great chart. I did not realize when i put this together this morning. The ideal of the build up an american might, cap expenditures through the 1970s, 1980s, the duration of this peak here is nothing compared to the flatness we have seen coming out of the crisis. It is just remarkable, the dearth. Is the new globalization nothing more than the transfer of our investment spirit abroad . The u. S. Economy has changed so much looking at that chart. When i travel around to places like boulder, colorado, there is sports and entertainment, health care, higher education, new tech, ecommerce, not the chart you have there. A lot of that Capital Expenditure spending has gone to china in particular. Nominal gdp in china this 11 , andill be about that is up from 6 in 2015. The president is talking for a need for a revved up economy. Which is going to be in the next 12 months . More inflation and a dearth of real growth, or can we get real growth with that nirvana of a little bit more inflation . I think we will get a little bit of both. All that matters is what is nominal, which you get paid, what you pay for coffee, the trade for fidelity. Nominal gdp growth in the u. S. Hit a low point of 3. 5, and you just tor for business feel sort of ok. We werent there. We are running at four, but this year, im looking for real 2. 5 , and inflation of 1. 5 or 2 , so that is getting towards a 5 nominal gdp growth. And you automatically assume given globalization and the interlinks with trade going back to toms chart, that if you increase nominal gdp but the rest of the world has to suffer . Ed no, i dont i think the rest of the world will be better off. One of the things i mentioned at the beginning is that Central Banks keep pushing my crazy, and we spend all this time on trump, which is well spent, but we should also spend time on Monetary Policy, and they keep increasing Balance Sheet am a money supplies. For example, yesterday, they reported the money supply in the eurozone was 5 . We are 6 , 7 , china is 11 , so the bias for global nominal gdp is to pick up a little bit, higher odds that direction than to slow from where it is now. Right, ed hyman of evercore isi stays with us. This is bloomberg. China for starbucks, we have been in china for 17 years. We have 2600 stores in china in 125 cities. We open a new store in china every day. It has been a fantastic market force, and the next ros will be an incredible opening in december. I said publicly that china probably will exceed the u. S. In terms of the number of stores. We just introduced by what year . We have not said what year, but it will be bigger than the u. S. Over time. Francine that is Howard Schultz talking to me in thmilan. Speaking of china, the countrys top diplomat met President Trump last night, the highest level contact since the elections. We are back with ed hyman evercore isi chairman. How worried are you about the tension between china and the ne u. S. . Will president xi jinping have to take measures . It is hard to know. China is not like mexico, where mexico can be looked at like a pinata, but china cannot. I guess is that there will be and knucklesforth hit, but i dont think we will have a trade war. It is a risk for sure, and the whole trump thing has a lot of uncertainty we have not faced before, but my guess is that the u. S. And china need each other enough that there will not be a major trade war, but i expect bumps along the road. Are we going to hear a neomercantilist, zerosum president tonight . Ed i dont know what we will here tonight. Tom is he a neomercantilist president . Ed i dont know what he is, but one of my friends in the trump group says trump wants to win every minute, and hes looking at the economy and the stock market. You heard him talk about the stock market as a feedback loop, so when the stock market was starting to sag, he came out with the phenomenal tax package, so he has a sense of when he needs to offer something encouraging, but at some point, he has to offer something with substance to it. Tom the substance we will talk in a moment. Ed hyman with us. Pimco onpeak with possible policy prescriptions. Somehow i think we will see the word tremendous in the first three sentences tonight. This is bloomberg. Francine look how beautiful london is. Monet or van gogh. A sharp drop in Consumer Spending could pose the biggest risk to the u. K. Economy. Tom very good. I think it looks like roger rabbit. I cant stand the architecture and london. With that note, lets get the first word news. Malaysia plans, to charge to bring women with murder in the death of the halfbrother of kim jongun. They face the Death Penalty if convicted. Kim was poisoned by a powerful nerve agent. President trump wants to rewrite an obama era environmental rule that expanded the clean air act. The epaident will order and corps of engineers to review and consider the rule. Critics say the rule unfairly expanded the epas jurisdiction to include various areas. A senator will be caught in the in hisof a fight confirmation hearing today. He was nominated to serve as director of national intelligence. He will face tough questions from former senator colleagues because some of the intelligence agencies he will oversee our involved in investigations on the president and russia. Send to private citizens on a trip around the moon next year. No word on who the two astronauts will be. All they are saying is that they paid a significant deposit. It will be the companys first attempt at space tourism. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. I am taylor riggs. Tom thanks so much. Target has to get an attitude adjustment with all the retail target out with earnings, a miss. Earnings is a mess, samestore sales are light, but id love the first line, second paragraph , rapidly changing consumer behavior. That is french for amazon. Down for percent. Ed hyman from evercore isi with us today. Fromt a proper briefing libby cantrill, helping us with tonights speech and reading between the lines. Budget the Congressional Office website, and what i see there this morning is the Navy Shipbuilding budget analysis for 2017. Does the president even have a clue what it 9. 2 lift in defense spending will do or where it will go or what it means to the rest of the next . Libby the president s budget. Hould be caveated it is more of a political statement. Members of congress have to put it into authorizing, appropriating language, so it is a strong signal he will support increased defense spending, but once it gets to the mechanizations of congress, it would look different. Tom help me with the guns and butter analysis. This is a manly guy who likes to talk about defense come but what about the but what about the butter within the speech tonight . Libby i think what markets and investors will look for is what President Trump prioritizes. Prioritize progrowth deregulation, or more of the protectionist, economic nationalist policies the market does not like as much . Within those progrowth policies, does he give clarity, specifics, because there is a not a lot of unanimity among Congressional Republicans about how there is agreement about what here they want tax reform, repeal and replace obamacare, but how they get there still remains to be seen, and i think they are looking to President Trump for that direction. The question is does he give that . This is a man good at headlines and add generalities. Specific policy details are not necessarily his strength, at least not today. Francine who does he listen to to write the speech . We understand he is still putting the final touches on this. Does he want to please the markets . Libby it is a great question. In terms of who is advising him, it is quite the verge terms of their outlook as well. Steve bannon, stephen miller, who from reports, it sounds like their fingerprints were on the inaugural speech. It sounds like he is broadening who he is getting advice from on this particular speech. Stephen bannon will likely be influential, but also gary cohn, the free marketers, free traders come also said to have some input in the speech as well. Setmight get a more diverse of influences in the speech than the inaugural speech. Francine give me a sense of what you think is priced into the market. Is there more scope for President Trump than there is to keep markets on a level playing everything equities, is good, we will reflate and nominal gdp will grow from here . Libby there is certainly a difference in terms of the market. The equity market has one interpretation about how fast trumps policies will get an active. I think the bond market might be more skeptical. Coming from pimco, i think we will side with the fixed income interpretation of things, but in terms of the equity market, if they dont see some sort of detail and advancement of these policies. What people have to realize is that this is predicated on congressional approval, and if they dont see that quickly, then some of this, the emboldening the risks markets might come back. Lets link that with the idea of the border tax. Over the weekend, a fabulous brief from the new york Federal Reserve, and and krueger, former saying thisomist, border tax is very harmful, so the president will mention this tonight come and a believe congress likes it. An importax, how does tax help us get to nominal gdp you say we need . Ed i doubt we will get it. Tom do you agree with that, libby . Libby i dont think he would talk specifically about the border adjustment tax. Ed it is complicated. Libby and i dont think he is somebody who has a lot of details. Borderyou dont have the tax, you dont have the money to pay for the Corporate Tax cuts and individual tax cuts, so we will see if he is able to push those through, the Corporate Tax cut and individual tax cuts, or will push up the budget deficit without the border tax, but more i look at the border tax, and our firm view is that the odds are one in three. We have been at that for a while. Even now, it looks as though it is losing momentum, so as it loses momentum, individual investors or investors in general start to doubt we will get a tax cut. Withlibby, help me here the budget deficit and the wiggle Room Congress has come a not so much the president. I believe the president proposes come and the last i knew the legislature disposes. What is your view on the budget deficit . Bring up the chart here. Ugliness back to the of 30 years ago, it doesnt work, does it . Ryan, this is something where he is very focused. He wants tax reform to be revenue neutral, not only because he is worried about the deficit, but realizes that if he passes this bill by reconciliation which allows something to pass the senate with only 50 votes and not 60 votes, it has to be revenue neutral, deficit neutral, and order to make it permanent. If it adds to the deficit over 10 years, then it sunsets after 10 years. If paul ryan is going to go for tax reform, he does not want to see them and after 10 years, so the motivation behind it being important,tral is but there are deficit hawks in congress. , there where i was going is not a lot of unanimity among Congressional Republicans about exactly what tax reform should look like, so it President Trump said we need to make this deficit neutral or we need to have the border adjustment tax, that would go very far in terms of providing some clarity, but i dont know if we will get that tonight. Francine again, without sounding like a broken record, who is the right person for the president to listen to when it comes to tax matters . Libby what we know is that gary of thehat is part government that is fully staffed right now or closer to being fully staffed. At the treasury, secretary mnuchin just got confirmed, and from all reports, he has not been able to staff up as much as he would like. Usually the treasury would lead on tax reform, but now from what see chontand, you will and gary cohn his staff fingerprints on this. A tax reform, Infrastructure Spending, or Something Else . Ed he works through three channels. One we are not talking about is animal spirits, which we have seen, a big increase in business and Consumer Confidence, and that is a surprise to me, but that is there. Second, you have the deregulation, which is an ongoing process, and that has been encouraging people. Thirdly is the fiscal policy, which we are talking about now, and that is mired down now. The other two are working ok, and there are a lot of other factors already in place that are making the economy do a little bit better as we go through january, february, march, april, may 2017. Tom libby cantrill, thank you so much. Fabulous breathing. We will translate all this at 9 00 p. M. Tonight. Look for that with my colleague david gura. 9 00 p. M. Tonight on Bloomberg Television and radio. Ofcontinue with ed hyman evercore isi. This is bloomberg. Francine this is bloomberg surveillance. Taylor lets get you an update on target. Im focused on samestore sales, falling 1. 5 . Target ceo says consumers are going more digital. That led to the unexpected softness in stores, eps Going Forward to fiscal year 2017 also revised lower. My take away the competition with amazon and walmart. You see target is facing costs as they go to digital. Mart used to be able target used to command a premium over walmart shares. That is changing now. Walmart commanding a premium over target shares, much lower in premarket trading. Tom what really informs me is that within this bull market, the 10year performance of target off the bloombergs 2. 7 per year. Granted there are crisis issues in there as well, but retail francine, retail and americas trouble, trouble, trouble. Aboutne you can think the fact that actually there has been a lot of over expansion. So when you expand too much, then maybe need to regroup, refocus, and sell products people want to buy. Lets move away from retail on to Political Risks in france. With less than two months until voting starts in the french president ial election, the latest poll shows that emmanuel willn and Francois Fillon both be Marine Le Pen and a second round. For more, we are joined by john fryer. Chairman iscore isi still with us good what are the chances of Marine Le Pen beating one of the candidates when it comes to a second round . If you look at the polls, she does not have much of a chance right now. Having said that, after brexit and trump, one needs to be careful about how one interprets this data. If you are an election strategists, probably if you were to pick one candidate right now, who you would fancy having a competitive go, it would be Francois Fillon. The personal issues about whether his wife and properly use public funds are not going away. A french prosecutor on friday said that they will be deepening their probe of the issue. That means they will be under questioning. This means it will hang around. On the other hand, probably the dream ticket for Marine Le Pen would be if the left were able tonight behind one candidate and got through to the second round. That looks unlikely, but you never know. Pollsne do you think the will fluctuate . We spoke to an advisor from the le pen camp that said she will win. Can they change something . You are seeing a huge fluctuation in the race for second place. They have been exchanging places every other day for the last month. The interesting number is the number for the second round for Marine Le Pen. They have come up into the low 40s, but they are pretty consistent. She has struggling to get much higher than 40 , and she needs to get that number to get that number 250. 1 between now and the second round in may, so she does not have that much time to make up that gap. Liveine we are looking actors here of the chancellor exchequer in the u. K. This is the opposition. When can we see negotiations on article 50 if we have a french president ial election followed by the german election. Followed by the european summer. We know how bureaucrats and politicians like to take time off, especially august. What you will see after article 50 is a phony war. You are looking at the Third Quarter of this year before brexit negotiations. The moment theresa may triggers article 50, the advantage clips to the eu because she only has to been years to negotiate this, so basically the longer the eu can delay the beginning of negotiations, the shorter timeframe she has and the better for the eu. Tom thank you so much. Let me show you tv. Everyone at evercore isi is watching ed hyman on their television. They can lubitz and play it all day. Tv. I can bring up a section with ed hyman with the chart. Even better, you can send the chart to your bloomberg. That is way cool. Tv. Coming up, ed hyman on the next fed chairman. This is bloomberg. Tom Foreign Exchange not that little stronger yen. Mexican peso, you wonder how that will move after the president s speech tonight, 9 00 p. M. Francine coming up, bloomberg daybreak americas. David, i know youre keeping a close eye on china. Baucus. Ll have max after being a line, we will talk to him about trade wars, but he was a principal architect of obamacare, so we will get into it with him. Are we ever going to get back to the question of tax reform . He will be on the radio with you. Set of issues. The one that intrigues me is the aca. You wonder where that will be in the speech tonight. President trump indicated he will have to deal with that first. The republicans are already dividing on what they will do. It is easier said than done to repeal that. Tom david westin with this. Right now, ed hyman, evercore isi. There are a number of people who would consider ed hyman as a chairman of the Federal Reserve system. His invention of a form of Market Economics is known throughout the community. Who should be the next chairman of the fed . Ed i like to focus on what the fed will do. Tom spring 2018. Ed right. Trump will have a chance to put five people on the fed. Phd do we need a monetary to be chairman . Kevin more than any other official surprise me. His smartme with thinking. Can we have a chairman like him are likely some decades ago, starting with arthur burns and greenspan, do we need a phd . Ed trump has shied away from economists, so kevin would be a nice mix. He is very practical. The problem will be when we get come how much9 will the fed be tightening. You get a conflict between what trump would like to have and what the fed wants to do. Francine give me a sense of what the markets need to see to price in a march rate hike. , 5050. Oment its more than 38 last week. Lot. T has moved up a it was as low as 15 late last year, but it has doubled from 25 to 50. It has done that because there has been stronger data, Inflation Numbers like cpi, ppi, retail sales in nominal terms rose 5. 6 , and the leading indicator went up pretty rapidly in the latest reading, so that has been the data that has brought the odds up, and the fed has been guiding us, now up to 50 , and the stock market is taking it ok. Whatine all right, but does it take . At 70 probability to move . What are they waiting for . Ed i think they would like to see well over 50 for them to move. The next data point i think is Hourly Earnings number. Average Hourly Earnings for january was skinny,. 1, and my work indicates it will be. 4 in february. It will bounce back. Would you serve as governor of the fed, vicechairman chairman of the fed, or chairman of the fed . Ed no. Tom why not . Ed i enjoy what im doing right now. Tom but you have to serve the public. It would be an incredibly stimulative moment . A greatould be come honor, but i enjoy what i do. ,om ed hyman with evercore isi thank you so much. We continue 9 00 tonight. Not a conversation come a. Onid gura has coverage Bloomberg Television and radio. Stay with us all day. This is bloomberg. John optimism, reality, the market hungry for clarity, the president s address, details on how he plans to energize the u. S. Economy. The dow, a record every day since trump promised a phenomenal plan to cut taxes. Marches live as the Federal Reserve waits for details. Traders drive up the odds of a rate hike to 50 . From new york city, worldwide, a warm welcome to bloomberg daybreak. The program, import and conversation with Howard Schultz, discussing tax arrangements and u. S. Politics. The tone of the market this before thethe calm speech, futures that flat, equities in europe that flat. Really not much price action to speak of. As well, safe haven assets, the front end of the german bund curve up two basins points. Vix same