Transcripts For BLOOMBERG Bloomberg Surveillance 20170306

This is bloomberg surveillance. We have a packed show for you. We have that great interview that john cryan gave us, talking about the restructuring. We also have to look at the markets. We look at china, what the fed, janet yellen told us on friday. This is the picture overall. I want to put a lot of these european stocks, Deutsche Bank down some 5 . This is after john cryan said he has a new strategy, including asking the markets for 8 billion euros. You can see a little bit of dilution in the share is what we were expecting. 0. 6 it overall, seems that european shares are being cold lower, first of all because Deutsche Bank is tumbling, but also because the metals are lower. Investors weighing Growth Prospects for china and Janet Yellens statements on Interest Rates. Geopolitical tensions also bolstering yen. I want to show you topix. 1554, a little bit lower because of japan moving to its highest possible alert level after north korea fired of the state missiles. First, lets get to the bloomberg first word news. Heres nejra cehic. Nejra the former director of u. S. National intelligence has denied Donald Trumps claim that the Obama Administration ordered wiretapping on trump tower during the election campaign. A person familiar with the situation told bloomberg that trump relied on reports in conservative media including Breitbart News for his claims. Japan has moved to the highest possible alert level after north korea fired Ballistic Missiles into nearby waters. Tokyo says three of the missiles fell into japans economic zone, with one dropping about 350 kilometers west of the nations northern prefecture. Former french Prime Minister alain juppe is set to make an announcement in the next half hour after president ial candidate Francois Fillon again rejected calls to step down. The republican denies allegations that he used the money to pay his wife and children for carrying out fictitious jobs. The dutch Prime Minister has warned of economic chaos if the populist Freedom Party wins next weeks election. Opinion polls say the liberals are tied with the entire euro antiislam party of geert wilders. It is europes first major electoral test since the u. K. Opted to leave the e. U. This is an opportunity to stop the trend of the brexit and u. S. Elections. For the netherlands to vote for a policy which i want to deliver , of continuity, of making sure that the successful policies will be implemented over the next 3, 4 years. Nejra psa group has agreed to unit in a motors transaction valued at 2. 2 billion euros. It is expected to generate annual savings of 1. 7 billion euros. Gm is cutting ties after the division missed a target to breakeven last year. The deal creates europes secondlargest carmaker in a bid to better compete in the saturated market. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im nejra cehic. This is bloomberg. Francine thank you. Deutsche banks ceo is ripping up his own turnaround plan in admission that the 17 monthold effort has flopped. That change includes offering 8 billion euros in stock, selling part of the Asset Management business. Earlier i spoke to john cryan about his new strategy. John in order to retain postbank, i described it as a capital raising. We needed to finance it. It would have ago been much more difficult for us. I personally feel much more comfortable sitting in the seat i sit this time, this year, then i would have last year. We are feeling much more positive. The environment is good. Were seeing growth again. To some extent weve done a lot of the hard work. Theres still a lot to do. If the regulators are listening, were still focused on improving controls and efficiency. Francine when you say the markets are good, was it unicredit that really distilled the fact that there was appetite for share sales . John that would certainly have been a factor. Also, our shares hit a low at the end of september, i guess, and the sort of doubled since then. So the markets look as though theres mentum theres momentum behind the Banking Sector. It looked possible as well as desirable. Francine how many job cuts will be part of the strategy . John we havent said. It is not to be evasive but we want to take the same approach we took with restructuring the Branch Network in Deutsche Bank over the past 21 months or so. We want to do it in the german fashion. We want to involve all the relevant stakeholders. We want to come to an agreement. Once this agreement is struck, it is quite an efficient process. We havent said yet, but we will. Francine could it be thousands, tens of thousands . John it is unlikely to be tens of thousands. We are not that endowed with staff. Some jobll clearly be losses in germany. Francine could you talk to me about your debt trading . You vowed to regain market share. Given the lack of bonuses and the restructuring, how difficult is it to keep that promise . John we announced our Fourth Quarter results and we said they had been impacted by a loss of market share. Just talking to clients and counterparts, while we were discussing the settlement, they were a little more reluctant to deal with us. We also said that once we had settled two or three of those major cases, we saw clients and counterparts coming back strongly. So weve had a good start to the year. You can never extrapolate two months. But our Client Engagement is fine. One of the reasons we are raising the amount of capital we are is to underscore that we are not only strong, wellcapitalized, very liquid, but we are intent on growing the business. People, we our always knew we need to give them a vision, and it is difficult when you work when you are a company in construction. Now we can stop talking about that and Start Talking about how we engage with clients and counterparts, provide solutions, and do what Deutsche Bank does best. Francine so you are confident the debt trading unit will regain market share. John from where it was in the Fourth Quarter, it already has. Francine and it will continue. John it does seem to be. We will invest to the extent weve lost talent, we will invest. It is the core of our Investment Bank. Francine there will be questions on the market about your future. I was on the call yesterday and you said you are here to stay. Why the appointment of two deputy ceos . John i call it burden sharing a bit. It is a very large company. We have an enormous presence in the u. S. Here in the london market and our german business, were going to have to focus a lot on germany in the next three or four years with postbank. We will be adding staff to the Management Board to give a little bit more resource behind the efforts we need to engage with all the stakeholders in germany. ,ut i thought it was helpful and the Supervisory Board agreed, if i could appoint Marcus Schenck formerly as deputies so they can literally deputize when i have to be in two places at once. Juggling my diary is one of the frustrations of the job. It is helpful if we can have people who can step in and represent me and or the company on specific occasions. Francine that was of course john cryan, the Deutsche Bank ceo. You can see the full interview on our website. Joining us for more perspective is bloomberg gadflys [indiscernible] what did we learn with john cryan . Basically capital raising. I tried to ask him many times, but he said this is it. Will markets test on whether they need more Capital Increase . It is good in terms of stability of Deutsche Bank. Last year, there was a lot of worry over the existential future of this bank. I think this should put that to rest and even give it a best in class capital ratio that should keep clients coming back in. The big question is, when do we see a profit . Theres no deadline. This upfront cost. This is a costly strategy to reintegrate a bank they said they were going to sell. Francine what is at stake here . Is it john cryans job . He said hes committed. How much time do investors give him . I think that he so far has been the man for the job, but it has been two years of losses. Hes now saying, give me a chance again with a new strategy and theres very little Management Change up top. I think results have to be shown soon. Again, something that john cryan was saying, we will need a little more time because we want to get it right this time. What is the Market Perception of this uturn on the strategy . He was at pains last year, saying they dont need to raise capital, and they wanted to get rid of postbank. He now says it is a legacy issue. If you see how markets reacted to Donald Trumps election and this whole idea that the market is due a rating, people i think forgot that there might be a Capital Increase after all. There was a bit too much confidence. Maybe now theres a bit more reality on what is due for this bank. Francine i know you were arguing that there needs to be more consolidation. What does m a look like in germany . It is a very fragmented Banking Sector. That is part of the reason why Deutsche Bank had difficulty selling. I think in future we should see more deals and hopefully a Deutsche Bankcommerzbank merger. It is not such a bad idea even if it is politically painful. Francine thank you so much, lionel laurent, who writes on the banks for bloomberg gadfly. Remember, if you are a bloomberg customer, you can watch the show using tv as well as the video stream. You can follow all the charts and functions. Just type tv in your terminal. Johnan follow exactly what cryan told us. You can see what our columnist was talking about with the banks. To the also send ib producers directly. Now lets get straight to the Bloomberg Business flash. Nejra scotlands largest insurer has agreed to acquire aberdeen Asset Management. Standard life shareholders will group. 7 of the combined the deal values aberdeen at about 3. 8 billion pounds and creates one of europes biggest fund managers. South koreas special prosecutor has accused samsungs de facto head and other executives of conspiring to create fake documents to mark millions of dollars in bribes. Samsung says the company had not given bribes or made improper request for favors. U. S. President Donald Trumps protectionist stance may propel asian, middle eastern, and latin american nations into alliances with the European Union. That is according to the European Union Commission Vice president , who told bloomberg that trumps rejection of multilateral deals and border tax threats are giving impetus to the use push for free trade. Somethingere has been to raise protectionism, especially from the u. S. Side, the rest of the world seems to be fighting back and saying this is not our line. Nejra and that is the Bloomberg Business flash. Francine after a week of hawkish tones from the u. S. Federal reserve, janet yellen weighed in on the rate debate on friday, saying that a hike this month is likely appropriate if the economy evolves as expected. That pushed Market Expectations for a rate hike for march to 96 . Speakers are now in a blackout period until march 15. All Market Attention is now squarely focused on the jobs figure this friday. The u. S. Is estimated to have added 190,000 jobs in the month of february. At our meeting, the committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the federal funds rate would likely be appropriate. Francine lets bring in gilles moec, chief european economist at Merrill Lynch, and Stephen Gallo, at bank of morale. Inc. You for joining us. Es, what did you learn on friday . Gilles we learned that they want to hike in march. Francine do they want to or other markets putting so much pressure that they have to . Gilles they want to. They could have explained that there is no smoking gun, that inflation is close to target, but it is their communication that got the markets to start pricing in a rate hike. They could have chosen otherwise. It means that they dont need to wait until theres clarity on the fiscal push from the Trump Administration. Trump or notrump, the economy is normalizing. It is probably time for the fed to do the same. Francine stephen, why does it take a lot of fed officials and president s to convince the markets . Nothing has changed in the last two weeks. Stephen i wouldnt say nothing has changed. The threemonth deflator from 1. 9 . Eeks report was it actually is getting very close to the feds objective on that measure. I think Going Forward it is very much about inflation. It is very much about what average earnings say in the Inflation Report and what core cpi says next friday. Francine you dont think the markets repriced on fed speak, for example from Lael Brainard . Stephen i do think the fed speak has had a major influence, but i wouldnt say nothing has changed over the last week or so. I think we are getting continued evidence that the economy is performing well even without this fiscal push that we are expecting. I would say theres a reasonably high chance we get a hawkish hike from the fed. We expect the fed to move. Francine how much . Stephen 25. I think theres a reasonable chance we get a hawkish hike. That would mean at least three for this year and possibly three for next year as well. Francine how much are you expecting . Gilles three as well. Thatwe find interesting is the u. S. Economy is performing well according to the new standards, but gdp growth is quite mediocre. The economy is hopping along at about 2 . Given the fact that it is above potential, the fed feels the need to act fairly quickly. I think it is an interesting shift. Francine are they concerned that they are behind the curve . Think the concern is that it took them time to recognize the fact that for tons of structural reasons, gdp growth in the u. S. Is much slower than it used to be, which means that for any given state, you need to react more quickly than would probably have been the case with the old estimate of potential growth. It is a big issue still in the u. S. Now 2 to gdp growth is considered ok and enough to get you to the entrance rate. Stephen as i said a moment or two ago, i think inflation is key. I suppose for the fed, the egg on the face in a radio is that Inflation Expectations begin to become unanchored. I think over the course of this week and next week, there may be a bit more evidence that that is a risk. So it is in some sense preemptive as far as the fed is concerned. Francine what does that mean for dollar . Stephen it is going to hold up well. We see 5 to 7 appreciation. But importantly, when you factor this scenario that weve been talking about into the equation, when you factor in the Political Risk is in europe, the dips are going to be very shallow in the dollar. Francine what is your target by yearend in eurodollar . Stephen we havent going to 97 and then in 12 months to 1. 04. Francine and you . Gilles 1. 05. , anden we see a dip ahead the combination of political factors in europe and increased Dollar Strength, then a small tapering off. Francine we were saying a couple of months ago, our markets getting it wrong . We were saying it would be very difficult for the fed to do anything until we had plans of this infrastructure and how President Trump wants to reflate the economy. We still dont have the plans but they are ready to hike. Gilles i think it is a recognition of where the data is. If you look at the strength of the economy, with this new low standards, things are ok. The labor market is now tense. On top of the net job creation on friday, what is going to be interesting to look at earnings. We had a surprise last time. You have a fully normalized wage growth story right now in the u. S. Are there todients say inflation is now at risk of exceeding the feds target. Trump or no trump, this is where we were without a fiscal push. If you add a fiscal push to the mix, you probably need to do more. Francine stay with us. Gilles moec and Stephen Gallo. Francine alain juppe is due to make an announcement within the next half hour after president ial candidate Francois Fillon again rejected calls to step down. The republican denies allegations that he used public money to pay his wife and children for fictitious jobs. In a tv interview yesterday, he vowed to stay on the race. Nobody can prevent me from being a candidate. I listen to what people tell me, but from a democratic point of view. Ive been designated. Frome 1500 signatures elected representatives. My Campaign Goes on. Nobody has the power to force me to withdraw my candidacy. Francine joining us now, live from paris, the chairman of voila, an Economic Advisor to Francois Fillon. Give us a sense why Francois Fillon is so defiant, why hes vowing to stay in the race at all cost. If you look at all the polls, they are not going in his direction. Be careful about the polls. They have been mistaken many times, including for the brexit. Some of the social networking polls are still giving Francois Fillon the second round and winning against Marine Le Pen. Lets be careful about the polls. The reason why he is as you say defiant as he has worked with us to build a project, to build a program, to address the fundamental issues that france is facing since a long time. Hes saying that his project is the only one who can get france back onto the right trajectory. Therefore, because he gets also a lot of support from the basic testament was the demonstration yesterday, 200,000 people, he thinks that he has to keep on. Francine going back to the polls, the brexit pauls work ere quite close and the market got it wrong. As far as im aware, Francois Fillon still has the worst score against Marine Le Pen in the second round scenario. Do you tell me these goals are not true . Those polls have been always wrong. Remember that in september the same polls were giving alain juppe winner by a landslide. And finally Francois Fillon did win the first round. Lets be careful about the polls. They have been wrong often enough that we can be careful. And what matters goncine do you believe ahead. Go ahead. Francine do you believe that Francois Fillon is a flawed candidate, and why would you not replace him with another republican candidate that has a better fight against Marine Le Pen . Dont wanton why we that is because Francois Fillon is the best candidate against Marine Le Pen, because he is the most capable to gather all the forces of the right wing in france. He has the right program. He has been elected by 3 million voters from the rightwing. So we believe and those people showed yesterday in a demonstration that they are still behind him. He has recognized that there has been a mistake done him and not legally, but a mistake more from the ethical standpoint. He has presented his apologies to the french people. May i remind you that this gentleman has done 35 years of a political career without one taint, and therefore he has apologized. Says, thatrstood, he he will change those practices if hes elected. But we have to go back to what matters. France is not on the right trajectory. We want to change that trajectory. He is the only one who is capable to deploy it in france. Francine how can you tell me that a candidate that has his apartment searched last week, that is under investigation, is the best possible candidate that the Republican Party can come up with . What we think here is that there is a little bit of funny timing, if i may say so. More than hundred of the mps in france are doing what Francois Fillon did. It is done in the open. It has been transparent. It has been fully tax declared. We think that there is kind of a establishment going after Francois Fillon either to avoid that france is being properly reformed. We are not going to cave in. Francois fillon is the same. Hes not going to give in. This is clearly something that is manipulated and we dont want to give in. Francine thank you so much. I have a lot of other questions. You will have to come back. We also understand from Nicolas Sarkozy that he believes Francois Fillon and alain juppe need to meet to find a solution to a situation he says cannot last. Geot pays psa group creating europes secondlargest carmaker. We will look under the hood of that deal next. This is bloomberg. Francine this morning we had confirmation that psa Group Creates europes secondlargest carmaker. It is a bid to compete better in the saturated market. It will pay 1. 3 billion euros. We spoke to gm president. Our perspective has been that europe has been from a Customer Preference perspective has and we need toat find a different way to get more scale locally here in order to be more successful in the business Going Forward. It has been 1999 since you turned a profit. Team has not tremendous job over the last four or five years. We would have been profitable last year absent brexit. We have a great product portfolio. Significantly improved the bottom line. We need to get much more scale here. It take to get you to execute those warrants . The reason we wanted the warrants is to participate in what we think will be significant synergies. The team has done a great job over the last few years. Be extremely successful and we want to participate in that success. What is the benchmark to get you to trigger the warrants . We will be exercising the warrants and be very successful. Lets talk about pension liabilities. Bloomberg intelligence has run the numbers that we believe there is a deficit of around 9 billion. You will contribute 3 billion. Is that the maximum of your liability to peugeot . About 3 billion of liabilities will transfer to psa. We will retain the balance of the pension liabilities on the gm side. Everyone who has a pension benefit will be in at least as good a position as tomorrow as today. Gm get ahareholders at share of buyback. Is this the start of you doing Something Different on the buyback side . We have been returning a significant amount of capital to our shareholders. This will just accelerate a piece of that. People are going to ask the question, you are exiting europe. You pulled back from russia. Whats next . Now is we are focused on really growing the parts of the business where we can be most successful. We have number one position in the Worlds Largest most profitable markets. We have great opportunity to continue investing. We dont know whether its hard or soft. Do you think from a global perspective do you look at the favorablypotentially as an investment destination . Theres a greater level of uncertainty. It could be something in between. Wherever we see that kind of it makes Investment Decisions increasingly challenging. We will continue to sell aaa and cadillac in europe as we have over the last two years. The south of france, we are hearing from mr. Alain juppe. And there was a lot of speculation in the last couple of weeks that he would once again run. Run in theont president ial race in france. He has just confirmed it. Also up for someone or Something Else happening. He was worried about the state of his party. Of the right and center is most difficult now. He did also attack Francois Fillon directly. Very unusual if you are in the same party a couple of months ahead of the president ial election. He says his candidacy is now a dead end. Moec ands is Gilles Stephen gallo. How much can actually move on the back of it . At this stage we havent reached the point where people can crystallize around a campaign. I see all these interesting notes about probabilities but truth is we dont even know the lineup right now. As long as we dont have a lineup were going to stay with an extraordinary very high member of certainty in the polls. That less thanal 50 days ahead of the election the lineup is not complete. By the 20th of march we will have the first round. Then i guess the people will start to really make up their mind. We might take any sort of info from the polls. I am a bit surprised on the energy spent analyzing and over analyzing the data. Vonnie do you trust the polls . I do trust the polls. Its just that they say this all the time, polls are snapshots. The stateyou what is of Public Opinion at a given moment in time. When you look at those polls the level of the lifting of choices is still low. People are still shopping around. Dont know the lineup. Its not that i dont trust them. I think its a very dynamic process and drawing conclusions from what we see right now is quite risky. Vonnie stephen . Strategist so my input would actually be on how we see that trading. Penie its unclear if le wins if that is euro negative or positive. Was heavily sterling negative. None of the data suggests there was any capital flight from sterling. Its a leveraged money trade. Its an avenue by which people will make money. It doesnt mean there is instantly going to be euro capital outflows more so than what we already see. We can see with certainty that the euro will fall if le pen wins. We would look for opportunities even if she loses. Italy is a risk on the sidelines to france regardless on the outcome. We think 2017 as a whole is going to produce a very wide range of competing political interests. Within some individual countries. We think from a political perspective over the mediumterm this is going to weigh on Foreign Investors in your nominated assets. Vonnie this is showing french and german yields and the spread has gone down a bit. Is this on the back of micron consolidating . Be predicated on a. It is something that can change very quickly. The very last batch of polls, le rattled. To have she lost a bit of ground to fillon and macron. But again, snapshots. Gilles moec and Stephen Gallo. China unveils its latest growth forecast. If there is still a good case for the beijing bold. This is bloomberg. Vonnie this is bloomberg surveillance. Im Francine Lacqua in london. Opened lower after the weekly gains. The only Industry Group that is rising today. All other Industry Groups are down today. Its all about Deutsche Bank today. Shares 6. 9 lower. August decline since september. John cryan reversing course. Selling part of the Asset Management division and cfo and suing who oversees wealth management. The stock trades at about half the banks tangible book value. Below european peers like ubs. Since of i81 percent septembers record low. Standard life scotlands biggest insurer agreed to by aberdeen Asset Management for 3. 8 billion pounds. Its going to create one of europes biggest fund management. 66. 7 of the combined company. Up by 5. 7 . Will corun this combined entity which will be headquartered in scotland. In the currency market today the dollar down today. Out thats after north korea fired Ballistic Missiles into nearby waters. In march rate hike pretty much seems nailed off by bond investors. Hedge funds have reduced their dollar long positions for the eighth consecutive week. Thats the longest running selling spree since 2010. Chinas primary delivered his work report before the National Congress gathering in beijing this weekend. He struck enough and up beat note. But also flagged the specter of graver challenges ahead. Tom mackenzie is recapping everything we have heard. What struck you the most . China is walking on a knife edge when it comes to growth. I think thats right. The key takeaway with this week gdp target of 6. 5 . It means officials and lawmakers can miss the target by the end of the year and not lose face. There was also the analyst we spoke to said there is really emphasis on reining in these Financial Risks. Concerns about the rising nonperforming loans in the country. Record loan defaults this year and shadow banking. We have heard this kind of language before and it doesnt always translate into action on the ground. We know that chinas debt to gdp has increased 100 in the last eight years. Now valued at around three times chinas gdp and they are not going to be pulling the punch a way soon. They are expecting new money supply this year. Oft would be the equivalent adding germanys gdp to chinas already massive debt piles. A lot of action is what a lot of analysts like to see. They also talked about tackling that overcapacity. Tons. G 50 million kick may sense of how much they worry about donald trump and the north Korean Missile testing. On trump it was very interesting to see they had dedicated a couple of lines in his work report talking about the grave risks from rising antiglobalization and protectionist forces. Something of a swipe at President Trump. Clearly this is a key tension now. The u. S. China trade relations and tensions, they dont want to see a trade war. Particularly in a crucial Political Year for china. The president hopes it will solidify his power and his legacy. Hike as the fed rate well. You mentioned north korea. That is something the chinese are going to be very angry about. It risks over satellite overshadowing that set piece. Tensions between china and north korea have become worse and because of the recent missile test. They back to you and sanctions on north korea so its increasingly tense relationship. Dividedunist party is on how to treat pyongyang. They are also under pressure from donald trump to take a tough line as well. Francine thank you, Tom Mackenzie in beijing. Still with us is gilles moec at Merrill Lynch and Stephen Gallo at bank of montreal. China and whatt we heard over the weekend the premier is basically intimating the Systemic Risk is under control and economic fundamentals are ok. Way i would like to approach the question is to take one of the key issues. The key issue externally for china is going to be relations between beijing and washington. A number ofat different metrics actually china doesnt really fall into the category of currency manipulator anymore. The current account surpluses not politically large and china is bleeding reserves. If they were aiming to weaken the currency they wouldnt be leading reserves. That is probably a smoking gun. Whats more critical is that in the past we have evidence that china did manipulate its currency and angle to keep its currency week. That has created negative externalities for people in the u. S. That means even though china is not a currency manipulator now it has done so in the past. There is room for a bilateral trade deal. We think in order to facilitate a bilateral trade deal china wants to keep the r b very stable. Swings fore major the balance of the year. We have the key elections at the back end of the year in the fall. This is critical in terms of how we play into the new gdp growth target. It could be further slowing the economy as time goes on. Further deceleration and Economic Growth actually means they will work even harder to keep the currency stable because stability of the Exchange Rate is so important. Francine do you believe there is no Systemic Risk . In a way since china is not fully a market economy at what point the issues will come to the point where reality takes over. Thats probably the biggest predicament. When you are full on market economy you get into proper issues at some point the market is going to tell you you need to do something about it. If youre not really a market economy and you cant clamp down whate capital outflows, you are missing is the smoking gun to force the issue. China doesnt want to address the structural issues on the financial side of the economy it can continue to pop along for a while. Francine lets get straight to the Bloomberg Business flash. Heres nejra cehic. Deutsche bank ceo is reversing calls less than two years into his strategy. John cryan has reversed an overhaul that includes selling part of the Asset Management business and reintegrating process prospects. It will aim to reduce total costs to 22 billion euros by 2018. We have been shrinking. Weve been reconstructing. We have been changing the bank a lot over the past two years. We want to move back into modest growth mode. Controlled growth. Scotlands largest insurer has agreed to acquire aberdeen Asset Management. Standard life shareholders will own 66. 7 of the combined group. The deal values aberdeen at 3. 8 billion pounds and creates one of europes biggest fund managers. South koreas special prosecutor has accused samsungs de facto head of conspiring to create fake documents to mask millions of dollars in bribes funneled to a confidant of the nations president. Donald trumps protectionist stance may propel asian middle eastern and latin american markets into alliances with the European Union. Trumps rejection of multilateral commercial deals are giving impetus to the eus push for it free trade and investment tax packs. Something to is raise protection from the u. S. Side the rest of the world seems to be fighting back and saying this is not our line. Thats the Bloomberg Business flash. Francine u. K. Chancellor says britain needs gas in the tank to combat turbulence from brexit. I regard my job as chancellor as making sure that our economy is resilient. That weve got reserves in the tank. As we embark on the journey we will be taking over the next couple of years we are confident that weve got enough gas in the tank to see it through that journey. Francine still with us are gilles moec and Stephen Gallo. Stephen, you were here a couple of weeks ago. Has anything changed on your call on pound . No. The next big stop in table is one 17. Our view is 135. You have to consider political factors when you make these calls. We think the eus negotiating stance is fundamentally flawed. Francine we will end up with what kind of brexit . It may well be a hard brexit. The primary concern is what are the stopgaps. In theeve what happens eurozone over the coming 12 months or so and various other factors will pave the way for transitional arrangements to the u. K. And ultimately a trade deal. And probably less optimistic than that. To the proper discussion, the trade deal is going to come very late. Things are likely to start with a very thorny conversation on of the u. K. Which is not going to help improve the fear. Only then you can get into conversation on trade. Deal you can find it easy on trade in goods because its in everybodys interest. Im not sure that we will find Common Ground on Financial Services. I think a certain number of Member States will actually try to get a few jobs from london. They will still try. The asymmetry between the parties. For the u. K. What is going to be discussed in these two years is absolutely existential. For the europeans its one part of a number of priorities. From the european point of view right now how to complete the union, how to deal with the refugee crisis, how to deal with relationships with russia and turkey probably trumps coming to a quick deal with the u. K. The budgethat can due to soften the blow for concerns consumers . We introduce the floating vats should try to create relief for consumers in the face of high inflation. Now that decision has been made to create a buffer. Its a completely different approach. Its as if they take stock of the fact the economy has been resilient so far. Buffer if build a things turn sour. Our view is that things are already turning sour and some form of its quite clearly very far away from their way of thinking right now. Asked me mydd you opinion on sterling. At the moment the market is pretty significantly short sterling. I would not disagree with anything you said about the timing in the sense that it is going to take a long time. Im not overly optimistic that you can come to a trade deal very quickly. Theres a lot of moving parts. The market is already short significantly sterling once the political tone within the eurozone moves closer to the tone the u. K. Has already taken because it voted for brexit sterling will rally. See a significant rally in sterling even before we get these key elements falling into place. The point is that the tone of the discussions once they move toward what the u. K. Is apparently fighting for, sterling could rally significantly on that. Francine thank you, gilles moec and Stephen Gallo. Bloomberg surveillance continues. Tom keene will be joining me out of new york. We will be talking to the royal bank of scotland chairman. We also have the interview with the gm president. Quite a lot of news out today. Good morning. U. S. Ine the former director of National Intelligence hits back against President Trumps wiretapping claims as the white house calls for a congressional investigation. Deutsche bank Ceo John Cryan reverses his own turnaround plan. Fighting for the fifth republic. They defined Francois Fillon says he is saying in the french president ial race as party chiefs gather to reconsider his future. This is bloomberg surveillance. Im Francine Lacqua in london. Tom keene is in new york. There is some breaking news now saying that Russian Hackers are said to be seeking hush money from liberal groups. Thats a bloomberg headline. I need to find out exactly what were talking about. Russian hackers have an linked to donald trump, investigating macron and theres a little bit of news in terms of this huge by the opel thing. Tom that is absolutely extraordinary. We will try to crowbar it it across all of surveillance this morning and we have some esteemed guests to get some perspective on that. It was annexed ordinary weaken in the United States. I cant convey enough the oddity of this department of justice moment. Kevin will be with us in minutes. Francine it is peugeot agreeing to buy gms unit. Heres taylor riggs. Been rocked byas President Trumps accusation that president Obama Wiretapped him before last years election. The Obama Campaign has denied the claim. Fbi director james comey asked the Justice Department to reject the trump allegation as false. The white house wants congress to investigate. In europe former french prime says he alain juppe wont step in to be a replacement candidate for president. He lost the republican primary to Francois Fillon but fillon faces pressure to step aside after being implicated in a scandal. Moved to the has highest stage alert after north korea testfired four missiles at once. They fell into waters off the japanese coast. As southt were fired korea and the u. S. Conduct their annual military drills which north korea called a prelude to invasion. John cryan has torn up his own turnaround plan. Deutsche bank wants to raise 8. 5 alien dollars in a share sale. Cryan spoke to francine. We have been shrinking. We have been taken. Changing the bank a lot over the past few years. We want to move back into modest growth mode. Controlled growth. We thought to do that it would be helpful to add capital. He is also dropping the proposed sale of the Global Banking unit. Im taylor riggs. This is bloomberg. Tom lets get to the data check. We have a huge news flow including the story by michael reilly. We will get to that in a moment. Off of 117,mes in 118. Flatter yield. Nine days away is a fed meeting. Euro swissie is a weaker swiss franc. Thats a big deal in sterling flat under 123. Francine Deutsche Bank tumbles. I spoke to the ceo earlier this morning. Investors are still trying to figure out the Growth Prospects for china. They are still trying to figure andInterest Rate hikes escalating geopolitical tensions in north korea. Its bolstering the yen. We have gdp figures out of greece. The contraction is bigger than we had expected. Lots going on. The former u. S. Treasury of National Intelligence says there was no wiretapping direct it at resident donald trump. His comments come as the white house urges congress to investigate the present its allegations. Cirilli joins us now on the phone. I dont know how much this is a distraction from donald trump. Is this serious . Do we believe anything thats coming out at the moment . Will there be an investigation or is it just noise . A time in which many have questioned how this administration would respond to that itng allegations had communications with russian officials during the campaign. New line ofkend a attack coming from President Trump making serious allegations against the u. S. Intelligence community. Those allegations have been swiftly denied by the u. S. Intelligence community including by chief clapper. Republicans and democrats also on capitol hill swiftly denying what is being described as little more than a Conspiracy Theory allegation coming from President Trump. Francine these are pretty big allegations. Are we going to have an investigation . There are several investigations on capitol hill already underway. The fbi does several open investigations into several prominent former Trump Campaign allies. They are already underway. A timeline of when we could be getting those results has not emerged. Have the Michael Orielly story just out moments ago. This is about obama, the liberals. Russian hackers were getting bitcoins. They were extracting bitcoins, extortion from liberal groups given that they knew their dirty laundry. Its another overlay for a beleaguered fbi. What is the path for mr. Comey and the fbi . What is the process they will go through . Theyre going to have to respond and they are going to have to either take a position and whether or not they are allied with this white house. The second point is whether or joint Intelligence Committee, whether or not senators on capitol hill how they respond to this weekend. Particularly republicans on this committee. Like jason chaffetz. Watch them today to see whether stand byey continue to this president or continue to take a more divisive term against this white house. Tom is the idea of what Intelligence Committees can do, eli lake with a important column this morning suggests the Intelligence Community should get out of the way and let the fbi do what the fbi does and monitor and judge the fbis work. Is that the mood of intelligence leadership within our legislative branch . The u. S. What Intelligence Community would like to see happen. We all have to remember that investigations on capitol hill are very different than investigations in the u. S. Intelligence community. Capitol hill investigations led by lawmakers dont have as much per view as those in the u. S. Intelligence community. Trump forcedident the resignation of mr. Comey at the fbi . He can fire whomever he would want. The political backlash would also face consequences. Thank you, Kevin Cirilli. Joining us is our guest host, sir Howard Davies. Great to have you on the program. How should markets interpret it . How should leaders deal with the Trump Administration . Im glad people like you and tom are paid to understand all this. The rest of us are a bit full. Markets ought to look below this noise because it is noise. We have no idea whats going on. Fed we can see is that the are reasonably confident that pathconomy is on an upward. I dont think the worries out of china are that bad. We all expected chinese growth to slow a little bit. We heard confirmation of that. I dont think its disastrous. I dont think theres anything that should really alarm the markets at the moment. Francine whats the biggest risk to the World Economy right now . 2 growth. Ng used to what worries you the most . Think its probably chinese credit growth. Can the chinese managed that the banksdownwards have grown very rapidly. The chinese that Banking System is now bigger than the european Banking System which is pretty extraordinary. Can that be managed downward . Thats the biggest problem because a big disruption in the chinese Financial System would be very worrying. Francine premier over the weekend saying there is no financial threat of crisis looming. Can they keep a handle on it this year . I think they can because ultimately the finances of the Chinese State are very strong. Their borrowing is relatively low. There probably are more bad debts in the Banking System than we are currently seeing in their accounts. Last time thishe happened was create an Asset Management companies, bad banks to take these debts off the Balance Sheets because many of them are debts to local governments and state enterprises where the banks have leaned on to lend to them. I think the government can deal with this without alarming people. There are tensions as to how this should be dealt with. Tom we will come back and talk about Banking Finance with sir howard and ask him delicate questions about a bank in germany and london which you wont want to answer. Oning up later today economics, olivier blanchard. Look for that today. From london and new york, this is bloomberg. Francine this is bloomberg surveillance. Im Francine Lacqua with tom keene. John cryan is ripping up his own turnaround plan in an admission that the 17 month old effort has flopped. Setting part of the Asset Management. I asked him about cap will exercise. In order to retain postbank i described it as a capital raising. We needed to finance it. We would have needed a capital raising. A year ago there was still a lot more uncertainty. I personally feel much more yearrtables seating this than i would have done last year. Again and togrowth some extent we have done a lot of the hard work. There is still a lot to do. We are still focused on improving controls and improving efficiency. More fung to be a lot as we develop in the future. Francine has a distal the fact that there was appetite for some of these sales . The low thats hit the end of september. They sort of doubled since then. Markets look as though there is momentum behind the Banking Sector. It looked possible as well as desirable. How many job cuts will be part of the strategy . We havent said. Its not to be evasive. We wanted to take the same approach as the restructuring of the branch with Deutsche Bank. We want to do it in the german fashion. We want to involve all the relevant stakeholders and we want to come to an agreement. Struck it is actually quite inefficient process and gets carried out with relatively little risk. Francine could it be thousands . Tens of thousands . Is unlikely to be tens of thousands. Were not that in doubt with staff. There will be some job losses in germany. That was john cryan speaking to me early this morning. That spring in sir Howard Davies. Not want toight talk about Deutsche Bank specifically. There is so much appetite from some of the banks to raise capital. Is this a good time to do it in general . Thatthink its good news there is appetite for capital in european banking. Have been contrasting adversely the european banking theor with the u. S. Saying u. S. Sorted out their problems earlier, recapitalized earlier and now theyre looking to give some capital back where is europe has been slow. That has been exaggerated i think. Until a year or so ago there was a sense that european banks couldnt really raise capital and the only way they could improve their capital ratios was by reducing the size of their Balance Sheets. It is now possible to work on the capital side is in fact on the whole good news. It does show that people have a a profitableere is european Banking Sector struggling to get out. Francine does the Banking Sector have to get a lot smaller . Talkingifficulty in about the european Banking Sector is that conditions are very different from place to place. The concentration ratio is very different in the u. K. From what it is in italy. There are places in europe where the ecb have made it clear they would welcome further consolidation and that is occurring. There are other places where consolidation would be very difficult. Refer to hard to european banks. Overall i think there will be consolidation in the eurozone sector in total. Tom you have to help me here with the ramifications of a 39 discount on dilution. I was blown away by the terms. I do not want you to comment specifically about one of your good competitors. Reeks of not panic but desperation. Haircut on a 39 right steel, the idea of a fourth round of dilution. Going totitutions are emerge in the eu banking to better stability and profitability . Im not going to comment on Deutsche Bank. There is honor among thieves in the Banking Sector. I wouldnt have described this in the way you do. I think the market will find a new level for this stock and the fact that they and their advisors are confident enough to launch an issue on this scale i think i regard as reasonably positive. The key will be how they perform afterwards and whether they do manage to get their costs back down and away the market is confident in. Tom we will continue this discussion with sir howard. We have a number of guests today on this Deutsche Bank transaction. Coming up tomorrow, conversation with the oecds Katherine Marion and some good times to catch up on the struggle for Economic Growth. Catherine mann on mergers and acquisitions. This is bloomberg. Is bloombergs surveillance. Im Francine Lacqua in london. Ahead of his first full budget this week chancellor philip forons set aside money brexit. He warned the budget would not include any spending commitments as he seeks to balance the books in the next parliament. Howard davies is still with us. Is there anything the chancellor can do to not become the austerity chancellor is thats what George Osborne was but to cushion and safeguard the u. K. Consumer when inflation will go up . I like what im hearing from the chancellor at the moment. I think what he did by deferring the point at which we would correct the public finances was sensible and realistic at the time. I think he is very wise if he is planning to keep something in thelocker to cope with potential shock. Consumers could suddenly get very nervous and to have some ability to cushion the downturn is a very prudent behavior. I like what he is saying about how he is going to keep some of his powder dry. Francine tom . Tom is on twitter. Hes doing something. What is your main concern about brexit . Our economists flawed in the way they look at it . Got is ascern ive follows. I do believe that the logic suggests that in the end a sensible trade deal particularly for trade and goods can be done. The problem is that the sides seem to be starting from very different positions in the negotiation with the commission talking about a 60 billion euro bill and the u. K. Saying we dont believe weve got any debts to pay at all. That is going to take some time to work through. What i am nervous about is the negotiations start with something of a standoff. Andgot elections in europe such that there is no real ability in the core of europe to make big political tradeoff decisions and therefore we have a hiatus and that could be rather unsettling. Francine have you been given any assurance from the government that Financial Services will be protected . The Prime Minister has said she is conscious of the importance of the Financial Services brief. Tore are no secret letters the chancellor or anyone else. Francine sir Howard Davies, thank you. Tomorrow, we speak with former boe governor. Look for that at 6 00 a. M. In new york, 11 00 in london. We will be talking about Monetary Policy and breaks it coming up we talk french elections as alain juppe said he will not become a candidate. This is bloomberg. Livestream your favorite sport at the airport. Binge dvrd shows while painting your toes. On demand laughs during long bubble baths. Tv everywhere is awesome. The allnew Xfinity Stream app. Xfinity. The future of awesome. Tom it is mr. Comeys washington. What a weekend for our global audience in an extraordinary backandforth between the fbi and the Trump Administration. Look throughout bloomberg today for the news flow off of this. Kevin cirilli will join us at the top of the next hour. Heres taylor riggs. We will start with washington. The white house wants congress to investigate President Trumps claim that president obama had him wiretapped just before last years election. The president offered no evidence to back up the allegations. James clyburn denied it. On the part of the National Security apparatus, there was no such wiretap activity mounted against the president elect at the time as a candidate or against his campaign. The fbi director asked the Justice Department to publicly reject President Trumps claim on wiretapping. The agency has not done so yet. Russian hackers have launched a new wave of attacks targeting liberal groups in the u. S. Been scouringve the organizations for embarrassing details and have demanded hush money. One of the groups targeted is the center for american progress. Some of the organizations have paid ransoms. Chinas former commerce says hes worried a trade war with the u. S. Is coming. He told reporters in beijing that a fight over trade would hurt both countries and leave a trail of destruction across asia. President trump has accused china of stealing american jobs. Going into the last full week of campaigning in france. Minister says voters reject thece to populist message. This is an opportunity to stop the trend. Policy which i want to deliver of continuity. Of making sure the successful policies of the last four and a half years will be implemented. Ere i the dutch election is on march 15. Im taylor riggs. This is bloomberg. There could be a battle brewing in the French Republican camp. Francois fillon says he wont quit the president ial race. Alain juppe says he wont be a standin candidate. We spoke with advisor to front runner Emmanuel Macron. He started from his own which grows on ideas that come from the left and the right. These days the fundamental debate is not essentially about left and right. It is about openness and closeness and protectionism. Its about europe, its about change. That are issues orthogonal to the traditional right left debate. To oure lets get back be as chairman sir Howard Davies. He spend a large portion of your time in france. Give me a sense of what people in france are saying. I had the advisor to Francois Fillon saying he doesnt believe the polls. People are extremely nervous at the moment because they cannot see a happy outcome. That peoplemuch believe that Marine Le Pen is likely to win. She has not been benefiting in the polls very much from the turmoil among the other candidates. People think her support is capped in the mid 30s. The problem is you either would have a president fillon who is under a serious cloud and would be throughout his presidency under that cloud and therefore lack of authority. You have a potential president macron who have no members of the house of assembly. Technically he has one for the time being. How would he generate a majority to govern . People looking beyond the president ial election and nobody can really work out who will win nca period of some uncertainty. You may have a president who is not Marine Le Pen but who lacks authority and the ability to govern because they lack a sensible working majority in the parliamentary assembly. Francine we were talking about funding and concerns about Emmanuel Macron. You are saying the lack of funding, the fact that he is an independent may this serve him when it comes to initiatives. Do you have a president without support he needs in the senate. In a president ial election he will get the airtime. If he becomes the leading candidate he wont have any difficulty getting the public to be aware of him. Electionsal candidates who want to support his grouping will need local leafleting and that infrastructure doesnt exist for him. Tom there is a fed meeting march 15. There is a 187 chance of a rate increase or Something Like that. Lets go back to the skeleton in the closet that you know so well. This is the bank of japan. This is where the bank of japan got it wrong in 2000, 2001. They went to raise rates and they had to reverse and come back down. No one insert Howard Daviess world has ever forgotten that. Can we have a Federal Reserve that actually gets out front of the dialogue . Or do they have to wait for the hard data as the japanese learned the hard way . In europe the example that we are most aware of is the 2011 when the ecb began to raise rates and had to reverse track their quickly. The history is littered with examples of Central Banks thinking they know how things are going to go and then turning out to be wrong. In one thing i would say this case it the fed have been biding their time. They waited quite a long time. They allow the recovery to run for quite a long time and i think that they are now beginning to be more certain. Fed Decision Making is broader than it is in the bank of japan. There are more independent voices. In fed has been more open terms of the way in which decisions are made. More recorded dissent and people taking different points of view in public. This is been a very wellplanned move. You cant just say we are never going to move until its too late. You have to make a forwardlooking judgment and it looks as if it has been well prepared. Tom if they raise rates and establish a vector, we talked to Marvin Goodfriend on friday after this. Do you presume market stability . This has been one of the most heavily trailed moves in history. It would be slightly odd for the markets to take flight when it actually occurs. Im not looking for market turmoil as a result of this change. Francine what is the one thing markets are underestimating . It seems there is euphoria on the dow. You dont see anything bad out there. When do markets pulled back . When are we do a correction . Ought to beets nervous about is genuine protectionist moves by the u. S. Administration. The trump proposition has had some good rings for markets. A bit of deregulation, infrastructure spending. Tax cutting. All of that has been quite good. There is always been the other problem. That the rhetoric on protection turns into something serious and we get a major retaliation and a spiral downwards. Francine how would it spiral out of control . I have always been led to believe that america has institutions to safeguard their if you have a president that wants to damage through protectionism or border taxes. Yes, but the problem is that president ial rhetoric, people may interpret as being something that will eventually get delivered. If the rhetoric in relation to china, i think its at a relatively low level at the moment. What kind of rhetoric which caused the chinese to react badly could be the thing that destabilized. We are showing the blended index right now. If we get a stronger dollar what are the ramifications of that to the system . What get a dollar breakout will that mean for the system . Will be some countries who are hooked to the dollar may find that a bit uncomfortable. Dollar is americas currency and everybody elses problem. Will be countries who are affected and damaged by that and some of them have already begun to complain that the u. S. Is not thinking about the impact of a rising dollar on other countries. Case. As always been the i dont see any sign that american policy on the dollar will change. Francine thank you, sir Howard Davies and coming up, we will speak with Columbia Business School dean Glenn Hubbard. He is considered a potential future fed chairman. This is bloomberg. Bloombergthis is surveillance. Im Francine Lacqua in london. Tom keene is in new york and we must talk about janet yellen. Little doubt that the fed will raise Interest Rates on march 15. Its now about a 180 chance. , yellen hawkish stance singled out the danger of being too slow. We are joined by the ing head of fx strategy. The danger is that the dollar is out of control and it hikes up significantly. What are the chances of that . The markets are priced to margin the debate moves whether or june. Tember the expectation for the march hike have come in. Dollar has appreciated moderately. It has not prompted any crash in emerging markets. Probably emerging markets can observe absorb some modest increases. Francine where do you see the dollar going . We have forecasts for the end of this quarter. 102 for eurodollar. Dollaryen could be up to 118. Generally we see the dollar staying big this year. The euro could get a lift as the markets start to speculate about ecb tapering into 2015. There is something unspoken. The effect of a stronger u. S. Dollar or a higher rate regime upon the United Kingdom. I dont buy the idea the United Kingdom is separate discrete and removed from janet yellen. Shes got to have an effect on sterling. At the moment it looks like her bank of england rates are anchored near the floor for the time being. We think Dollar Strength can push table below 120. Just kind of briefly. The u. K. Is a leverage society. Unless u. S. Rates go to much higher and sterling gets so low that the bank of england prices and inflation being a problem thats not really going to see the bank of england follow suit later this year. Tom what language will you look for the finds a greenspan measure . They have to come up with a new dialect about the word measure. What will you look for in the statement . Thats a very good point referring to the greenspan period. Decade ago we saw the greenspan fed normalizing policy. Rates being taken up to 25 basis point in a meeting and it didnt a problem for emerging markets. Something like that. I think the important thing is that they dont upset the bond market and probably where we stand now we see no reason they would fall behind the curve. Francine is that the only way they would upset the bond market . There is still debate on where the 10 year treasury yield goes. Central to really our call for the market this year. How to time the profile for 10 year bond yields. Treasuries we think this quarter aroundee up to 275 from 250 today. We havent talked about the trump tax plan. Details on infrastructure spending. In the summer we typically talk about a summer lull in the u. S. Towards the end of the year when linkageabout the french Balance Sheet probably those bond yields will be on a higher path. Were not looking for 325 or 350 or anything like that. Francine what happened to the 15 tax cut that President Trump has been talking about but not really reinforced in the last couple of weeks . If thats dead in the pan are we going to see a huge correction market and does that mean also correction yield . We need to see some details on that. The condition of our forecasts for 10 year yields was details on the tax plan. We have delicate linkages between the board of tax adjustment which is meant to generate 100 billion in revenue such that they can finance the tax cut. We might see some details next week. There has been a suggestion march 13 could be when we get some details. I think that is crucial for the dollar. We can see a dollar correction. Probably too early to declare that story dead. Tom i have to make some money this morning. It was an expensive weekend. How do i play mexican peso . Today i think they got their first auction. A way to provide dollar liquidity for mexican corporates that need that kind of dollar liquidity. Economists were pretty bearish on the mexican macro situation this year. Where we are now i think the downside is quite limited. We should be moving back towards 21. One thing to be wary is the market is quite underweight. They have picked up some holdings of mexican debt over the last couple of months. On the equity side they are kind of underweight. The macro story will come through over the next couple of months. The dollar peso should be back above 20. Francine chris turner of ing, thank you. If you are a bloomberg customer and log on to your bloomberg and go to tv , you can see a lot of cool charts and follow some of our guests. We had sir Howard Davies. Guests. Ask our on the bottom of our video screen. It also goes to tom and myself. This is bloomberg. Francine this is bloomberg surveillance. Im taylor riggs. Lets get the Bloomberg Business flash. A deal in europe will create the continents largest automaker. Peugeot has agreed to buy General Motors opel and vauxhall brands. The gmrg spoke with president. The team here has done a tremendous job over the last four or five years. We would have been profitable last year absent brexit. Significantly improve the bottom line. We feel for the business to go to the next level we need to get much more full scale and that is what this transaction is all about. The u. S. Oil industry is becoming the refiner to the world. Last year it exported more than twice the decade ago. The industry has taken advantage of struggling refiners in latin america and asia. Thats your Bloomberg Business flash. Chinas premier delivered his work report before the National Congress gathered in beijing this weekend. He struck and up the tone on the nations slowing expansion and rising debt and also flagged the specter of greater challenges ahead. I think the main takeaway is that the fine line, growth is ok for now. The premier is walking on a knife edge and he says there is no Systemic Risk. Tom that is right. Its the new gdp target of about 6. 5 . There is new focus on trying to tackle the Financial Risks that have been built up in the system and talking about nonperforming loans. We have heard these kind of words before and its all about implementation now. We heard from analysts saying that is key. Many of the reforms this year were also part of the package last year. To be putseen by many on hold while the economy stabilized. That stabilization. At the end of the year we had the party congress. It may be tempting for lawmakers not to implement the reforms quite as aggressively as many would like them to. Has increased 100 in the last eight years and bank assets now valued at three times gdp. There is no sign the credit is going to be taken away altogether. Target for increasing new money supply is around 12 this year. Tom Tom Mackenzie, thank you so much from beijing. Is with ing. Urner we looked at the foreign ramifications of what we see in china in the coming years. We have shown this many times. You know this well. Andterm china appreciation then we have given it back. Is china a manipulator . Depends in terms of the u. S. Treasurys definition and whether they change that over the next few months or so. To preventrying their currency from depreciating to quickly. They were using fx reserves. State they are basically acting in interest of the Global Economy by looking after their currency. , thank you soner much. We have so much to do in the next number of hours of surveillance. In our next hour on trade with Peter Navarro writing in the wall street journal and a scathing oped. Us, thelden will join consul on Foreign Relations on american trade. Kevin cirilli in washington coming up. Morning, silence from the Justice Department. The fbi demands a foron, a justification President Trumps statements that president wiretapped his phones. In a moment Kevin Cirilli in washington. Bank stunning, deutsche desperate to raise funds a fourth time, shares on sale at a 39 discount. Francine lacqua spoke with john cryan. World, thaterosum come onmost interesting the trade debate. Good morning everyone. This is bloomberg surveillance. We are live from our World Headquarters in new york. I am tom keene. Francine lacqua with john cryan, what was the body language with the Deutsche Bank people. What was the language . Francine plain speaking. John cryan realizes this is a uturn from what he wanted 17 months ago. He went to the market saying we wont raise capital, and now he is doing the reverse. However, there is a humbleness to john cryan. He has seen the facts change, and he wants to trai change with them. Francine we look at the mystery of Deutsche Bank revenues out one year and five years. Tom a wild weekend, heres taylor riggs. Taylor washington has been rocked by President Trumps accusation that president Obama Wiretapped him just before the election. The Obama Administration has denied the claim. At the time, james comey asked the Justice Department to reject the allegations as false. The white house wants congress to investigate. In europe, the former french Prime Minister juppe says he will not enter as a president ial candidate. Francois fillon is being pressured to step aside as the results of a corruption scandal. In asia, japan has moved to the alert aftere of north korea test fired for buying missiles, falling into the water off the japanese coast. Last year, north korea launched two dozen missiles. The latest, as south korea and u. S. Conduct military drills. Ceo john cryan has torn up his own turnaround plan. Raisehe bank wants to 8. 5 billion in a share sale. John cryan spoke to francine. We have been shrinking, reconstructing. We have been changing the bank a lot of the past few years. We want to move back into modest growth mode, controlled growth, and we thought to do that it would be helpful to at capital. Theor he is a dropping proposed sale of the Consumer Banking unit. 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 thank you so much. Ands get to Kevin Cirilli futures down, europe 106. Next screenplays. Next screen please. The vix came and more complacent. Sterling 122. 62. Francine there is uneasiness in the markets, i want to show you yen. This is mainly on the north Korean Missile tests. The other thing i want to show you is Deutsche Bank. They pulled down european shares. When you look at the french president ial race, it is roiling the euro a little bit. Deutsche bank down 6. 4 . Soxcine this hour, red baseball is important. I did that this weekend. We look at trade, john cryan and francines incredible interview, but first, we go to washington. It was sinister ordinary weekend in washington. Kevin cirilli joins us now, our chief washington correspondent. The moment changed when mr. Comey said, enough. What will be the reaction of the white house to the statement by the head of the fbi that you have to come clean . How does doj do that . Kevin we dont know what President Trump will tweet or statement he will make, but the question becomes whether the doj officials will answer the fbi director james comeys call for a rebuke of President Trumps assertion over the weekend that there was wiretapping done by u. S. Intelligence officials of his campaign. Tom i am lost. I believe mr. Comey works for mr. Sessions. That is a civics 101. Explain the next few days. Director calling on attorney general who heads the doj to rebuke Donald Trumps wiretappingout that allegation, but that said, tomorrow, there is going to be a rodte hearing for rosenstein, President Trump stick to be the number two at the Justice Department. He will be the person in charge of leading any investigation, so all of these questions will be put to President Trumps nomination to be the Deputy Attorney general. We all remember that attorney general sessions recused himself last week. Manyine how investigations are in place because of this . When do we find out what the investigations uncover . Have an open fbi investigation into several key members of President Trumps campaign. You have the u. S. Joint Intelligence Committee taking a look and investigating several of the Campaign Actions as well. Then you have the potential for a new investigation, and again, that Senate Hearing tomorrow, that would be led by the number two, the nominee for the Justice Department, mr. Rosenstein. He would be leading the new investigation, so at least three investigations in the works. This will continue. Francine was President Trump series when he said it . Is there any regret in the white house that this was an off the cuff comment . Kevin no regret. Sources i am speaking with over the weekend are within trumps political orbit are a bit flummoxed to say the least that this assertion was made, particularly if there is no evidence, and so should there not be any evidence, this complicates matters to say the least. Francine help me here. There was a guy named john dean a few years ago who stopped everybody cold on a summers afternoon. I believe he commented the other day that we should be worried about coverups. Is the fbi looking at the investigation of the actual things, or have they now moved on to also investigating socalled coverups . Kevin well, i think there are a lot of questions right now that are still unanswered. When you take a step back and you look at the folks that were surrounding this medical environment during the campaign and you look at where all of this is headed, there seems to be a a lot of Unanswered Questions and the need for congressional testimony, and i would anticipate a lot of these people testifying before congress in the months ahead. Tom thank you for the review. Im sure you will have a quiet week. Our chieflli, washington correspondent. We got lucky. We have a guy on who has expense inside the beltway. Book is a detailed and dense walkthrough of our trade negotiations. All of this is a massive dress traction, isnt it . Absolutely. It seems hard to get this administration focused on policy. And we will talk to you Glenn Hubbard about mercantile trade. Peter navarro writing in the wall street journal. Who has the high ground in the administration, the mercantilist , or are we seeing multilateral types adjusting the president s thinking . At the moment, the mercantilists have the driving seat. Peter navarro is there in the white house. Now beenss has confirmed in the Commerce Department and has a moderate take. We are waiting for robert light heiser. He is a skeptic of multilateral trade, but not a hardline economic manus nationalist, so we will see a more balanced approach Going Forward as soon as all the trump figures get into place. How important is trade right now to our listeners to u. S. Economic growth . Is it tangible, growing, or just there . It is there. It is not a big part of the u. S. Economy. The United States is more trade dependent than it was a generation ago, but less so than major economies. For Peter Navarro to focus on shrinking the trade deficit as a Growth Engine is narrow mud but i think the u. S. Has an export problem. The strength of the dollar will be a problem Going Forward, so it matters, but it does not matter hugely as far as being the most important item on the agenda. Francine we understand a current account surplus is seen as a sign of economic strength. Does it mean Peter Navarro has a point when he accuses germany of cheating america and what he said about europe . Cheating is a very strong charge. There is no question that the germans are running a current account surplus. The euro is too weak for the german economy, to strong for the southern european economies. I think the germans need to take steps to bring their current account surplus down. They have been historically reluctant to do that for a variety of reasons. This is not like china in the mid2000s where there was a deliberate effort to hold down the value of the renminbi to gain an export advantage. , i we look at trade and guess the border tax will be front and center as a topic if we did not have all of Kevin Cirillis world as well. We will talk economics with our guests later on radio. My conversation with professor blanche are at, and we will touch on the border tax. Stay with us worldwide. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. John cryan ripping up his turnaround plan, admitting the 17month effort has flopped. I spoke to john cryan earlier about his strategy. Retain postbank, i described it has a capital raising. We needed to finance it, so we needed a capital raising. Ithink the year ago that would have been more difficult for us, and there is still uncertainty. I feel more comfortable sitting in the seat i sit this time this year than i would have last year. We are feeling much more positive. We are seeing growth again. To some extent, we have done a lot of the hard work. There is still quite a lot to do. Onare still focused improving controls and efficiency, but we would develop the business in the future. Thatine is it unicredit distilled the fact there was appetite for some strayer sales . That would have been a factor. Also, our shares hit a low at the end of september, and they doubled since then. As thoughkets look there is momentum behind the Banking Sector, and so it looked possible as well as desirable for the the two. Francine how many job cuts will be part of the strategy . We have not said. We want to take the same approach we took with the restructuring of the Branch Network and Deutsche Bank. We want to do it in the german fashion, so involve all the relevant stakeholders. E want to come to an agreement once agreements are struck, it is an efficient processing gets carried out with relatively little risk. Francine could it be thousands . Tens of thousands . It would be unlikely to have tens of thousands. We are not that in doubt with staff, but it will clearly be some job losses in germany. The europeith us is managing director and the council on Foreign Relations in new york. I spoke to john cryan this morning. First of all, investors like it. This is a huge dilution of shares, but means Deutsche Banks on a stable footing to generate revenue. Certainly, credit sector, Credit Investors like capital coming in to underpin the restructuring effort that is ongoing. Also the affirmation of the coupons which were under discussion. Yes, i would see it as the bank using a time when its share price has doubled has john cryan said, probably benefiting from the Interest Rate outlook, and taking that opportunity really to underpin the restructuring effort, which was still actually hanging in the balance i would say. Francine what is one question we still have to see answered . Are you convinced, which what i have heard in the markets, that this share will go like unicredits . I would expect Deutsche Bank has fairly significant commitments. I believe it it is underwritten by a Large Consortium of international banks, so it would be highly unusual i would say for this not to go through. Is always some execution risks clearly, but i would expect that it should go through. Lets go. M here is a chart for Deutsche Bank back a million years. Correct me if i am wrong, this is the fourth cash call. We have gone from 90 two 18 with a horrific bounce, slope matters. This would be the fourth devolution. Have you fourth dilution . Have you done the math yet for a typical shareholder . Not over the four capital raises. Have madeues at kbw calculations, i think it is 30 dilution. Tom right. I know you have to sell that to the public, and john cryan did that with francine. Totake the 30 dilution back revenue. Do you have a clue what their revenue will be . Ati think you are pointing one of the huge issues and challenges for Deutsche Bank beyond this capital raise. It is really the question, can the bank generate enough revenue . Sayhat, it seems, i would the few additional costsaving measures, running off and selling a few unprotected assets , but still the question, can enough revenue in a low Interest Rate environment . Are toning, they down expectations slightly in that respect, which seems a reasonable and in line with the market thinking. Tom help me here. I will ask you the question that francine was rude enough to ask john cryan, how many bodies go out the door . My answer is a lot. I would imagine, yes. I dont have any real testaments am a but that is not an unusual thing. It is a trend across the whole interestfree industry basically, the number of branches. In retail banking, they are getting scale down, so certainly there will be noticeable reductions there. I think there is also more cost cuts, and that usually also means staff reduction on the Investment Bank side that were announced this time on the back office side brother than front office. Francine is john cryans job on the line . How much time to show herbals give him shareholders give him . I would look at what is happening now. Is aCapital Increase gigantic surprise. I think the market has been expecting it for quite a while, so it is in line with that and there are an superior ancillary measures to make it better and stick with the 10 r. O. E. Target. Francine thank you so much. With us this morning on the dilution at Deutsche Bank. Coming up, not diluted tomorrow, bloomberg surveillance, we are strong with the oecd economist, always opinionated on Economic Growth, productivity, on the border tax. This is bloomberg. Francine there could be a battle brewing as Francois Fillon says he wont quit the president ial race despite a corruption scandal. Juppe says he wont be a standin candidate. That he will juppe not stand in for Francois Fillon. Of the Republican Party looking for someone else or is that it . Is in aepublican Party Difficult position because they cant force Francois Fillon out. He won the democratic fold in the republican primaries in november. You had 4 Million People who participated in this primary, and Francois Fillon got more than 60 , so democratically it is difficult for the Republican Party to find a replacement, but what i can tell you is that there will be a meeting of the Republican Committee with some of the top people in the Party Tonight in paris. Francine talk to me about the polls. I heard from one of the key advisors rom Francois Fillon saying the polls are wrong. What do the polls tell us . At the moment, the polls tell us that Francois Fillon would come third in this president ial race and would be eliminated in april 20 round on three, meeting for the moment that the runoff is likely to be between Emmanuel Macron and Marine Le Pen, but a lot can still happen in the next few days. Much. Ne thank you so coming up, we speak with Glenn Hubbard, Columbia Business School dean. This is bloomberg. Ways wins. Especially in my business. With slow internet from the phone company, you cant keep up. Youre stuck, watching spinning wheels and progress bars until someone else scoops your story. Switch to comcast business. With highspeed internet up to 10 gigabits per second. You wouldnt pick a slow race car. Then why settle for slow internet . Comcast business. Built for speed. Built for business. Tom too much to talk about. Francine lacqua with john cryan. Look for that across all bloomberg platforms. I will speak with Olivia Blanchard this morning. Here is taylor riggs. The white the u. S. , house wants congress to investigate President Trumps claim that president obama had him wiretapped. The president offered no evidence to back up the allegation. James klapper denied it. For the part of the National Security apparatus i oversaw as was no such wiretap activity mounted against the resident elect at the time as a candidate organs to his campaign. According to the new york times, james comey asked the doj to publicly reject President Trumps claims on wiretapping. The agency has not done so yet. In russia, hackers launched a new wave of attacks, this time targeting liberal groups in the u. S. Cyber themes have been scouring organizations emails for embarrassing details and have demanded hush money. One of the groups targeted is the center for american progress, a washington think tank. Some the organizations have paid ransoms. In asia, china is worried a trade war with the u. S. Is coming. The fight over trade would hurt both countries and would leave a trail of destruction across asia. Accusedt trump has china of stealing american jobs and intellectual property. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Im taylor riggs. Good. Ery thank you so much. Joining us by telephone at the National Association for business economics, glenn , one of our leading monetary theorists, particularly for republican candidates and maybe a republican president. Let me begin with the obvious question to get it out of the way. Are you in conversations with the administration and with his Economic Team about a position as a governor of the fed or indeed a future chairman after the tenure of chair yellen . I am not in those conversations. I try to help the Administration Like any a commonness any economists on financial policy. Tom will we see from chair yellen and her Federal Reserve a set of measured increases . Should they go one and done or will there be a new calculus given our financial distortions . I think the idea of a march rate hike has been relatively locked in by fed officials, and i would see that as the continued path of normalization. Where the fed has to be careful is reacting to plans of the Trump Administration. We dont know what those plans are, and many could be positive for the supply side of the economy. Tom you went right where i anted to go, the idea of supplyside theory or getting out in front and trusting the economy to do good. Do have enough confidence and Economic Growth where the fed can get out front of the debate, or do they have to wait and see hard data and have . And act. The fed needs to normalize Monetary Policy. There is no reason for Monetary Policy to be acting like we are online support, which is where we are now. Having said that, i think the policies of the Trump Administration matter. If the president and congress were to agree on a plan for taxes to promote productivity growth, the fed should not mean against that. Heardne why have we not more about this tax plan, this cut . Isi think the Administration Working on its version. There is a version from chairman brady that is clear and would be a plan that is a revenue neutral tax reform and has positive supply side elements. I dont know yet what the Trump Administration will do. Fedcine when you look at and the markets are fully pricing it in him was it because of the inflation figures creeping up, or was it. Fed speak that moved the needle . Is the fedit continuing to look at the data. The economy is at full employment by the feds definition, and the pce deflator is rising, so where i sit, it is entirely appropriate. Francine Glenn Hubbard with us at columbia university. Glenn hubbard is our arch supplyside enthusiast and believes in and optimism on the american economy. Do you agree we can establish an International Relationship and economics with that optimism . I think we are in for a tough slog internationally. Thatve an administration has a different view of economic relations. The u. S. Has seen itself as a provider of collective goods. This administration is focused on what is in it for us. There are reasons for that correction, but this will be tougher internationally to get allies in countries like china that we are competing with us to go along with the vision. Tom help me. We would do this later in the hour, but right now, dean hubbard, the idea of a washington consensus and trade economics, do we need a new regime or waiting for a new administration . We need to have a discussion about the role played trade place in the economy. Positive one. A it is true that there are countries that have played unfairly and may be a need to take a hard look, so it is not one or the other hand, but the u. S. Needs to be a leader and global institutions. If we wont, no one else will. Francine who has played unfairly . China or germany . Has played unfairly in its treatment of intellectual property. It will actually hurt china itself in the long run and discouraging its own entrepreneurs by sanctioning a regime in which intellectual property can be stolen. I think germany is a different issue. Benefit from an arrangement inside the eurozone and have decided to remain a strong surplus country. That may or may not good for the world, but that is a german political matter. China is can you say manipulating its currency at the moment . Ift people believe china intervenes, the yuan becomes weaker from here. Thats right. I think the real issue in china is making sure it respects intellectual Property Rights and keeps an respects open markets. That is what the wto requires. Tom one final question if we could on dollar dynamics, bring up the chart, this is the bloomberg dxy. It is on the regression going back to 2011. The dollar is on Dollar Strength trend could could we get a brutal move in the dollar . If we get the tax bill that congress is working on, im not sure which direction you mean by brutal, but the dollar would strengthen if we had a border tax adjustment, and that might be quite jarring for the world. Tom thank you. Of ant in both directions strong dollar being a brutal move. Thank you so much. This is a treat. We will come back and talk about the border tax. This is your briefing for the morning on the weekend writing on this exceptionally important issue. We will talk with Olivia Blanchard. Tomorrow, governor king joining us in the 6 00 hour. Worldwide and in england, this is bloomberg. Francine this is bloomberg surveillance. Taylor i am taylor riggs. The continent secondlargest a has agreed to buy General Motors brands. Bloomberg spoke with the gm president. The team has done a tremendous job over the last 45 years. We would have been profitable last year, so we put the business on a good path and rebuilt the brands and rebuilt the bottom line, but for that this is to go to the next level, we need more scale here, and that is what the transaction is about. A deal announced today will create one of europes biggest fund managers. Scotland Standard Life has agreed to buy aberdeen Asset Management, valuing aberdeen at 4. 7 billion. The firm has been hurt by three years of redemptions. That is your bloomberg is in . Francine coming up shortly, bloomberg daybreak americas. John, good morning, happy monday to you. More Deutsche Bank interview, john cryan speaking to you. Three, 21. 7 billion euros, that is how much this bank has raised. The market cap is around 24. That shows how much has been raised and what the market guys the bank at. The market is open for them to do this capital offering. The bad news, if you ask anyone, have a gut conviction, what this bank looks like in five years, im not sure they got it. Francine do think they will move out of london back to germany . I dont have the inside scoop. I think their problems are what the bank looks like in 510 years than what it looks like in the u. K. Or the brexit decision. Francine thank you so much. In more than a month into Donald Trumps presidency, his office has yet to announce a Foreign Policy position for africa. Great to have you on the program. Thank you for coming in. What do you know about how donald trump, what he will do in terms of trade relations with africa . We dont know a lot yet. One of the key ones managing that will be the commerce secretary wilbur ross. The president s council on doing business in africa is under the commerce secretaries bailiwick. They are the ones. They are looking at it hopefully positively because it is a huge export market for the u. S. Francine if you are an african leader, you dont want to become mexico, or what is your strategy for dealing with donald trump . I dont think theres a lot going on from the standpoint of moving jobs because of wages and things like that, so i think that is one of the things that will be different than mexico, but over all, it is an aspect of understanding what the bilateral views might be and what the potential is between each one of the countries, so we will see. We have a trade act which has been a broad one trying to improve exports to america, but i think over all that it has been very positive from that standpoint. We have done quite a bit with ge , getting exports or imports into africa, if you will. Tom you have arguably the best perspective of anybody i know. Bitda down to 21 billion. Tell us about the experience. What do we not know about the new ge . The thing about ge now has a transformed company. We are out of the Financial Services business and now ,igital come industrial focused combination of all of our Industrial Assets with a tremendous digital platform that , ande building internally i think that will unlock a lot of value for the company come and our global footprint has always been strong and allows us to play in many Different Countries, and really do it in a manner that we think and bring value to our customers as well as to the shareholders. Within the technology of general electric, how do you translate that to africa . It is a different methodology in africa than you would use in france, isnt it . Well, yes and no. From my perspective, the biggest thing we have been able to do is bring the companys capabilities to africa. All our businesses are run by local leaders, which is important, but the other important aspect is bringing the technologies, the service footprint, and the digital sotprint we are developing, we are able to bring the value of the products two countries we are working income and it is across our portfolio of health care, aviation, power, and transportation, so for us, and our oil and gas business as well, so we have been able to transform a lot of the capabilities of our customers because of the equipment they have of hours. Believe ifo you there is an antiglobalization stance that we have seen in western countries with brexit, donald trump, africa is the biggest loser . We cant forget a large part of emerging markets again from globalization. Ofthe developing nature africa is huge. It is a continent of one billion people and will continue to grow , and they are slowly building out their manufacturing capability and industrialization across the region, so there is still a lot of opportunity for many companies. There is a big push from china into africa from the standpoint of industrialization and Industrial Products a have, so there is a lot of value there, and i hope during this time that we will be able to see that work with the administration. Thecine what will relationship between africa and china be like . , how upfront is a to talk about africa where you have Different Countries with different economies . A one buildone Road Initiative they are using to look into africa and work on a couple of key segments and someportation, rail, and power areas, especially hydropower. Again, there are customers, competitors, partners, so we played across the board there, but over all has been a continued focus on developing. They bring in quite a bit of financing as well. Tom thank you so much. Ge africa. Let me show you are new technology. Tv is spectacular, just love it. Here is the feed now. You can go act to an older block and look critically at that block and gather in any of the fancy pants charts francine and i uses well. Bonus round, you can personally contact Francine Lacqua. This is the conduit to francine in the lower left quarter corner. This is a good idea. Tv check it out. This is bloomberg. Tom we do foreign exchange, the litmus paper of the global system, yen stronger. One of six on euro. 106 point 90 on year oldswissie. The council on Foreign Relations, let me bring up the navarro quote. This is all over the internet, the china hater with the Trump Administration. Good morning. Tough, smart negotiations is the way to boost exports. Saying, an American Consumer buys a foreign focus imported from mexico rather than assembled in detroit, the trade deficit rises, further reducing growth. There is Peter Navarro, a strident bilateral simple model if you would. Lets listen to some complexities. This is writing just before Peter Navarro, project syndicate taking a totally different view. The gop claimed it would improve u. S. Trade balance while boosting Domestic Production and investment, they are wrong. The border tax would create massive disruptions, and here is the key phrase, Global Supply chains that the u. S. Corporate sector has built over the last few decades. This is great. They dont agree. On page 194 of this magnum opus, this is like war and peace, folks. This is about state and local governments being part of our new trade process. Professor navarro does not see your new trade process, does he . No, he sees this as washington directed. If we can do these traffic trade deals, we will deal with the trade balance problem. We dont know what they are asking for yet. Bashing mexico for months, and yet we dont have any specifics. Tom george bush senior was one said we are not doing this again. We went to the multilateral dances, if you would. Are those days gone . If we want a more complex relationship as you discuss in your book, do we do it multilaterally or a new calculus . Wants aadministration new calculus, but there still has to be a multilateral element. China, had you go after the china problem . Obamap that the initiation concluded was a good way to go after the china problem and forced them into a set of trade rules that would have an end u. S. Interests. We dont know what the alternative is. We are talking about bilateral pressure. Its not clear if it will be affective now. Francine how would you do with china . I have been told that because of cultural differences in china, if you put the chinese in a corner, you just get something bad the other way. You need to respect them and make them feel part of something. That is true. There has to be multiple dimensions. The tpp was a good way to offer a carrot for china. The Obama Administration launched a series of cases in the debby tao, which china is committed to. Has note issues the wto dealt with effectively. We have a new document from the u. S. Trade Representative Office that says we have to go after china on subsidies, may be in ways that dont fit within the wto. So, multiple approaches, not one simple one. Trumps it a mercantile administration, the power and plenty of another time . Absolutely, it is a mercantilist administration. But we have to have far more sophisticated strategies. Tom we need an east Indian Trade Company for the United States. Read it, failure to adjust. What a day we have got forward on Bloomberg Television and radio. It my conversation with olivia andchard with david gura professor blanchard a bit later on television as well. You for yournk wonderful interview with john cryan. That was absolutely superb. We will leave you now with the beautiful view, a beautiful view, i say, of new york. It is frigid. It has been positively winter. Stay with us worldwide. This is bloomberg. Jon the notion of being stuck plunges. The ceo appears to have a new strategy. Gives a nod to marcus. Thepresident accuses th expresident of wiretapping. From new york city, for our viewers worldwide, this is americas. I am Jonathan Ferro along with david westin and alix steel. David i dont know how we will get tax reform or obamacare. Alix how does this relate to the market stucco you have the vix that is down today. Jon i wonder, you wake up this morning and try to treat the