Transcripts For BLOOMBERG Bloomberg Surveillance 20170307

Are joined by the deputy chief Investment Officer at credit suisse. We will talk about the markets, valuations, and everything in between. Later, we speak to the former bank of england governor, parenting, about this important vote in the house of lords. We will ask his blueprint for brexit. For we do all of that, this is a picture for the market. Your data. O a little bit of flatness when it comes to stocks in europe. The pound is probably the one that has seen the most fluctuation today. We have disappointing data out of the u. K. We had strong numbers in terms of retail sales. Over the last five or six trading days, there was a little bit of concern in terms of services and construction data. 0. 8670, and the vix index could be flat. First, here is nejra cehic. Itra the u. S. Has announced has unloaded missile launchers in south korea to start deployment of a Missile Defense system on the peninsula. Koreave came after north fired missiles into the senior japan on monday. That prompted President Donald Trump to reaffirm the u. S. Japan military alliance in a phone call with Prime Minister shinzo abe, pledging to demonstrate there are dire consequences for such actions. To dropance chiefs plan an explicit pledge to resist protectionism, according to a draft communique. The change in language, compared with the wording after julys meeting, when ministers and Central Banks found to resist all protectionism. The ship came after President Trump entered the white house saying he will prioritize u. S. Interests. Chinas finance minister says his country has flexibility to adjust its budget deficit ratio. This signals the government will increase spending in line with the growing economy while paying off debt. Chinas foreign currency reserves have unexpectedly halted a sevenmonth losing amidk, rising and february controls of capital outflows and the rally in the u. S. Hammondncellor philip may deliver a boost for bondholders in his budget tomorrow. A Bloomberg Survey of analysts found forecasting gilt issuance in the next fiscal year will be the lowest since its financial crisis a decade ago. Beating expectations since the brexit vote, analysts see improved growth projections reducing the need to borrow. After a euphoric market debut, snap shares have fallen for the first time in three days. They closed more than 12 lower yesterday, below the opening price on the first day of public trading. Analysts began weighing in with thoughts on the true valuation. But the stock is still almost 40 higher than its 17 ipo price. More thans powered by 2600 journalists in more than 120 countries. I am nejra cehic. Francine thank you. The biggest players in the Auto Industry are in switzerland for the geneva motor show. Issues such as Political Uncertainty in europe and the threat of u. S. Protectionism are set to dominate. We spoke to a number of leading executives about the prospects of a border tax in the u. S. Well, we are a global company, and we stand for global free trade. Of course it would be a problem if that happened, but we will have to wait and see how the American Administration is going to react, and if those plans will be a reality, we will have to respond, of course. We support free trade across the globe. It is important in europe, important in the United States. We also have Global Distribution and flexible production networks. We can balance certain situations. What i am clearly in favor that we see more trade barriers going down than up. The u. S. Has the most expensive Corporate Tax rate in the world, 35 . I know President Trump and all the Business Leaders are discussing what is the best tax policy. I think we are encouraged, as mark said, with what we are hearing from the administration, that they are looking at the tax policy. But it is way too early to tell. Francine meanwhile, President Donald Trump has signed an order restricting people from six muslim majority countries entering america, reviving a policy overturned last month in the courts. U. S. Republicans also unveiled their longawaited legislation to repeal and replace the Affordable Care act. We will bring in deputy chief Investment Officer at credit suisse. Thank you for joining us. When you look at the mood of the market, there is a lot of talk of protectionism. At that is not filtering through a lot of the concerns. Investors are looking at positives coming out of donald trump. Are you on that cap . What you see with investors is, they are all happy and they are all worried. They are worried this might have been too far, too fast. We all know pigs cannot fly. But the current bull market is charging ahead as if it can fly. The question is, where is next. There is still a lot of pentup demand that will be deployed in equity markets. Francine what does it take . What needs to happen for it to correct or have a pullback . Seems itclearly is worrying that u. S. Markets, with valuations price for protection it does not require a lot to go wrong to make investors realize that this market is certainly not a cheap bet anymore. Francine is it on earnings miss . Is it the fact that President Trump has promised tax cuts and we have not heard about them for three months . Whether be a disappointment on political front, or from the geoPolitical Risks . Burkhard the geoPolitical Risks are the ones investors are most complacent about. This bull market celebrated its eighth anniversary just yesterday. It will continue to charge ahead. If donald trump does a little bit of what he promised with regard to cutting taxes and doing away with red tape and deregulation, he can continue to spur these animal spirits which have been driving the market hard. Still with the u. S. , the Federal Reserve announces its latest policy decision last week. The market sees a rate hike. Speaking to bloomberg last night, the former city fed said that president said the fomc needs to take action. They have a creative the last couple of years, coming up with reasons why they cannot raise rates. I think they have run the gamut of those. At this point, given the signals theyhave already sent, would do their credibility a lot of damage if they did not do it now. Francine if you look at my terminal function, wirp, there is 80 of a chance of a rate hike. What happens if they do not hike next week . Burkhard they will for sure. This is the year when they must live up to the promise of being a datadependent fed that does what it needs to do when the labor market is improving. And it is perfectly true that over the last few years, the fed has been coming up with one excuse after the other. It was it of the strong dollar or other circumstances that prevented it from raising rates. It really needs to show that it is still running the show at the Federal Reserve, and they will sooner hike rates rather than later, and probably three times this year. Francine the question that i theyis, they signaled that are data dependent. We know the data is quite strong, especially when it comes to inflation. Gdp growth around 2 is not great. Is this the new normal . Is this what we have to get used to . The new arguably it is normal, and arguably the age of central bankers may have come to an end last year at election day, when markets started to be charged no longer justify the fairy dust of the Federal Reserve, but really by the anticipation of something dramatic happening to the economy, driven by taxes, bureaucracy, as well as the synchronized Global Economic upswing, which is equally important. The marketsy are seemingly ignoring this border tax or the possibility of some kind of trade war between the u. S. And china, or the u. S. And other countries . Burkhard the only good thing about this talk about protectionism is that everyone is talking about it. Obviously, no economist or investor likes the thought of protectionism, but something that everyone is discussing in a heated way is unlikely to surprise us. It must be factored into markets at this point in time. It is up to markets to judge whether the positive effects of fiscal stimulus, tax cuts, and the likes will outweigh the drawbacks that my that one must anticipate from protectionism, which is still a few years down the road. Just as the importers are lobbying against that border tax, the exporters are lobbying in favor. Even donald trump will realize that it is not easy to persuade all these different lobbyists in washington. Francine thank you so much for now. Burkhard isd our guest for the hour. You can follow some of our really cool charts. You can look at fed funds futures. You can also reach out to the show directly. Emails, analysis, and comments come to me. Guests what you think. Coming up, room for maneuver. China still has flexibility over government borrowing while fx reserves unexpectedly rise. We focus on the worlds secondlargest economy next. As a Bloomberg Survey says u. K. Gilt issuance over the coming year will be at the lowest level in a decade, we look ahead to tomorrows budget. And giving up the ghost. Will snap shares fall below their 24 debut opening price . We talk tech valuations. Francine this is bloomberg surveillance. Here is nejra cehic. A sale of 4is begun billion euros of shares at 834 discount to yesterdays close. Eds says it will use the proceeds to bolster its allens sheet and help fund its share of a planned Nuclear Plant in southwest england. A 20mobil has announced billion building spree in the heart of the u. S. Chemical refining industry, and program it says will create 45,000 jobs. President donald trump quickly tweeted his support, calling the oil producer a special company. Critics have pointed out the announcement just gave a name to a series of investments the Company Began making as far back as 2013, before the collapse in oil prices. The ceo of volkswagen has given bloomberg his reaction to psa groups takeover of opel, speaking at the Geneva International motor show. Hadn the past, we competition from opel and peugeot. Dealing with it, we always respected them as competitors, and we are going to respect their new combination. This is not going to stop us to look at ourselves and our plans going forward. We are very confident. Nejra that is the Bloomberg Business flash. Francine chinas finance minister says his country still has some flexibility to adjust its budget deficit ratio. The comments said the government will pay off some debt while increasing spending in line with the growing economy. Our debt ratio last year is about 36. 7 . Based on our projections to yearend, this ratio will not see a big change. Compared with global levels, the Chinese Government has relatively more room to issue additional debt. Francine meanwhile, chinas foreign currency reserves unexpectedly halted a sevenmonth losing streak last ofth, with tighter controls capital outflows and a rally in the yuan. Rose intockpile february to just over 3 trillion. Burkhard varnholt is chief Investment Officer at credit suisse. We have new figures. Chinese foreign currency reserves unexpectedly halted this losing streak. Does it mean capital curbs are working . Burkhard it does, and we should also not underestimate that china is working from a position of strength. This is the worlds secondlargest economy. This is a 10 trillion economy, growing at 6 . Its annual growth dwarfs the size of many other established economies. And like we rightly heard just before, if you look at the fiscal position of the country, it is still acting from a position of strength, compared to most of it. Actually, to all of its western peers. So we should not read too much into the recent decline of foreign reserves, from 4 trillion to 3 trillion. We should read more into what is there and what can be achieved with this. Francine the problem, i guess, is if you look at the trilemma dwindling reserves, a you on that is plunging, and capital outflows are increasing it is difficult to see how they can stabilize all three at once. Burkhard the only way to stabilize it is to reform the economy, to show it is stable, sustainable growth. Capital controls never solve a problem. The only solution to the problem is to allow the economy breathing room to allow it to grow. When you look at what is lifted withe chinese economy, and millions of people going from poverty into prosperity, it was the private sector. It was the companies we have seen going public the last couple of years. The current government does understand perfectly well that what it needs to do is to allow this sector to expand, and at the same time, it somehow needs to control its growing debt problem, which is inherent in the chinese banking and so we sector and s. O. E. Sector. Francine can the control that with nonperforming loans in the chinese banks . We heard the premier saying this is containable, that we are not looking at some kind of financial crisis. But the mere fact that he says it may spook investors. Burkhard absolutely. It may. And there are two souls and my heart. One is telling me that a buildup of debt of that proportion, without exception in history, has always ended in tears. But here is an important but. This is not going to happen in 2017, let alone 2018. They do have the ability to control, even to correct. It also be sure that if the nonperforming loans in china go bust, this is not going to be a global problem. This is a misallocation of chinese savings to a bad purpose. That is what it is. Francine that is important. With us. Tays as the u. K. Economy outperforms expectations of the brexit vote, will the chancellor cut back on guilt sales tomorrow gilt sales tomorrow . Francine this is bloomberg surveillance. U. K. Chancellor Philip Hammond may deliver a boost for bondholders in his budget tomorrow. But today, we may see a boost in gilt. Found them analysts forecasting gilt issuance will be at its lowest since the financial crisis. With britains Economic Data beating expectations since the brexit vote, analysts see improved growth predictions reducing the need to borrow. The Retail Consortium says the last three months saw the first annual drop in nonfood sales since 2011. It claims there is an undeniable trend of cautious spending on nonessential items, and that tougher times are expected ahead as inflation starts to budge. Still withrnholt is us. I do not know how you actually see brexit playing out, whether inflation, the boe point of view, and whether you see attractive valuations on the ftse 100, or whether the politics are difficult to predict. Burkhard the valuations on the ftse 100 were very attractive, by thegon by driven week found. Arguably, the pound will continue to appreciate from here. It has become too cheap. What i am expecting from the budget tomorrow is not going to be a great surprise. It is clear that governments are issuing less debt than they used to, given the lower debt servicing costs. But it is not going to move the needle in the mediumterm. In the mediumterm, yields will remain low for longer. The outlook for the u. K. Is mired in the brexit and postbrexit day luge. We will see the belttightening by consumers, more likely than not, that you have just referred to. Francine do you worry more about inflation hitting household spending, and therefore retail, for example, being hit . Or do you worry more about tariffs . Financial services and carmakers are in trouble from them. Moreard terrorists i find worrying, because they can be introduced by lawmakers and end up sticky. They are difficult to reverse. Inflation tends to reverse itself. Once the currency appreciates, you tend to import deflation, and vice versa. The invisible hand and economics is usually something that helps consumers and investors in the mediumterm. Whereas it is difficult to do away with tariffs and other political decisions. Francine do you have any exposure to the u. K. Market . If you look at the ftse 100, it is very, very high. That is basically thanks to weakness in sterling. Burkhard it is a wash. This is a typical example of a nominal illusion. This is really what was lost on the currencys side was gained in nominal valuations. Look at the turkish market. The same has happened. Investors lost in the turkish lira and gained in the stock market. It is a wash. If you look through it, the outlook for the ftse 100 is what i would call in line with our Strategic Asset allocation. Not too hot, not too cold. Francine do you play any of the yields, for example germany versus france . Burkhard german yields are certainly an anomaly in europe. Germany is europes largest economy, the worlds fourthlargest economy. His current account surpluses even bigger than chinas. It is going faster than i can remember in my lifetime. Atn unemployment generational lows. Two year bond yields are still negative. Something has got to give. The only reason twoyear yields are negative is because the bond markets bund markets become the market for eurosceptics. Watch the french election. If it goes pro euro, bunds will shoot up. If it goes the other way, the opposite is likely to happen. Francine coming up, we speak to mervyn king. We also speak to someone in the sun. Nissan. Ne at the s this is bloomberg surveillance in london. Lets get the latest from the geneva motor show. Matt miller has been speaking to some great, great ceos. Theourse, carmakers, one of industrys most hardhit if there were to be tariffs. We also saw an alliance between Peugeot Citroen buying General Motors regional division. You know, there are some of the positives in the u. S. For the moment, we stopped trying to analyze all the Different Things that may happen. It is better to wait until the decisions are made, and then as a function of the decisions that are going to be made, we will adapt our supply chain, because that is what we need to adapt. So far, all carmakers have adapted their supply chain in north america through the only agreement which adds which existed, which is not that. If not the is being if nafta is being challenged, we will have to adapt our supply chain. I do not want to speculate. I will wait for the decision. Matt are you talking with people in the administration, trying to explain how everything works . We have questions from time to time about what would be the effect of decision a or decision be, and we are sure they are doing this with all the players in different industries, and decisions will be made as a function of that. We have explained clearly the negatives and positives of every decision. But it looks like things are far from being decided. That is why we will wait for a decision and then we will react. Matt we had a decision on opel and vauxhall, General Motors selling it to citroen. I do not think it will affect anything for us. I have always said the industry is moving toward consolidation. You are going to see more and more players trying to gain in terms of scale. It is logical because of the investments we need to face in terms of technology, geographic footprint, even variety of your product offer. That is very difficult if you are a small car manufacturer, to be facing the future. So what is happening is something which was predicted, forecast, and in my opinion, already integrated in our strategy. Matt and you have already gotten involved in consolidation to some extent, mitsubishi. The plan on going further . Is there anybody you are looking at . Every opportunity we have to grow, and intrinsically or by having newcomers, we are going to do it, for a very simple reason. We know how to play scale. We know how to transform scale into a higher level of competitiveness, whether it is about cost or about technology, or about quality. So, because we know how to do that, obviously, we want to play to the maximum. The mitsubishi operation has been done in a very short period of time. This is something which is going to be adding to the performance of mitsubishi and to the performance of renault. Matt what about someone like fiat . Sergio has been open to the fact he wants to consolidate. Would you Work Together . These are more speculation on specific moves. I do not comment on these. What im saying is, as long as you know how to play scale, bigger is better. That obviously, bigger is not better if you do not know how to play scale, if scale means you are heavy, you are complex. You should not do it. But if you know how to play scale and maintain the identity of the different components of your group, then it is something , in our industry, which is very positive. Matt how do you deal with the growing nationalism, populism, and the fact that governments are starting to fight with each other about keeping jobs inside National Borders . Carlos the governments are trying to keep jobs in their borders. I have seen it everywhere. This is something we are used to. I do not think that what is being seen today as a kind of protectionism i think it is a small correction of some , orsses that happened things that are not accepted. People are talking about free trade and fair trade. So we are seeing more of a focus on the fair trade today than on the free trade. In my opinion, it is not going to last, because free trade is so much to the advantage of all the parties that everybody is going to come to the conclusion sooner rather than later. I am not worried, but at the same time i understand that there may be some correction into the sense of fair trade. A lot of the trade agreements, 25 years old. The reality today is very different. There may be some correction. It is totally normal. Ofncine that was carlos renault nissan. We have breaking news out of the South African economy. Gdp contracted 0. 3 . We were expecting it to be at zero. It is not expanding, but is seeing a contraction. South africas economy contracting in 2016 even after prices improved and we had a drought coming to an end. We have to dig deeper. What we are seeing in the South African rand on the chart behind me you have a one day moving average. 12. 9795. Lets get back to the geneva motor show, where matt miller is standing by with another great luxury car boss. Matt i am here with stefan oh, the ceo of lamborghini. Thank you for your time today. Think about your brand, obviously, people who can afford these cars are beyond the border tax or beyond a revised gdp estimate in china, but it must have some effect on you. All the closing of trade internationally is that a problem . To be honest, if you look at the members, so far it is not a problem. Of course, it is something we need to monitor, because it will be a factor. For example, with regard to brexit, we did not have any kind of effect of that. Monetary control, we need to check the situation. Facte need to focus on the that the cars have to be the pinnacle in terms of technology, in terms of what it gives you, to get to the emotion. Matt what about in china . We got a revised gdp estimate over the weekend. How big of a market is that for you . Stefano it is a very important market, in the top three. I would say it would be even bigger in 2019, when we launch the new super suv, because that will be a car that we do believe will be very affordable for that market. We know the super sport car segment in china is stable, because mainly of the situation that you discussed, but our duty is to make sure that the cars are really unique. The market will adjust itself. Matt you had record sales last year, the year before. Do you expect that to slow down . Is this sustainable, and to continue to set records with sales . Stefano i would say we are in a situation where i would like to divide things in two. , the is our actual market super sport car, i believe we can grow it more, but i do not want to go over. That value is related to the number and exclusivity of these products. Cars with 3800 regard to the new super suv, that is a different story. We target to double the production. But if the market will accept this car, and hopefully that will be the case, it is up to us to respond to the market in terms of capacity. This is the reason why we have to keep this approach different in two segments. Matt what an and are you expecting for the new suv, and what markets do you intend to the be the target . And prudenth a safe approach, we are going to double the volume of what we are doing today. Matt 7000 . Stefano correct. We do believe the United States of america will be the first market, and the others will grow. The biggest challenge we are going to have after the third year is to see new markets where this car will be appreciated. We need to make sure that will happen. Matt the you feel any effect from the dieselgate issue that volkswagen had to do with . I had to pay 22 billion last with that. L does that cut your investment short at lamborghini . Stefano we are part of a family, and when there is an issue in a family, altogether, we need to get out from this. We really believe in ourselves. We have money to invest. We need to make sure that we have enough good, i would say, to make sure that in this moment of challenge we can react. And i would say, what is our answer, the answer of today with this kind of car, this kind of technology, that is able to do it in this situation. That is why we are here in lamborghini. Be alwaysy we need to smart, to understand the situation and be unique in what we will present in the future. Matt you are here with them evolution of your lines. What does this mean for lamborghini . Very successful with sales and is fast around the track. Are you going to get more involved in racing, especially you, coming from your for ari background . Stefano you know from your ferrari ground . Stefano motorsport is an important platform. We need to be prudent. Teramo with the team. We have so many challenges to make sure with the new super suv , the new product, that we are going to be ready in the couple of years. In the future, never say never. At least, you will see something. Matt you have got the suv coming out, which everybody is excited for. You are on top of your game with the huracan. Is there going to be a replacement for the eventador coming soon . Stefano it is the yellow one on the stand over there. It was an incredible success. In three weeks time, we have fully booked the season. That car has still a great personality. To can guarantee the you is we will have in the future, another of them. We need to be strong in that segment. Cannot dealhat, we with the other part of the lamborghini world. We will see another exciting car in 2020, because it will be incredible for lamborghini. But let us face the challenge of today. Let us be happy where we live today. It is an incredible moment or lamborghini and our fans. That is a joy. Matt the ceo of lamborghini, from geneva. Francine great interview. Thank you so much. Matt miller on the ground at the lamborghini ceo. Lets check in on your markets. Mark barton has been watching the action. Mark for the first day, we are down. The worst run since february 28, following from those highs we have not seen since november, 2015. This is a fascinating chart. What is fair value when you talk about the dollar . U. P. S. Will management and sacks gold Asset Management have been looking into it. They are sending a consistent signal that should worry dollar bulls. The greenback is too expensive after a 30 rally. The dollar is about 15 stronger value, thefair yellow line. Goldman paints a similar picture. The consensus on wall street is the dollar will strengthen to 1. 05 against the common currency this year, from about 1. 06 on monday. A fascinating bit of data that bloomberg has uncovered. Term premium. Investors no longer demanding extra compensation to own tenyear treasuries instead of a series of shorterterm securities, also known as the term premium. Buyers after the u. S. Election had begun to build momentum after trump boosted expectations. His progrowth agenda could spark inflation. The term premium turned negative at the end of february according to recent calculations from the ad, because of the upcoming french elections. That is because of the uncertainty surrounding some of Donald Trumps policies. A bit of data in the u. K. Sending sterling lower against the dollar, the lowest level since january 16, as the house of lords is likely going to add a few amendments to theresa mays draft bill. Halifax says the annual rate of house growth is half of the last 11 months. The british Retail Consortium says the first annual drop in nonfood sales were experienced since 2011. We are down to 1. 22. Francine lets focus on the still market. According to the world steel association, global producers are only using about 70 capacity, due to oversupply. Saysas biggest steelmaker it may by for enrolling plants for the first time foreign rolling plants for the First Time Since the start of the slump. We are joined by the chief executive, and Burkhard Varnholt is still with us. They give for joining us. Thank you for joining us. We have this big announcement about possibly producing rolling capacities outside russia. His valuation attractive . What are you looking at for m a . We look at m a not as an objective in itself. We have been pursuing a strategy of growth. We have been increasing still production in russia. Required rerolling capacity in europe and the United States. We are quite happy. We intend to finish the process of steel close to where it is concerned where it is sold. Produced, in the u. S. Francine that means you will be buying capacity where you think demand will increase in the future. That is emerging markets or elsewhere . Oleg likely developed markets, because they offer stability and growth. Europe and the u. S. Are coming to a growth trajectory. Francine can you indicate what kind of developed markets . Is it the u. S. Or something and europe . 3 g in the u. S. , we expect growth this year, mainly coming from construction and infrastructure. In europe, it has been a stable recovery, mainly from the construction and equipment manufacturing. Automotive has been doing well. Francine my first job in reporting was covering the steel market, and not much has changed in 15 years, apart from the fact it is still hurt by antitrust measures. This is protectionist measures which are considered to be steel wars amongst regional producers. What is your view on it . Are you affected by it . Oleg you are absolutely right. In terms of trade measures, last year has been a peak in terms of trade cases, a peak year over the last 15 years, probably. We have a lot of trade cases globally. In russia, we have probably 50 trade cases against russian producers. Wethe good news for us is, tend to think of ourselves as an International Company with a presence in the european and u. S. Market, as we discussed. Therefore, we also benefit from this presence, because protectionism protects local producers, and our subsidiaries in europe and the u. S. Are benefiting from this. Francine when you look at a lot of these commodity prices, i know you have some interesting thoughts on iron ore and cold. Overall, it seems like the cycle is now turning for a lot of commodity producers. Stefano such burkhard certainly it is. This is a cyclical commodity driven by global growth. Global growth is not very thing for also, it picked up speed. Global growth is not very synchronized, but also it picked up speed. Continuously lower yields fuel Infrastructure Spending and the like. That is positive. The thing i would add to this is, like other mature markets, we have just talked about the automotive market. One of the deceptively simple secrets in this business is to get out of the middle. You are either big in scale, and you can outspend your competitors, by of market share, smart, andnimble and you outsmart rather than outspend. And this is exactly what we have just heard is a strategy that is sustainable in this industry. Francine talk about the mergers in the steel industry. It is pretty consolidated. There is no real name that can counter Arcelor Mittal. You expect more consolidation in the russian sector . Oleg you are right. The industry is already fairly consolidated. I am not sure further consolidation would benefit either the industry or consumer. It is not the objective to create another Arcelor Mittal in russia. Think, you know, what we tend to do is, we tend to sort of the balanced between not only just russia, but other markets where we operate being europe, u. S. , india. We try to grow outside of russia. Russia consumes probably 50 of steel that it produces. Francine the worry about terrorists . We were talking up do you worry about tariffs . At the geneva motor show, the car industry would be hit. If there is a border tax war between the u. S. And china oleg we are worried about it. We do not think tariffs necessarily benefit the consumer in the countries where they are introduced. We as a company are worried about it. But we also benefit by having a physical Operational Presence in europe where we benefit from this tax. For us, the matter is neutral to positive. Francine thank you for a great conversation. The chief executive of nlmk. Crackles and drops. After a strong market debut, shares in the social media firm fell below their 24 opening price. We talked tech valuations. Francine this is bloomberg surveillance in london. Here is nejra cehic. Has afrench bank French Company has begun a sale of shares at a discount. Is theout it french state owes about 86 of the company. Df says it will use the proceeds to bolster its Balance Sheet and help fund a planned Nuclear Plant in southwest england. Exxon mobil has announced a 20 billion building spree in the heart of the refining industry, a program it says will create 45,000 jobs. President donald trump quickly tweeted his support, calling the oil producer a special company, but critics pointed out the announcement gave a name to a series of investments the Company Began making as far back as 2013, for the collapse in oil prices. A singapore will find has agreed to buy a spanish bank. They will purchase 100 of all funds from owners, including bank of santander. About 8. 1all funds at billion euros. Francine after a euphoric market debut, shares of disappearing photo app maker snap dropped below the 24 opening price. Analysts have been weighing in with their thoughts on the true valuation. Seven have been published so far. None say the stock is a buy. Burkhard, when you look at snap, how you look at difficult is it to look at valuations and say this is market euphoria, or there is an underlying strong Business Model . Burkhard it is tricky. The speaker lets be clear about this. There is nothing you can read into the first today performance of a new tech ipo. Remember facebook . When that ipoed, it was a disaster in the first couple of weeks, and look a strong they are today. Why are they so strong . They have superb management execution skills. They delivered on the premises. In the longterm, share prices are driven by earnings. The same is true for every industry, not only the tech stocks, and also for steel and automotive manufacturing. And that will really be seen in the mediumterm. Francine what does it tell us about, for example, where you want to place yourself in tech stocks . Driverless cars i do not know whether that comes in 10 or 15 years. Is it carmakers that deliver that for us, or google . Burkhard we will see it everywhere. Artificial intelligence is indeed, i believe, one of the catalysts for the next industrial revolution. It is very tricky to actually buy those are play Artificial Intelligence stocks, because they are frankly there are not a great deal of around, and the research and Development Takes place in all walks of life. We are seeing it. What we should watch is, where do we believe it can drive earnings . That is with low incremental costs, a significant and sustainable pickup in revenues. Industry, it does find itself in a sweet spot at this point in time. It is changing itself, and it is growing rapidly, but it is also changing the rest of the world as we know it. Francine overall, we have had an hour with you and we have gone around the world and looked at different industry groups. Where is the best value play . Burkhard the best value play, if you want to look at countries , for example, we like switzerland, which has deep value for a reason. It has a terribly high currency. The currency is very expensive. The stock market is very cheap. You have other markets which look like they are priced to perfection. We talked about the u. S. Market. You have the emerging markets, which are priced attractively, again for a reason. That is where i think Value Investors will pick. And that is why i believe active investors will outperform theive investors, because difference between low fees and cheap funds is like the difference between active and passing investing, which is here to be back in the next few years. Francine think you for joining us, Burkhard Varnholt are from credit suisse. Staying with bloomberg, we will talk with former bank of england governor mervyn king at 11 00 a. M. London time. We will talk brexit, budget, and his thoughts on inflation going forward. Bloomberg surveillance continues. Tom keene will join me. Muchll talk fx rates and more from ubs. European stocks drifting a touch, sending global equities, as investors decide whether recent rallies. 2 flight or not. Francine take two. Donald trump unveils a new travel ban. The order was signed in private and is not iraq. Rivers the u. K. Prime minister seasonlow defeat as the house of lords votes on brexit. This is bloomberg surveillance. In london. Ne lacqua tom keene is in new york. We have a lot going on today. We have trump with the travel ban, we have the parliamentary vote, we talk with mervyn king, and a disappointing gdp out of south africa. Tom you wonder about the support for sterling. We will look at that in a moment. Francine lets get straight to the bloomberg first word news. Taylor republicans unveil their longawaited plan to repeal and care act. E affordable it would phase out key parts of obamacare over years. It includes a refundable tax credit to help people buy insurance. Immigration advocates are planning legal challenges to the revised travel ban. A lawyer for the American Civil Liberties union says the executive order is still a ban on muslims. Iraq has been dropped from the list of predominantly muslim countries whose citizens are barred from entering the u. S. For 90 days. China is warning it will take necessary measures against the u. S. Missile system being launched in south korea. Missilelows equipment landed after north korea did missile tests. It is not meant to be a threat to china. Theresa may is being warned not to use brexit as a way to amend laws without impunity. A house of lords committee. Nsists parliament be consulted global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. Equities, bonds, currencies, and sterling front and center. Futures with a weight to them. I am looking on though bloomberg. Dow futures are 14. , looking at the vix, 11. 26, showing a more complacent markets. 1. 26. Ng plunging below we knew that inflation would be up, but there are extra warnings out there in the last four hours. Today, the u. K. Prime minister may face a defeat in the house of lords over a binding vote on the brexit deal. Overall, european stocks are drifting. Twoputted basically, investors are trying to decide if the rallies are going to correct or are just taking a break. Now. Here is a chart here is brexit, june 23. Weaker sterling. Thesehis rollover, we get to lower point of october and january. That is weaker pound sterling. There is a wide body of opinions about where sterling is heading, mostly based on politics and less on economics. Francine i think a lot more the pound looking for as a support mechanism. Let me bring you over to my chart, a simple volatility chart. To haveit is unallowed three series, but this is the msci japan. I priced everything in dollars. You have the s p in blue. What this shows us is the developing nations volat ilitys Second Lowest after the u. S. Trade that has to do with the unknowns in the economy. With thes start washington derby. A lot in politics, including the United Kingdom. But in washington, a frenzy of policy. Our chief washington correspondent here. Themystery is the cost of new Affordable Care act. I guess it is ahca. How much will this cost and why dont republicans not want to tell us, to costs . There is no official estimate on the proposal to repeal parts of the afford of care act and how much it will cost. But i am speaking with Top Republicans in the tea party caucus. They are apprehensive, particularly folks in the conservative think tank community, including groups like american for prosperity. They view this as too expensive and too much government intervention. Tom washington is made up of being counters are they always know the cost. Washington is made up of bean counters. They always know the cost. Why the mystery . House Speaker Paul Ryan is waiting on several key budget score offices for how much this would cost. But when you get to the base theseyou can numbers any which way. They also have to wait for the nonpartisan budget score in office in order to submit this plan and get it scored. But we have seen this administration take on any one placing numbers in a way that does not fit with them aggressively. Francine what is being discussed in washington . Trump,etap claims from are they overshadowing the discussion on the new travel ban . Kevin yes. This morning, the Senate Judiciary committee will hear from trumps nominee to be Deputy Attorney general. You have to remember last week, attorney general Jeff Sessions recusing himself from any future investigation into russia or administration ties with russia. He will be the point person on any future investigation. However, he would also be the person having to appoint a special prosecutor. That decision will lie with him. Sources on that committee that democrats will hammer him on whether or not he will do just that. Francine trump took to twitter wiresuse barack obama of him right before the election. Is that considered defamation . What are people saying . Kevin well, the administration is saying they want to have republicans within Congress Investigate these claims. The administration is doubling down on these allegations. They feel if the Republicancontrolled Congress are the ones investigating these claims, that is different than the u. S. Intelligence community investigating these claims. Congress has a bit more politics in it, to say the least. Thesess investigating claims, given that they are in control from the Republican Party, is different from the Intelligence Committee community. Tom where is the fbi in this mix . Are they not supposed to be the investigative force and Congress Follows on . Kevin we are learning there are several different agencies and avenues for investigations in u. S. Politics. You are right. The fbi are the ones who are perceived to be separate from all of this. However, congress can also investigate. The politics of that are really fascinating and adding a new layer and dimension. Francine all right, great work from our chief washington correspondent Kevin Cirilli. We are joined now by themos the attack us themos fiotakis. Themos investors have been and the consumer side of the u. S. Economy, in terms of sentiment. The next thing to look at is whether hard data will look at that in terms of dollar strength. Francine what can change . When do the markets take notice of this politics . Themos it has to have some kind of real impact. We have to see the budget negotiations and whether the amount of stimulus in the market is already discounting or expected to materialize. All of this discussion about border adjustment will materialize in this environment. We need to see the agenda shift to policy. Tom is there a bet on dollar, a market bet on strong dollar . Themos if you look at the positioning, the long dollar bet has declined, purely because the dollar has not been strengthening on a broad basis. Theirhe euro, one of weaker currencies, has been range bound. The broad mindset within the Investment Community is as the u. S. Economy powers ahead, the dollar should strengthen, because the u. S. Is in a more late stage of the cycle. We have been pushing back against that consensus. We do not expect much dollar strength. For u. S. Interest rates to move higher, you need to have a number of risks clear and have Interest Rates, at least yields, rise, which should be dollar negative. Tom so you do not have the euro paring . Remain the euro should stable, assuming the french elections do not go the wrong way for risks. ,hould we clear that threshold there are gains to be made. 1. 15 for is eurodollar. It will not be easy to do that. What is priced in is a negative skew against in favor of the dollar against the euro in favor of the dollar. Francine thank you so much. We will be back with themos fio takis of ubs. Coming up, we speak with mervyn king, a former boe governor. We will talk inflation, brexit, and pound. This is bloomberg. This is bloomberg surveillance. The maker of snapchat has fallen below the 24 opening price on his first public day of trading. Analysts weighed in five of seven have a sell rating. Spend 20il plans to billion dollars on the u. S. Chemical and refining industry along the gulf coast. They say that will create 45,000 jobs. It company is calling growing the gulf. Evidence british retailers may be in for a tough year. The last three months saw the first annual drop in nonfood sales since 2011. Statistics show retail sales are falling and Consumer Credit is below average. That is your Bloomberg Business flash. Francine thank you. Chinas Foreign Exchange reserves have come in at over 3 trillion, higher than forecast. Fiotakisck with themos of ubs. Your point that the markets will watch is the fact coming up. E the g20 this is one of the first times the Trump Administration will be faced with chinese officials. How will they dance around the language of the currency manipulator . Themos that is a difficult question and one that is central to markets. There are some senior members of the Trump Advisory Group that have been in favor of a hard stance for china. Mentioned that he has to be thoughtful in how he deals with china. Ofditionally, these kinds extreme pressures and actions have avoided. The answer is we do not know. The markets are not necessarily prepared for a confrontation. Francine but is it a currency manipulator or political rhetoric . Stopssay china intervening of the stocks, does it go down or up . Themos that is a very difficult question. Chinesement is households and companies are under investment and global assets. A sickly, if there was a freefloating currency, it could the reality is this is managed very tightly. Managed not just against the dollar. The reality is despite the one year and a half market worry that the government may lose control, what we are seeing is the measures they are implementing on the Capital Accounts have been able to stabilize. Tom do they have an emma oftional tril stability, given their politics . If the congress is meeting now, are they meeting with Financial Stability that leads to balance . Themos it is always a consideration. Actually madehave unforgettable moves, the currency has new flows in the global markets. So there is Financial Stability there. Up, governor mervyn king will join us and as war press side of Cornell Eswar Prasad of cornell. I think we mann will talk about the border tax. This is bloomberg. This is bloomberg surveillance. Readis our morning must from london, because we want to talk about greece. Anthe huffington post, article says the time has come to cut greece loose. Has lied tovernment its people and creditors and has no intentions of working towards program targets. Something has to give. We are back with themos fiotakis. Is this right that this could be decision year with the elections in france and the netherlands that could greece leave the eurozone . Themos this is a very important year for european politics. The dutch election is probably secondary for development, because it is unlikely you have a significant departure from status quo. And frenchelection election is important. The sameether you have leadership in the finance ministry in germany after the elections is important or greece and its measures. It ist comes to greece, an intensely political program. The targets, the interaction between the imf and european creditors and greece, the direction of the program there is a Strong Political angle to this. As the incentive this time, they are very different than before. It seems the imf and european side have converged. They do not want a huge mess that have also converged on the target. The greek government is also a different environment from 2015. They want to reach some kind of deal. Tom themos, help me with gdp. Something as simple as economic growth. Bring up the chart you this is real gdp to the end of last year. It is a sickly a loan nowhere economy, which i guess is a triumph given the financial shock they have had. How do they jumpstart that . Do they do it from outside or can the greek people do it themselves, gdp back to where it was roughly in 1999 . Themos i think you said it. The fact that the economy is basically stable, despite the fact that you had significant draws from the fiscal side, fiscal tightening, with significant financial shocks with banks and so on and so forth gives you a sense of the correcteds, by now, initial imbalances. I think most investors would think that it would be a lot easier for the Greek Economy to do better in an environment where it is visible that theyre coming close to the end of the program. As they do so, they need to come to an agreement and see this program to the end. It is a composition of the measures and the politics behind this final round of a multiyear program, which is difficult. Francine we also have french elections. If the eurozone can stick together in 2017, does that mean it can stick together forever . Terriblyorever is a long time. I think you touch a specific and good point. If we have a set of positive surprises and that is a big if a proeuropean outcome in the fraction in the french and german elections, we could see dynamics that bring significant pricing. Higher european eels, dollar yields, a stronger europe. European assets have a risk attached to them because of that. Tom themos, thank you so much. As we mentioned, mervyn king with us, as our prosodic esw mannasad, and catherine joining us within the next hour. And oil is range bound, to say the least. Look for that on Bloomberg Television and bloomberg radio. Yesterday was gorgeous in new york. It is it the default new york. It is a beautiful new york. This is bloomberg. Tom the policy plate is full in washington. What a day yesterday. I am sure we will see more of that. Kevin cirilli will join us at the top of the 6 00 hour. Lots to talk about, including an important know of feldman noah feldman oped. In the u. S. , republicans have, with their own plan to replace the Affordable Care act, which would phase out key parts of obamacare over several years and includes a refundable tax credit to help people buy insurance. They may have problems getting Party Conservatives to sign on. A house conservative group calls those tax credits a republican welfare and helmet. Malaysia and north korea have of tension over the murder of kim jonguns halfbrother. North korea barred all malaysians from leaving. Malaysian Authorities Say three suspects in the murder have hold up at the embassy. Createlip hammond will more than 70,000 slots for students in his new budget. Run andols are state include a high amount of autonomy. Global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Francine thank you. Lets bring the focus back to korea. The u. S. Announced it has unloaded two mobile missile launchers to start the deployment of the thaad missiledefense system on the peninsula. Council onnow is the Foreign Relations senior fellow, and still with us is 10 most fiotakis themos fiotakis. Seems to be a general sense of hysteria, which may not play out in the markets but you are seeing in foreign policy. There is no question there is a great sense of uncertainty in the global landscape. A lot of it has to do with stuffed with stuff happening abroad. The middle east is burning. Andandoff between malaysia north korea over the assassination of the north korean president s halfbrother, coupled with new missile tests. You were just saying we have antiMissile Defense stuff coming into south korea. There is a real sense pressure is building in the international system, at the same time we have yet to clarify where trump is going on these issues. D . Ancine where do we hea who is the adult in the room to bring it down a notch . Charles we need a president to clarify whether he will take a hard line with north korea or whether he will engage. The bright spot on the horizon is china seems to be running out of patients with py patience with pyongyang. It is willing to scale back help. Ic tom do you have any confidence that the National Security council of the president of the United States is a wellrun machine . I can say that the place has gotten off to a bumpy start. I think the hiring of mcmaster has been a step forward. From what i gather, the place is now running more effectively. The question is will they have the president s ear . We do not know. Tom the tone of voice we hear each day is military types that civilianset about intrusion into our Intelligence System and National Security councils. What does the president do about mr. Bannon being on the National Security council . How does he exit him in a graceful way . Charles thats a move that has caused discomfort from the beginning. It is unusual you would put a political operative on that counsel and raises questions about whether people would speak freely. As they tried to create a sense of normalcy, the president should revisit that appointment. It should not be difficult for him to say we will go back to a more conventional approach. Is the tonek story of their voice changes when they talk about this. Francine right, but i do not know what it will take to come down from this. The voice changes understandably so. What comes next . Charles the key question is will the president and those people around him find that they are going down in the polls, that they are receiving such criticism from outside that they need to take a fresh look at this question. Not just bannon on the nsc, but the whole approach they are taking to disruption and tweeting. Continues tosident take a nosedive, sooner or later they will have to rethink this approach. Francine are their institutions in the u. S. That can keep a check on this or is it up to world institutions to ignore this . Charles at the end of the day, it must come from within. The courts, media, Public Opinion it all matters. So too the way the white house works on a daytoday basis. They need a course correction. Francine what is the one thing we underestimate . Could you argue that trump is redefining diplomacy for the next 20 years . Charles he may try to do that. I do not think he will succeed. In the first address to congress we saw recently, he showed he can take a more moderate town. That he can behave in a way that is consistent with diplomatic and political norms. That is not his default position. That is not where he would like to be. But i think you will get sufficient feedback from his allies Prime Minister may, chancellor merkel, he was going there next week that at the end of the day, he may try to put himself in a more moderate position. Nick burns focus on talking about the clash. Secretary burns into himself into the new administrations foreign policy. He was remarkably quiet until about yesterday at noon. Charles it is a key question. I think there are some serious piece of people on the president s team. Are some and mcmaster of them. I do not think they have a system that ensures access to the oval office and the way they should. The background and seriousness of these people, i do not think they will stick around for a long time, unless they have the kind of access they deserve. That is something they need to see sooner rather than later. Tom let me circle back south, west, east korea. Do we need another crisis to understand that the Foreign Intelligence Community has a value . Some ways, we already have crises around the world, because the Korean Peninsula is in a delicate position now. Fallve seen russian bombs close to american soldiers in northern syria. Turkey has direct it is forces called a small town manbij, where American Forces are. We should be uncomfortable with the degree to which the white house has not fully turned its lights on yet. Francine are you uncomfortable with the possible relationship between donald trump and russia which, for the moment, has been friendly but could turn at any moment . Charles i am guessing the relationship with russia will remain in a pretty bad state, despite what the president has said about trying to create a better working relationship. We do not know what kind of information has yet to be disclosed. But the fact that multiple nots to the president have been truthful about their contacts with russia, the fact that the president himself denied or would not believe what the intelligence communities are saying this is strange behavior. But at the end of the day, Russian Troops are parked in the east of ukraine, they have annexed crimea, they are bombing indiscriminately hospitals in syria, they will make it very difficult for any president to work in a close way with vladimir putin. Charles kupchan, thank you. Fiotakis from ubs stays with us. Coming up, eswar prasad and mervyn king. This is bloomberg. Francine this is bloomberg surveillance. I am Francine Lacqua in london. Tom keene is in new york. We have to talk about haven currencies. We are back with themos fi otakis. Equity markets are reaching new records in the u. S. , yet we are definitely seeing pressure on currencies. Are we going to see more of that in the next quarter . For the next few months, likely in this list. We have observed a change in the flows into switzerland, mostly given bys of political disruptions in europe. Elections, to be more direct, have driven capital into switzerland. That has had a real impact on the currency. At the same time, because the the swisseakened, franc has more room to strengthen. So the authorities have not intervened as much at maintaining the same level. Recently, we saw there is some behavior and flows that is consistent with more intervention around these levels. Our model say these levels are consistent with strategy. I generally speaking, the swiss franc will remain big until we clear out the Political Risk environment. After that, the swiss franc is moderately expensive. Assuming that things normalize. Francine how do you play swissie . That this wask the can be used in two ways. If people are looking for that type of currencies that can appreciate in the event of a surprise and france, the swissie you will like the remain big, given the behavior of past flows. If we clear that, the swiss franc has greece gradually. Om this is euroswiss here is the safe haven job conditions. Here is a rollover we have seen with a little relief. Some of this will dovetail into 2e huge skew we see in target balances. With money flowing and flowing into germany and the opposite in spain, italy, etc. Targetve divergence in funds. What does that signal to mr. Trump he to mr. Draghi . How does that limit his options . Case, yourthe first chart on the swissie is a lot more exaggerated in the same mentioned to you mentioned. The swissie should have been weaker, had it not been for for safety lets just call it like that it on the target2 lets call it that. Es, the wayet2 balanc qe works implies that the ecb buys certain bonds, gets cash which is directed on and so on and so forth. Importantis a really point. With all of the hysteria about operational qe , which is predominant . , the qeat this stage forces have played for a while. More recently, we have the other flow you have mentioned. You can see it also in the behavior of bonds. Multi standard deviation moves in. Goesrmany, the shortterm to negative levels and then comes back. All of this is consistent behavior with a level of worry and people looking for ways to hedge it. Francine what is your call on the yen . Themos for us is, for now, and untold they signal some change in policy, the yen is mostly driven by of elements in u. S. Rates. The mechanics of their yield thatting policy implies there yields in the u. S. Have an exorbitant amount of influence on the yen. Francine thank you so much for joining us. Coming up, we speak with lord mervyn king, the former dod former boe governor. This is bloomberg. Francine this is bloomberg surveillance with francine in london and tom in new york. Theresa may is facing a possible aseat, share into pressure she attempts to implement article 50. Mervyn king joins us now. Thank you, lord king, for joining us. First, your book is out in paperback. I encourage everyone to pick it up. What did we learn about brexit . Mervyn i do not think we learn much at all. We learned a great deal about the political a second and excitement brexit has induced. One of the most striking contrast is brexit has had little impact on the economy, where politically it has been a normal sleep important. The Prime Minister resign, enormous differences of view in parliament. People speculating whether this will lead to a real lineman realignment in politics. Francine will you vote today in the house of lords . Mervyn i will listen to what is said and then decide whether or not to vote. Francine what role does the house of lords have now . It seems they have been awakened from a sort of slumber. Mervyn i would not put it that way. There was a referendum. The decision was made clear by both sides that it will be for the people to decide. That decision has been reached. Now it is on parliament to implement that he there is no doubt over the next two years or so, there will be a lot of discussions and probably some set of arrangements brought before the house of commons for a vote. But i think it will be wrong for the house of lords, in this age, to try to lay down conditions as to what should be the process that follows that period. Francine is it because it is their role or it would put theresa may in a difficult position . Mervyn because it would contravene the express whi wish of the house of commons. Lord king, good morning. I want to quote central banker charles dickens, from the end of alchemy, where lord king goes back to the 19th century. The end of the kingdom. What is your to do list for Prime Minister may now before she heads to the proverbial guillotine . Isvyn i do not think she likely to head to the guillotine, but i think it is important that the United Kingdom is proactive in setting planhat the governments for immigration policy will be. This is not something that should be negotiated with europe. Is for the United Kingdom to decide. I would hope that sooner rather than later nine months on from the referendum that we learn what the government plan for immigration should read. The second thing is it would make sense, at this juncture to say that we accept that we cannot have our cake and eat it by being both in and out of the European Union at the same time, that we are going to leave. And therefore it makes sense to leave this ago market and the customs union. Announcing that at this stage would remove the necessity for a large number of negotiations about which a lot of people are pontificating. Tom you mentioned the eating of cake. I believe that is marie antoinette, is my european history is correct. Seeve a confidence that we a lack of inequality within the do you have a confidence that we see a lack of inequality within the United Kingdom, in terms of fairness for all citizens . Mervyn brexit is likely to not make a difference in the economic outcome. That is what is so disappointing about the Political Class focusing on this one issue. The british economy faces a number of important challenges, of which i would guess most significant is the need to rebalance our economy, to reduce a current account deficit. That means consumption will have to grow much more slowly and investments and exports much more quickly. That will not be very pleasant for people in the United Kingdom, but it is an inevitable consequence of where we are today, and it has nothing to do with brexit. My judgment is the challenges we face have nothing to do with record and exit, in the long run , is not likely to make an enormous difference. Youre right to point to the needs and questions about the challenge of inequality, which is very important at present. Francine lord king, do you believe the government is putting enough emphasis on trying to find a transitional deal or trying to protect the car Manufacturing Industry . I am not a fan of any transitional arrangements ordeals. We should make clear what our position is and calmly talk to our european partners. We do not need to negotiate much. It is they who need to negotiate with us, because they have a bigger trade surplus with us. We have a large trade deficit with the rest of the European Union. I do not think, in financial services, it would be sensible for the government to sacrifice the future of the british economy and the decision to leave the European Union on high finance. It would make rather little difference to the major financial institutions. Some individuals will move, undoubtedly to europe, to deal with europe clearing and so on. But many will not. The future of the city of london is secure because of its role in the world as a whole. Tom we will continue that discussion. Lord king is with us through the hour, in salvation of his paperback edition of the end of alchemy. This is bloomberg. Tom says it is republican policy monday. The president announces a new vel ban as Congress Obamacare this hour. We speak to Kevin Cirilli. For the entire hour, we continue with lord king. We can we consider the nuances of president ial impeachment. This is bloomberg surveillance. Francine, sterling weaker this morning. Francine it is. I like the fact you bring it back to 1450. I dont know if we had a working stock market than. If you look at gdp, we had Strong Demand for domestic countries. Trade was putting a dampening on it. Look out for these figures. Tom we will get to that. What a great day to have lord king with us. Word news, heres taylor riggs. Taylor republicans have unveiled their plant to repeal and replace the Affordable Care act. It would phase out parts of obamacare over several years. A requirement to buy coverage. Those tax credits republican welfare. Immigration the new measure is seen as less restrictive. The executive order is still a ban on muslims. Iraq has been dropped from the list. In asia, a warning that will take necessary measures against the mississippi the Missile System being deployed. North koreas testfiring of four ballistic missiles. In europe, british lawmakers are warning theresa may not to use brexit as an excuse to amend laws without proper scrutiny. Committee lords insists the house of a global news, i am tayloray, riggs. This is bloomberg. Tom a stronger dollar. The vix migrating 12 to 11. Sterling with a121. 121. Francine this is the final debate on the brexit bill. Lawmakers may develop more on the say in the deal. The Prime Minister will forge with the eu overall. Investors we see a bounce in minors, offsetting the drops in banks. Tom kevin has been busy. We are supposed to talk about medical care. Supposed to talk about the travel ban. All anyone is talking about is Noah Feldmans oped. This is serious. Law, he hasarvard accused his predecessor of an act that could have gotten the past president in peach. How is such misconduct by an official to be addressed . The answer is constitutional read many for president ial misconduct is impeachment. If the alleged action would be impeachable if true, so must be the allegation if false. Help me with the discussion on the heel of what we dont want to talk about, which is impeachment. Controlledpublican isgress investigating something that will counteract the intelligence communitys separate investigation. This is important. Congress investigating a Republicancontrolled Congress investigating allegations is different than fbi or cia investigating separately without politics. Of us are fascinated by nextmr. Comey does in the day, week, month. Is his job secure . Now, it is. Sean spicer saying trump has confidence within james comey. Sources laterwith this morning. They will have a Senate Confirmation hearing for rosenstein. He has background in the Bush Administration and the obama administration. The point person who would be taking the lead on any investigation into russia since Jeff Sessions having recused himself. To press him going on whether or not he is in favor of appointing a special prosecutor. You have many sources in the Republican Party. What are people saying . Was this a mistake . Does trump believe he was wiretapped or is this to deflect attention for something else. Kevin it is interesting to have to analyze his tweets. There are a group of folks in the administration who believe this was the right thing to do. It pushes back from a political strategy standpoint and urges congress to investigate. Second, there are a group of moderates who are uneasy with this. Third, you have to look at the teat at the tweet. A point of rhetoric and analysis that is different than a hard fledged accusation. Parsing words, this is the type of rhetoric that is happening in the beltway. , thanke Kevin Cirilli you so much. It lets back to the former bank of england governor. Book, you talk about money, banking, and the global economy. It is condemnation of the economic and political order. Does donald trump change that order . Possibly a deal on regulation of the Financial Sector to drop a lot of the detail. They should reinforce the regulation, liquidity of banks. Those are the things that matter. Protectionism, that goes in the opposite direction. It is difficult to know what will happen. Trump will feel he has to do something for constituents that elected him. Protectionism will not do a great deal to help in that direction. The words that have been used so far have achieved little more than a rise in the u. S. Dollar and a fall in the mexican peso, which has made worse the lack of competitiveness of the u. S. Industries which have lost jobs. The task is to restructure u. S. Industry, rather in the way the u. K. Had to restructure in the 1970s and 1980s, rather than pretend some of the jobs that have been lost can be brought back. Does thiswhat actually entail, five to 10 years. I dont think it is farfetched, but it means it does not mean throwing free trade out of the window. There is no doubt, domestic policies to offset the impact on downward pressure on wages of the lowpaid and those people who were in manufacturing and goods jobs. That needs to be offset by policy. Without losing the benefits of free trade. What it means is a recognition the attempt to fix Exchange Rates, whether it was china fixing the Exchange Rate of its currency to lower levels to boost export or within the Monetary Union in europe, these things are damaging the World Economy. Quote frombring up a your book. Lets talk game theory. I look at trump and he seems to be very alone. Help us with the aloneness of the president. Is it a prisoners dilemma or a game of chicken . Mervyn one of the challenges facing any economy is if they move to a strategy of higher Interest Rates. That will have a damaging effect on the Exchange Rate. That makes rebalancing the economy towards exports and away from domestic spending more difficult. Require a number of the Major Economies around the world to recognize all of our economies need to be balanced. We will only maintain full employment successfully if all of our economies rebalance at the same time. Tom do you find academic rigor to mr. Navarros economics, the idea of a zero sum or a neomercantile america . Mervyn this goes back to the prisoners die lemma. Every the prisoners dilemma. We have the potential to be better off. For the last way five years, far too many countries and economists have been content to rest on the proposition we could be better off without ensuring domestic policy will be in place to ensure everyone is made better off. That is one of the difficulties in a transition where manufacturing jobs are lost to other countries before we have a replace them with jobs that are in other sectors and earn adequate income. Those people lose. It is the failure of domestic policy to appreciate the problem. Secondly, to recognize something needs to be done about it that has put the weakness in the argument for free trade. All you need to know, Alan Greenspan and paul are on the same page you need to read the end of alchemy. The border tax. We are honored to bring you Catherine Mann of brandeis university. She owns the international. Ynamic of economics we continue with mervyn king. This is bloomberg. This is bloomberg surveillance. He ceo of mercedesbenz says sees no signs of a slowdown in sales growth from china. As i said before, 40 closed in the first two months over a strong year. It does not give signal of a reduction of the momentum of our brand. As the bestposition luxury car brand confirmed as it heads in the right direction. Mervyn king inh celebration of the end of alchemy. The futureing, and of the global economy. He is with francine and london. A fed meeting on march 15. It is a delicate issue to speak about centralbank policy. Are we and a time of orthodox theory . Where normal Monetary Analysis works, or with our great distortion are we on unfamiliar ground . Think we are on unfamiliar ground in terms of models. Is simply see that that inflation is close to the long run desired level. Unemployment is below the potential long run rate. Interest rates are close to zero. Model suggest we could not be in this position on left Interest Rates were higher. There is something missing in the model for this to be true. Central banks are struggling to find out what is missing from their analysis. You can see the Federal Reserve wishing to embark on the path of returning Interest Rates to something closer to their normal level. Tom i love missing in the model. This is the bank of japan. Bernanke knew about this. This is the bank of japan in 2000. They had to give it up. This is the fear of every central banker. A natural fear. If a centralbank raises Interest Rates and it turns out it would have been better not to have done it, the central bank gets blamed for having brought about a further downturn. Trump, if he has achieved anything, he has gotten the ineral reserve off the hook his words, which have increased optimism in the economy, and he has taken responsibility for the fate of the u. S. Economy. Or nine years, it has been Central Banks are the only game in town, they are responsible for what happened in the economy. Directtrump taking responsibility for what happens to the u. S. It makes it easy for the fed to complement to contemplate what happens with rates. If it does raise rates, it will be remotely a surprise. Francine markets may punish the fed. Who has the most difficult job these days . Mervyn the European Central bank. It is struggling to impose the same Monetary Policy on a group of countries that need different monetary policies. Germany needs higher Interest Rates and higher Exchange Rates. Countries in the south need the opposite. Francine will the eurozone survive the next 10 or 12 years . A man said a few weeks ago he did not think Monetary Unions could survive 10 years without radical changes. What he meant was a fiscal union which means germany pays for the rest. There is a debate in germany by which they said the opposite. Country should not rely on germany to bail them out. Has not been resolved in any way, shape, or form since the crisis and merged in 2010. Later,ming up hydrocarbon stuck in the 50 range. Jeffrey currie of goldman sachs. A timely conversation with him. This is bloomberg. French bonds have fallen for a second day. Our guest host is a former bank of england governor. We were talking in the break. There seems to be a disconnect between politicians and what the people want. Therought it back to financial crisis. Why do people in charge of economies have little memory of what happened . Mervyn the economic profession thinkers assume we could, by passing new regulations, say the financial crisis was behind this and we will never see one again. The understanding of how the World Economy worked was also faulty. In contrast to what people believed in 2008, 2009, fiscal stimulus has not generated a lasting recovery of the World Economy. Some parts system in of the world, europe, china, it is still very fragile. We have not put the Financial System back in a state where it can withstand another crisis, which we may get if things carry on as they are. The Political Class felt we are back to business as usual. In contrast with the 1930s, when there was tremendous intellectual and political ferment about what we should be doing to avoid a repeated great depression, we are not seeing the same degree of intellectual a ferment of how we can avoid a repeat of the crisis and how we can get the economy to function again. Is their direct linkage . Does marnie le pen offer that radical change citizens of france want . Mervyn people do understand the need for change. Business as usual, carrying on with the usual package is not success. Lead to what Marine Le Pen offers is the prospect of radical change. Of the identified one fault lines in europe, which is the Monetary Union. The Political Class in europe can find a lasting solution to the problems of Monetary Union, there will always be uncertainty as to whether it can survive. Tom mervyn king with Catherine Mann. Is the trade deficit sustainable. What a privilege to have her with us. Mervyn king and Catherine Mann, next. Tom we welcome you worldwide. We will continue our discussion. Here in moments. In new york, here is taylor riggs. R republicans have come up with a planned to replace the Affordable Care act. It includes a refundable tax credit to help people buy insurance. They may have problems getting conservatives to sign on. Agroup called the tax credits republican welfare entitlement. Malaysia and north korea have upped the tension over the murder of kim jong uns halfbrother. In europe, the british chancellor will create more than 70,000 spots for students in his budget. It will help fund 140 free schools. They enjoy a high degree of a taunt me. It will allocate 264 million to improve existing schools. Global news, 24 hours a day, powered by journalists and analysts and more than 100 countries. I am taylor riggs. Book, ands a classic immediate classic in september of 1999. It changed the dialogue on International Economics and trade. She is the chief economist for the oecd. You have come so far from your classic vote. Peter navarro suggests the border tax can work for america. We have to remember when you put on an import surcharge, it cascades through the supply chain and ends up being an export tax. The implication will be greater in terms of creating a cost for exports than perhaps were aware of. There is discussion about whether the dollar will adjust. The answer is not likely. It is like which dollar . The dollar against the peso, against the euro . Being more to end up costly. It will not achieve the objective that they have in mind. Thee singular disk it singular distinction is model building. Roubini, and krueger, noticing a modern process system of industry which leads to complexity. Ls the navarrotrump mode dated and too simple . Deficits, wetrade have never believed that is what you should examine. It is the overall trade deficit. A blanket border tax adjustment is going to have a more negative affect on exports than you would think. We did calculations that suggest cause aport tax would 15 decline in u. S. Exports. Cost foran one to one the exporters. That is not the objective of the tax. Tom tell me the differential between border dynamics of a large x boarding company like exporting Company Germany and the oddity of a dominant american system. These are unique trading nations. You cannot use one analysis. I think that is right. We should recognize we have all benefited from the opportunity to trade with each other. Why would we want to put an impediments in place to stop individuals and businesses trading with each other ross borders . We should not do it across borders. Catherine is right. There are real cost to interfering with the natural way and which trade would otherwise operate. A taxitial proposal for reform had merit behind it. What is unfortunate is to combine a proposal for tax reform what they separate proposal for a border tax adjustment. One of the challenges is to see how far large countries are ourselves toubject rules of the game, which we would like to impose on other countries, but in return, we need to impose it on ourselves. This is where the issue of the border tax is likely to end up. They may not be able to withstand risk from increased trade barriers. Butare raising forecast, warning of the risk. Do we risk a recession because you are looking at two to 3 growth. What we are talking about, we have an improvement in growth. That is flying low. When you are flying low and you get a downdraft from the Financial System through a couple of different channels, or through changes in expectations for trade, coming through the trade channel, you can wipe away the gains we have in growth. Not talking a recession. We are talking a continuation of the low growth we have had in the last five years. Politically, and terms of disruption and populism. When you are flying low, you dont want to take a chance on down trav. You cant expect other people to play by the rules you dont play by. Increasedave protectionism, which crystallizes, there would be a Swift Response to it. Tovyn catherine is right point to the concern we have. Before the financial crisis, the World Economy grew by more than. since the bounce back from the World Economy has not grown above four percent. Slow growth,iod of which is below our ability to grow. Wecould grow faster and would need to do so to employ the resources that are available. Dr. Mann, power versus plenty. Are we rationalizing a new neomercantilism . We dealing with a society of power versus plenty . There is no zero some here. Trade expands the pie. What we have not done is you with the fact that the distribution of the pie has in the unequal. We have rationalized ignoring it. The pie has not grown so fast. We have to get on board with doing the right thing on the domestic side. It is complemented by a range of domestic policies we have chosen not to do. Have taken away fiscal mechanisms for redistribution over the last four years. We have made the situation worse. How does the nation of the east india trading company, how do they establish a place within the new power of trump politics versus the plenty we all desire. Mervyn it has plenty of size and weight in the economy. Having aave seen, large economy does not necessarily give you the power you want. China was growing at extraordinary rates and could not maintain its growth rate the cousin of the lack of demand from the rest of the world. Unless we find a way to get out of our problems through some sort of cooperation, ice expect we will see a continuation of slow growth. Kingdom, we need to accept the fallings hurling as a necessary part of the british economy and see resources move. You see the possibility of some kind of way for nations to come together to find a way where everyone benefits . We can work this out together. We know productivity is enhanced by trade. Productivity is enhanced by investment. Most of those both of those the rightilitated by kind of fiscal policies. One of the things we can do is to engage in collective physical collective fiscal actions. Some countries need to spend more on education. Some countries need to spend more on r d. They are ways in which follow their own path. The growth rate will allow productivity enhancements to increase and allow us to redistribute better. Tom thank you for joining us. Continue with lord king. What an Extraordinary International our Firm Bloomberg surveillance. Focused on america. This is bloomberg. Taylor this is bloomberg surveillance. Coceo says you cannot worry about the trade policies the Trump Administration might adopt. Are so many businesses. For the moment, weeks trying to analyze all of the Different Things that might happen. We will adapt our supply chain. All carmakers have adapted their supply chain to the only agreement that existed, which was nasa. Taylor they have had betterthanexpected sales in europe the first two months of the year. This is extraordinary. Catherine mann with us and lord ang in london area and authoritative on chinaamerica relations. Here is a quote from his book. This is great. Stealing from the dorm bush dornbusch. An unsustainable position can continue for far longer than you would believe possible. Bilateral trade deficit, something we should not focus on, gets a lot of attention area you look at what china is trying to do, it is what the u. S. Administration and imf have been arguing should be done. Lets dovetail your work. The length of time of a crisis. Do we lose trust and alan nations and trust in our relationships. Key issue. The what china lacks is trust. The u. S. Has that trust. Trust becomes very important. Game fort set the international finance, you can have instability and that is not good. The point where they are having a difficult time reading each , the complex of the of the relationship is becoming a problem for the world at large. Tom is the risk here to borrow a brutal strength in the u. S. Dollar. The dollar should not be used as a thermometer of trust. That is the essence of cooperation. It is not artificially coordinating policies. It is having confidence the policies will be pursued. The height of the dollar reflects the equilibrium we see in the economy. Thes measured by undervaluation of germanys currency. Surplus of gdp, rising steadily. This is unsustainable. Francine what is your reading of china now. It goes through the china outflow. They have this problem of reserves dwindling, outflows, the falling currency. This is the outflow. How did they fix the economy and the next 12 to 18 months . If you think about where china was a year ago, capital was flowing out. Of theow, in terms chinese economy, it is in a better place. You have the Manufacturing Sector doing bigger. Doing better. Profits are beginning to rise again. Aremedium term, there Financial Risks building up in the economy. The amount of debt is very large, about two times gdp and it is growing faster than nominal gdp. What is interesting in the work not only have they slightly lowered the growth theybut they have are beginning to see the financial risk of building up. The question is whether they are willing to undertake the reform measures. The question is whether they can rebuild confidence the right way. On that, they have made a small start. Francine this may take time. Confident are you they have a good handle on this . I think there are real risks to the financial set their and china. It is not likely to come immediately from the banking sector. We see defaults in one part of to defaultsill over in other parts of the world and people lose confidence in the value of asset. That is a real risk we face. China has not made significant moves in terms of shifting out, towards producing goods for domestic consumption. It needs to do that. I have some sympathy with the chinese of tories. Them to be easier for do that if they felt we were rebalancing our economies. If we rebalance the same time, we would have a better chance of making network. The ims has a need to focus less a cheerleader for Monetary Union and much more for being quietly behind the scenes, a bringer together of countries, to make sure that takes place. Art,professor versailles broussard, too short of a visit. If you have a bloomberg terminal, you can watch Francine Lacqua live. I am dead. You can go to a previous segment. Here is lord carrying on japanese remorse. Bonus round, you can come down and email Francine Lacqua directly. How cool is that . Pound sterling back to 1992. It is not a pretty picture. Francine the london desk is dazzled. Lord king, what is the common misperception . Mervyn the most common myths percent the most common misperception is that the referendum washe purely a response to the referendum and no longer had economic effect. After that fall, trade weighted sterling went back to exactly the same level as it was on the day i left the bank of england. Tom we would like to congratulate you on driving sterling lower during bloomberg surveillance. We will continue with mervyn king on radio. 121 point 88. We are trying to get down to 119. Maybe we will do that. Stay with us. This is bloomberg. Jonathan repeal and replace. The Republican Party unveils its longawaited answer for obamacare. Politics continues to affect the fx market. The sterling slips to a low. Cb bid. The Central Bank Increases building on german bonds. On is bloomberg daybreak tuesday, march 7. Alix steel is on assignment today. I am here with midwest and. David david westin. David we are going to be joined by an architect who helped get obamacare past. Passed. He will talk about the pluses and minuses of the new republican plan. Helpedark mullen, he form the relations between united s