That caucus dissension from christian forms, pushing up gilt yields. Lets take a look at the 10year yields. These markets are opening now as well. Were looking like we are up one basis point on the 10year yield. We are seeing 10year yields move higher in france and germany as well. The frenchgerman spread widening ever so slightly. 10year gilt yield, 1. 26 present. Looking at the stoxx 600, who cite close at its highest since december 2015 yesterday. Euro stoxx 50 volatility dropped the most on record. 600, bit ofhe stoxx a softer open on the benchmark overall. In terms of Industry Groups, taking a look at the map, were seeing a bit more red here. Materials stocks leading the losses, down 0. 4 , followed by energy. These two Industry Groups were leading the gains yesterday. Financials doing pretty well, up 0. 3 . I talked about volatility. I want to show you this great chart. Futuresril versus may and then youve got this bnp paribas Political Risk index. The last reading for that bnp index was monday. It shows the Political Risk in the euro area has tumbled to its lowest level since october. What youve been seeing is the spread between these stocks, april and may futures, coming down as well. It seems to be continuing today. Traders basically who chose to hedge against European Equity volatility, arguing that that is proving to be a costly hedge. Guy we will talk about the v stocks in a little more detail. Lets talk about individual names. Ive got my screen set up with index points. Dan scott, rio tinto, airbus, down 1. 5 . Im going to set it up with percentage change. As you can see, that is the story when it comes to percentage losses. Lets show you what is happening on the gainers. Im going to start with the index point, profile plays, bnp paribas, money rolling back into financials. Bbva also in the mix. Into is a trading higher. Tradeind of risk on certainly working out for the market. Is stoxx 600 bank index negative. Im curious to see that given the gains on the screen in front of you. We will deal with that discrepancy in a moment. Wood trading higher as well. Leonardo trading on the upside as well. I want to move on and come back to the chart nejra was highlighting. This is the v stocks, volatility for europe. That is brexit there. That is a point of reference. That was the move yesterday on the back of the dutch election. Maybe theres a little fed in there as well. I think that is a dutch election decision. Big move. Joining us now, fahad kamal, very nice to see you this morning. Are we a little early in pricing a Political Risk in europe . Fahad good morning. I wouldnt say we were early. The dutch election was a harbinger of the fact that populism has lost an important domino. The french elections, even now with a number of renovations still to the cleared, it seems that in the second round theres a very small chance of populism winning out. Seem thatoesnt populism is winning out necessarily here. Everyone is coming together on this issue of not only multilateral trade but fair trade. It seems even Steve Mnuchin to some extent is supportive of globalization. Are you concerned for are you hardened by the fact that this g20 meeting could bring some more cooperation . Fahad good morning, matt. We are certainly heartened that the g20 summit is happening in the recent noises have been very conciliatory, which has been quite a sea change from times past. In past months, noises were volatile and vicious in a way. Thatheless, we think theres some important aspects that need to be discussed. One, of course, the worlds biggest economy seems to be stepping back from the established order of world trade. That needs to be discussed and ironed out. But what is sort of more important is the Bigger Picture that these finance ministers need to discuss. That is that we live in a world with structurally lower growth. That is a problem. What little growth there is is a growing to wealthier members of society and not distilling down more widely. Both of these are very butctural issues to society the markets as well. We would like to see some action or some discussion regarding how the government are planning to tackle these challenges. Guy and if we dont . Fahad if we dont, we should continue to see that euro stoxx fall. Political risks will continue to manifest in markets. Guy do you actually see any evidence that what youre talking about is going to happen . Say, that isas you the wrong price. Fahad there is evidence that some of these things are going to happen. In davos, the entire summit was focused on some of the solutions to these problems. These solutions are coming, whether in tax redistribution or in fiscal spending. Concerned about the possibility of a mortar attack in the u. S. Or tilted Playing Field as far as Bank Regulations . This seems to be the real protectionist guy i think we may have just lost matt miller, which is very unfortunate. To pick up on matts point, the g20 is trying to push back against protectionism but there are very strong forces in the United States and you could argue in the United Kingdom, though the u. K. Protests that it has made itself nevertheless, some of the same forces are at work. Fahad the forces are at work, but theres no doubt that the forces of global trade, open trade, are wellestablished facts. The u. S. , which is clearly the leading country which is pulling back, that vacuum will easily and quickly be filled by the europeans. Guy jesse emails who runs ge has a pretty big footprint. He thinks weve already passed peak globalization. Fahad with full respect to jeffrey, im not quite sure that is true. Theres still huge dividends of globalization that still remain to be harvested. Those are coming through. Emerging markets still have quite a large force to play. I wouldnt be quite so negative. Guy nice to open this conversation talking about big picture issues. Fahad kamal, hes going to stay with us. Coming up, Steve Mnuchin makes his global debut and present a softer stance on trade. We continue to look at the g20 appearance hes going to make in badenbaden. Plus, keeping it together, why theresa may wants to keep the united in United Kingdom. The latest from her as she prepares for the conservative Party Conference. The vstoxx index plunging the most on record yesterday. Were going to ask one of frances biggest Money Managers. This is the open. This is bloomberg. Guy 12 minutes into the cash session. Lets talk about where european equities are. Give you a heads up on what is happening here. We continue to watch the foreignexchange markets. Big moving the shots as well. In terms of equities, not any clear sense of direction. The dax underperforming a touch. The pound is off today which usually means the ftse is up. Lets get some details on what is happening. Nejra cehic. Nejra Berkeley Group heading higher, one of the best performers on the stoxx 600, up over 5 now. Seeing its fullyear pretax at the top end of views. It said the Housing Market in the southeast in london has stabilized. Mosttock has risen the this year on those comments. Hit its highest since june 23, since brexit. Total oil down 11. 5 . It has dropped the most since july 2016. Were seeing oil and Gas Companies underperform on the stoxx 600. Raise said it is going to 750 million to reduce debt and invest in further drilling opportunities. Suez moving lower as well. This Company Provides equipment for drinking water. Credit suisse downgraded it to neutral. Looks like it is moving on that. Guy thank you very much indeed. The u. S. Treasury secretary, Steve Mnuchin, will be in badenbaden, germany today. He may already be there. Yesterday he met with his german counterpart, Wolfgang Schaeuble, for what he called extremely productive talks. That is in contrast to other Trump Administration officials who described americas trade deficit with germany as economic injustice that needs to be fixed. The United States has had one of the most open trading markets of anywhere in the world and is one of the largest markets of anywhere in the world. Interestedident is in making sure that our agreements are reciprocal, that they are fair, and they are reflective of making sure that the American Worker is at at least the same Playing Field and can compete. Guy kind of the warmup act in some ways. It comes ahead of the Angela Merkel meeting today with donald trump. That happens in washington. Matt miller, not in washington, but in badenbaden. What is your sense . Theres two things going on. The u. S. Seems to be turning down the language. The other thing is theres some criticism that germany is being a little too nice to the United States. Matt thats right. Germany has toned down the language as well. They want to withhold a statement on protectionism in the g20 communique. They think that is a loaded term. A lot of other g20 members are fighting back. The European Commission is fighting back against that, france, brazil, and italy. Weve just had comments from the finance minister out of italy and he made a comment that i think fahad touched upon earlier. He said they want to put emphasis on inclusive growth, on the social dimension of growth, not only the economic one. It is interesting to follow this back and forth. Another one of the key issues that has come up, trait is one, currencies is another, but one of the subcategories that is very interesting is Bank Regulation. The u. S. Wants to reduce donald trump wants to reduce Bank Regulation. Europeans have complained that would tilt the Playing Field. After this meeting a lot of people are going to head to basel to complete the basel iii, kamaliv rules, and fahad still with us, i want to ask you what you think about that Bank Regulation discussion. Theres concern that the Playing Field may not be level. Does that go to the detriment of european banks that already dont look great to a lot of investors . Fahad it depends on your timeframe for that question. They looked very good for investors over the last year. European banks are up in that time. Over the long term, 10 years down 80 since then. Regardless of whether it is here or across the pond, regulation is easing up margins for the Banking Sector in both areas. That is something that continues concern fore for the Banking Sector in both regions. It remains to be seen whether one is slightly ahead of the other. Beside theis point. Matt the germans seem to be giving up a little ground as far as the basel iii negotiations. We talked to felix yesterday. We also talked to andreas from the bundesbank. They said they could give a little ground on the basel iii discussions, but german banks, sure theyve done well in the year,ix months, the last but what does the future look like for the german banks . Fahad well, obviously, as youve mentioned, there are certain legacy issues that continue to live on their balance sheets, which make the future less rosy than they would like. On the other hand, you have a yield profile that is increasing. Just in october or september of last year, you had german rates which were at zero, and now that is bordering on a massive change. Economic picture is strengthening. On both fronts, the picture looks rosier, but no Bank European or otherwise is going to be able to go forward unless they had a chance to tackle some of the legacy issues on their balance sheet. Not donen banks have that to the satisfaction of markets. Guy even a marginal difference is going to make quite a big difference in terms of the way the shareholders might perceive it. Whats stopping people buying european banks . Is it the fundamentals surrounding the banks . Im curious to know. If im a u. S. Investor in new york trying to figure out where next, if thets go political story goes away, and my heading that bid on the european Banking Sector . It looks cheap. Point, that last point is crucial. They certainly look cheap. Of course valuation is an absolute key driver and determinant of longterm future returns. In that sense, they look cheap. I dont think though that the banks are necessarily an area where people are not going into already. Guy you just wonder whether that be is going to be huge. Well under one on book. Fahad they are. The Valuation Case is strong. If the risk factor continues to come down, they will continue to be morbid and they continue to be very attractive. Guy weve got more to talk to you about. Fahad kamal is going to continue to join the conversation here on the open. We have got the u. S. Secretary of state insult taking comments eoul making comments at the moment. Hes talking about creating a wider group of nations to think about the way we should deal with north korea. , puttingf the language more options on the table. We will come back and talk about mr. Tillersons you of asia. This is the open. European equities going nowhere fast with volatility compressed. Matt welcome back to the European Market open. Im matt miller in badenbaden for the gathering of g20 finance ministers. I want to focus on something theres going to be a lot of talk about and that is what is going on in the u. K. Theresa may will use the start of the conservative Party Conference to pledge to forge a closer union within the u. K. After Scottish National Party Leader Nicola Sturgeon called for a new independence referendum. The u. K. Prime minister says the focus for now needs to be on brexit negotiations. Still with us is fahad kamal, Senior Market strategist. New scottishthis independence referendum has any legs . Fahad good question. It is very possible. If you look at where the scots noted last year, it was overwhelmingly proeuropean. That theense, the fact u. K. Has decided to leave europe, the scots have a case to hold another referendum. Having said that, it is the last thing in the world theresa may could want to hear at the moment given the fact that this is already a period of extraordinary uncertainty. Guy is the bank of england going to raise rates anytime soon . Fahad good question there as well. The bank of england is between a rock and a hard place. Theres rising inflation, set to be above target. Guy wages arent going up there. Fahad wages arent going up and the last thing the bank of england wants to do is take a smaller sliver of prosperity and add a headwind to it. They are in a difficult place. Our feeling is probably that they will err on the side of caution. Guy so yesterdays move was something you want to fade. Back the pound bid on the that there is the prospect of a rate hike. Fahad certainly the pound was bid because of the dissension. It was the first dissension in the ranks in quite a long time. Nevertheless, 81. Guy fahad kamal, Senior Market strategist, is going to stay with us. Donald trumps audacious budget is coming under fire in congress. Were going to talk about the u. S. President s spending plans. There seems to be disappointment from the democrats. The republicans, i would argue, lukewarm at best. That seems to be the political noise coming out of washington. We will discuss next. 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. Att a softer stance Steve Mnuchin sounds reassuring as he talks trade with Wolfgang Schaeuble. Will he strike the same tone with other finance ministers . We are live in badenbaden ahead of the meeting. Volatility retreats. The euro vstoxx index plunged i the most on record yesterday. Are investors now underpricing Political Risk in europe . We ask one of frances biggest Money Managers. And the euro higher as nowotny signals a rate hike may be on the way for the ecb. What will it take to convince the Options Markets to follow suit . Welcome to Bloomberg Markets european open. Time matt miller in badenbaden alongside guy johnson in london. Guy fantastic setting. With 30 minutes into the session. Lets see how things are shaping up or down. Lets give you the board. To be honest, we are wrapping up friday, my sense is the market is not particularly invested today. The dax is around 0. 5 . The ftse unchanged. Yesterday was a fairly big day. Some significant repricing around the euro. Lets now turn to the United States. It is clear that this budget proposed cannot pass the senate. That was senator john mccains reaction to the Trump Administrations proposed spending and cuts announce yesterday. They call it the skinny budget, basically the discretionary budget. The president advocated steep cuts to nearly every domestic department. The skinny budget does include increased spending on transportation, veteran affairs, defense, and homeland security. Here are some of the reactions to what we got. This to me is a very shortsighted budget. I heard my friend Mick Mulvaney talking about how this was actually taken from president Trumps Campaign speeches. He ought to be a translator at the united nations. I dont think anybody could get this out of what Trump Campaigned on. Where going to move away from some of the domestic priorities and move to protecting us. Our president said this from day one on the campaign. Im not surprised. It is the congress under title i of the constitution that has final say over the Purse Strings and we intend to exercise that authority. We are eating our seed corn here. I think theres a fair case to make for extending defense spending given the range of threats we face, but the way to fund that is not by gutting so many domestic programs. Ive been talking to a number of senators, republicans, democrats, and they are scratching their heads. They cant believe this budget. Knocking soelieve many people out of programs they need. This is not a progrowth budget. This is a budget that is any wise, pound foolish, and would leave our country poorer if we followed it. Matt still with us is fahad kamal, Senior Markets strategist. Cutting spending is probably never easy to do. The people who rely on that money for their constituents and their campaigns always get angry. But is it something that needs to be done in a country like the u. S. , with such a big deficit to gdp . As you rightly pointed out, budgets are difficult at the best of times. Theres tremendous pressures on spending for aging societies in the west. Having said that, theres a time to cut and a time to not. The time to not cut budgets and to not bring aggregate spending in the economy down is in a period where Economic Growth is reasonably fragile. That is where we are now. If we were at a different point in the cycle and the economy was growing at 4 and things were firing on all cylinders, that would be a time to be more prudent with the budget. This isnt it. Guy how do i get to 4 if im donald trump . Matt, go. Matt you think Economic Growth in the u. S. Can be rightly described as fragile . Fahad find do believe it could be rightly described as fragile. The indicators are very strong and things are coming back but lets not forget that much of what has been powering u. S. Growth for the last period has been a period of exceptionally be nine Monetary Policy and liquidity. As rates begin to go up, we will see what the picture is, how robust the Economic Growth actually is. At the moment, youve got real wages which are going up, but still below where they were at the 2008 peak or thereabouts. Much of this will depend on the consumer staying at the party. That is far from assured. Guy given that backdrop, the scenario you describe, im donald trump, ive just revealed my skinny budget, im looking at taxation policy. How does my team get the u. S. Economy to 4 . Fahad obviously a big part of that will have to be based on a huge amount of stimulative infrastructure guy im not seeing that you. Fahad you are not. None of that was revealed in the skinny budget. Youve got to realize at the have afforded donald trump with a very wide degree of latitude. Markets largely believed everything, but not really delved into the details. Yet we are 50 days plus into the cycle and we really need to see some concrete details. Fahad, when you look at the u. S. , the state it is in now, do you think were going to get the kind of Infrastructure Spending donald trump has promised, the kind of stimulus donald trump as promised, and that is going to boost growth to a level that is more sustainable . Targetsort of the 4 that the president has set is based partly on Infrastructure Spending, based partly on tax cuts. So far we havent seen any details regarding any of that. What we have seen is some details regarding clearly the Health Care Push coming out and some details regarding immigration. I think that objectively most people would say that both of them havent been ruled out to great fanfare, even amongst many republicans. If you take that as a proxy for how the tax cuts and Infrastructure Spending will be rolled out, the picture doesnt look particularly rosy. Guy stay with us. Plenty more to discuss. , if you are a bloomberg customer, you can watch the show using tv as well as the video stream. You can also follow all of our charts, functions, i just made a mistake. Fahad is leaving us. Nice to see you indeed. International investors, asset managers, are decidedly unflustered. Were going to speak to the leading french money manager next. This is bloomberg. Matt welcome back to the European Market open. Im matt miller in badenbaden for the g20 meetings. Lets get national news. For that we go to sebastian salek. Will use theresa may the start of the conservative Party Conference to forge a closer union within the u. K. It comes after the Scottish National party leader called for a new independence referendum. The u. K. Prime minister says the focus needs to be on brexit negotiations. I say now is not the time. Efforts should be in negotiations with the European Union to make sure we get the right deal, the right deal for scotland and the whole of the u. K. To look at this issue at this time would be unfair. Sebastian british officials have complained to the white house after press Secretary Sean Spicer cited a fox news commentators report training barack obama had enlisted u. K. Intelligence to spy on donald trump. The u. K. Issued a statement flatly dismissing the reporting. The white house wouldnt confirm whether the British Government asked to retract the remarks. Executive isef being investigated over his residency. The lost a london court bid to end an inquiry on his earnings. The ruling says the government is not making any allegations of impropriety. Gulliver had spent significant time living in asia. Global news 24 hours a day powered by more than 120 journalists and analysts in more than 120 countries. Guy lets get back to europe. While investors fret about the risks of Marine Le Pen winning the election, Money Managers are holding on to their equity positions. Keep calm and carry on seems to be the philosophy. Lets get into the story with the french asset manager joining us now from paris, maxime alimi. Oversee 715 billion euros. Good morning. Thank you for taking the time to see us. Yesterday, we saw a very sharp drop in the vstoxx, the european volatility gauge. It is really quite pronounced. Brexit over here, dutch election over here. To price out right Political Risk in europe . That is apparently what they did yesterday. Maxime thats very interesting. We were surprised by this drop in volatility in equity markets. Certainly the market is taking the dutch election as a signal for the upcoming french election. I think that is a bit dangerous. The situation in both countries is quite different. The landscape is different. The electoral law is difference. What we recommend is to take exposure to volatility now as it is very cheap in order to hedge potentially against negative outcomes in the next few months. Just made thatay trade even cheaper i guess. Glass halffull if you will. Nevertheless, lets look at the french elections and try to figure out how i do price that properly. How are you looking at this story . In some ways it is incredibly asymmetric. The polling suggests Marine Le Pen will not make it to the palace, but if she does, the impact of that move could be huge. How do i price that very strong asymmetry into a portfolio . I think there are two important messages. First, we have built our own poll aggregator and that shows that Emmanuel Macron has a 60 chance of winning this election. Emmanuel macron and should be the central case. Marine le pen currently stands at about 20 . 20 is clearly realistic risk and we should consider it for he seriously. What i think markets may have wrong is the shortcut saying that if Marine Le Pen is elected, right away france is likely to exit the euro. I think this is a very dangerous shortcut. There are a number of hurdles for her to get there. There is first the Parliament Election which will take place in june and clearly the french do not want to leave the euro. Therefore it is unlikely to get an outright majority in parliament that would allow her to get this done. Secondly you have the checks and balances at the constitutional level which make it very unlikely that she can make it happen. Is, the risk line of her winning the election israel you . Matt the risk is real but you put it at 20 so it is low. I get how the asymmetric risk is on because if she does, it could be a very big problem. And definitely would be for any investments you make. To dig itthere a time position or is in there a possibility to take a position and say, this isnt going to happen . Wouldnt that pay off handsomely . Maxime certainly. I think the most likely right cds on the french sovereign go down sharply if the election outcome is positive. But on many other asset classes, you dont see a lot of risk being priced in. I think the market is certainly not in panic mode about the french election. If you look at government bonds, equity markets, the euro, the market is not really scared right now. You see that a lot more i think in derivatives. That is probably where you would want to take exposure. I was mentioning volatility for example. Come back to this issue of the parliamentary elections . Isnt the most likely outcome, and youve alluded to this, that either candidate, micron and Marine Le Pen, neither of those candidates is going to find dealing with parliament particularly easy. As a result of which, the probably central case for the French Economy is that not a lot changes, and that is not a good thing. Maxime thats a very good question. I think if Marine Le Pen wins the election, certainly you would see a lot of convocations forever her to deal with parliament and you could see what we call in france meaning that the parliament is forming a coalition against the president. Meaning she can literally implement very little of her campaign, says. If Emmanuel Macron is elected, it should be a different story, and i think a coalition is workable between his party and some parts of the centerleft and centerright. I think for him to win there is space for a working coalition and for things to get done in france. Seen weve actually incredible resilience postbrexit. We saw markets recover in a matter of days posttrump. We saw markets recover in a matter of hours postitalian elections. Do you think this would be one situation where you wouldnt see that kind of market resilience . I think the negative impacts would be probably more pronounced and more persistent because at least markets will want to see what happens to the isliament election, which going to take place about a month later. After that i would certainly think there may be some relief as the market realizes that ,arine le pen being elected very little of what she wants to do could be implemented. Guy can i ask you one final question . Theyh banks, in some ways should be the big movers surrounding some of this. Win,rine le pen doesnt where in terms of the sector story is the mispricing taking place right now . Maxime i think you got it right. Financials clearly should benefit from this positive election. Obviously the risk, when you think about Government Debt restructuring, redenomination risk in equity markets, financials are the closest sector to the sovereign stories. That is where we look at it very carefully and potentially see some upside. But at the same time, its very difficult to see a huge risk premium having been built into equity prices over the past few months. I think the cheapness in banks has been a story for the past few years and there may be a case for relief right now, but its also different factors to be considered. Guy interesting trade. We will be paying attention to European Equity volatility. Thank you very much. Maxime alimi, head of Investment Strategy at axa investment managers. Matt . Matt it is a gorgeous day in badenbaden, but up next were going to keep a lookout for a storm possibly brewing on the horizon over trade. This is bloomberg. Guy getting a bit of a bounce in sterling. Lets focus on the stocks stories. Heres nejra cehic. Nejra one of the biggest gainers on the stoxx 600 is frankfurt airport, hitting its highest since may 2015. Brazil auctioned four airports and they got the contracts to operate two of them. Interesting stories in the utility space. Eon gaining. It has raised about 1. 3 5 billion euros through a share offering. Wants to do with the money is pay for Nuclear Waste storage required as part of a deal with the government. Also plans to reduce net debt. Headingownside, enel lower. It set some ambitious targets. To hit those targets it plans to introduce a less capital intensive approach to building and operating Renewable Energy projects, setting its sights on digitization and efficiency. Guy thank you very much indeed. This is the cable rate. That is the move yesterday in reaction to the vote on the mpc. That is cable popping higher. Another leg underway at the moment which is taking us up to. 2386 level. Matt miller finds himself in badenbaden. He is rubbing shoulders with finance ministers from g20 countries. What can we expect . Matt i just saw the turkish finance minister taking a jog through the restricted area. Only finance ministers are allowed to run here. We saw Wolfgang Schaeuble this morning. We saw Steve Mnuchin. We saw the japanese finance minister. They are getting ready for a meeting which looks like it or a lessonciliatory contentious mood than we initially expected. There had been a fight brewing about the use of the word protectionism. Some consider that a loaded term. The u. S. Wanted to use fair and equitable in regard to trade. It looks like they may come together and calm the storm in badenbaden just to appease the new team out of the u. S. Guy interesting. Do you think the germans are doing this deliberately because Angela Merkel is in washington later today . Why them not sure germans are being nicer. From conversations i had yesterday in frankfurt, there was just the idea that, look, the treasury is just putting together its team. Some of its members havent been confirmed by congress yes. Lets give them some time. Lets give them some space. Theres no reason to make them feel unwelcome. Ill continue to cover things. Rom here in badenbaden surveillance is next. This is bloomberg. Bloomberg markets european open francine the u. S. Treasury says he wants a positive message on trade. Utterly ridiculous. Breaking protocol by lashing it was claims that implicit in the alledge it bugging of donald trump. U. K. Ser union within the as scotlands first minister sticks to her guns over a referendum. I am Francine Lacqua in london. Tom keene is in new york. This is bloomberg surveillance. Show with theed g20, Angela Merkel meeting your president in the white house. Tom it is nice to go back to International Relations. Secretary tillerson is in the Demilitarized Zone. That is remarkable. Will join us later. Francine, in the u. S. , the budget cuts are front and center. Francine mr. Rex tillerson giving a News Conference a half hour ago. We will recap headlines for you. Lets go to bloomberg first word news. Emma a new twist to President Trumps claims it was wiretapped during the campaign. Officials complained after a white house spokesperson cited a fox news report saying that president obama enlisted British Intelligence to spy on donald trump. House Speaker Paul Ryan Standing Firm in the face of opposition to repeal obamacare. Ryan told lawmakers he will not change the main pillars of his plan. He said there could be changes like adding a work requirement for medicaid. Theyre looking to break the lock down over the bill. Theresa may will issue a review to Nicola Sturgeon for her call for another vote for independence. Will stress a commitment britain, wales, scotland, and northern ireland, saying it is not the time for another vote. Themillerson is in Demilitarized Zone between north korea and south korea. He says the u. S. Will use all options to counter north Koreas Nuclear threat. He did not rule out a preemptive strike. This is bloomberg. Tom equities, bonds, currencies, commodities. I need one board. Bloombergill love my chart this morning. Futures, 2 10 spread. Oil back down to 48. Think we overall, i have a similar data. Emerging markets heading to the best week in eight months. Global equities taking a paz. Were looking at the scandal surrounding the wife of the Prime Minister. 11. 32, tom. Tom this is fraught with centralbank tension. Expectations five to 10 years out. Here is where inflation was, 2. 53 or so. This is a great disinflation debate. What we have been talking about is this fan distribution. Where the optionality of do we get back to decent inflation. The crew saying it will not be there. The american spirit of the American Economy will be diminished. I dont have an opinion, but it shows the inflation dynamic that was debated through the yellen press conference. Chartne i have a great as well. It is on volatility. The fact that volatility in europe was down. We went a step further. The ratio between the v2 x and the vix. It is going down, more in europe. I would suggest it is because we less thanks to the election in the netherlands. Steve mnuchin will be in germany for the g20 finance ministers meeting. It is his First Official trip abroad. He described talks with his german counterpart as extremely productive. Matt miller is there today. Att, lets kick off with you global trade is the one thing everyone is worrying about. That that is the one thing Steve Mnuchin and Wolfgang Schaeuble were talking about in berlin. Me inoth arrived behind to continue their talks and include the japanese financial minister who is also here this morning. The problem is that some members of the g20 want to include a line in the communique that will be released on saturday denouncing part section is in denouncing protectionism. The americans dont want that line, but they want one that includes fair and equitable trade. View thatshare the trade, fair trade, has to be shared. Is that trade is good for our economy and protectionism cannot be the solution. Matt that is the issue that might get contentious. That and currencies are the two major focuses of the g20 communique, the wording of which has gotten so much attention this week. Francine what is the one thing that you are hoping to see at the g20 . Who will be the loudest voice that will be pro trade . The europeans want it, but they are dealing with brexit so they are distracted, arent they . Matt theyre dealing with brexit, but they dont seem distracted. The french, italians, brazilians, European Commission, want to push the issue of cooperative trade,nternationalization globalization. They hope Something Like the dutch Election Results will show that the rise of populism has been stopped at the doors of europe. On the other hand, you will hear consolatory voices from the germans who are not only willing to give up ground on this, but willing to give up ground on the basel regulations, which will be discussed in switzerland this week. Will it be contentious, or will they let mnuchin have breathing room as he just comes into his treasury office. Tom what do the german people want out of chancellor merkels visit to the white house . What does germany want to get out of the pageantry of what we are seeing in america . Matt they are going to watch closely. Of course, the germans have elections in september. Merkel, who has already been elected three times is hoping for fourth run has chancellor. She needs to keep her Competitive Edge against the newcomer who has come out of european parliament. He will be pro europe antipopulism candidate. She needs to show she can play and not cuddle up to donald trump as theresa may has out of the u. K. , so much. Thank you matt miller in badenbaden. Lets get back to the Citigroup Global head for fx strategy. What are you expecting out of the g20 . It would be punchy if the first time Steve Mnuchin sits down there something in the communique that talks about manipulation . We are having a lot of debate about trade, but the first leaks came out over a week ago and were more aggressive than what we are discussing now. We have a linear trend where there is not as much as with the u. S. Would like to see in terms of changes to the g20. That we areange debating whether or not there should be in the statement. Fair trade seems universally accepted. Statement the g20 shows the ability of the International Community and u. S. Administration to come to a meeting of the minds. That is the most important undertone. Francine what would the u. S. Want to get out of this g20 . Richard you come back to what were the first leaks . Changing the language on volatility, trade, and protectionism were the original aks. Original asks. What we are debating now is already a watereddown version. Bet . What is the sterling what is the positioning . Richard we will start with the dollar. With the fed hike that was the biggest shift in Market Sentiment. It will be difficult for the dollar to rally in the shortterm term. Two things we can take out of the fed, they have learned they and ite once a quarter doesnt destabilize markets, markets absorb it well. They arealking about expecting three hikes in 2017, and thatd see 2 or 4 wouldnt be an accelerated path. The market is absorbing as well, predominantly because Global Growth data remains supportive. The dominant views are of emerging markets, as we have pointed out already, remain the dominant consensus view. All of that remains seems well supported here are the market does not feel it has to fear the fed, and the market feels confident the Economic Data will be supported. Tom i was wiped out on my bracket, i need a trade to get through march. What is the best currency pair were i can make money . Richard i think you have to look at the strength of the year the strength of the yen. Everyone is buying euro crosses, but the only central bank that we seem to have which is dovish in the g10 is norway. Because were moving to the end of march, you have to be concerned about japanese repatriation. Is a nonconsent is viewed that i point out. Francine thank you so much. Coming up, President Donald Trump meets with german chancellor Angela Merkel at the white house. Special coverage of that meeting at 1 20 p. M. In new york, 5 20 p. M. In london. We will talk about trade and currency. This is bloomberg. Emma this is bloomberg surveillance. Lets get to the Bloomberg Business flash. The u. S. Ed talks about Insurance Services according to people familiar with the matter. It is canadas largest buyout firm and a firm run by Goldman Sachs in 2012. Launching hisis biggest rebrand, part of asias Largest International airline wants 30 of employee costs. It would come from changes to middle and senior management. That is the Bloomberg Business flash. Thank you. British officials complained to the white house after sean spicer cited fox news claimed barack obama enlisted u. K. Intelligence to spy on donald trump after spicers briefing, there was a statement flatly dismissing the reporting. Now, lets welcome stephanie baker. And still with us richard from citigroup. To say this is nonsense, we were not part of the whole thing about wiretapping when President Trump was campaigning. Stephanie gchq very rarely issues a statement about anything specifically naming the fox News Reporter naming these allegations and calling it ridiculous. It throws into question intelligence sharing between the , 2 close allies. Intelligence eyes sharing alliance. Our globalo audience, this is the Government Communications headquarters based in london, gchq. Give us a sense of what you learn from rex tillerson. He is doing his round in asia, the first time the secretary of state goes to a region. Is it significant it is asia . Stephanie it is interesting that secretary mattis also went to asia. North korea looms large as far security concerns. He said the approach to the north Korea Nuclear program failed, and a new approach was needed. He didnt give details. At the same time, he was forced to explain, because trumps budget was announced when he was there, how he might cope with a proposed 30 cut to the state departments budget. Tom it is uncertain if the secretary of state can get home. What an uproar over the president s budget. Some of the comments from republicans are extraordinary. Where does the president go from here, including International Like the statets department . I cant figure out what happens monday. Stephanie almost one third of the state departments budget slashed. Some do think it got topheavy, but that is a deep cut. It is unlikely it will get through at those levels. There will be pushback from democrats in congress. I think that it reflects the trumps approach to shift away from soft power diplomacy to hard power. That is why he is increasing military spending. Tom help me with the week in the amended key the week in the United Kingdom. Is the Prime Minister up as we go into the weekend . Did Prime Minister may have a good week . Stephanie she had a difficult week. She sparred publicly and repeatedly with necklace, scotlands first minister. We have the prospect of another scottish referendum. I do not think she had a very good week. Francine nor did tom keene. Tom we are all over the map. That is the way the week has been, like we are going in eight different directions. Thank you for your wisdom. We will come back on Foreign Exchange in the market. Advancing forward the conversation we just had with mrs. Baker. Of harvardrns university and the Kennedy School will be with us. He has real budget experience. Worldwide, this is bloomberg. Francine bloomberg surveillance. Mustread. Morning you picked something to do with politics. Focusing on the outcome of the dutch election. ,t says although Geert Wilders a far right populist to makes donald trump look like a cautious centrist did worse than expected. He was by no means crushed, and is channelingers is still there. Now to my chart, j. P. Morgan global fx volatility index. It goes down significantly. Going back to our morning mustread, are we not pricing in any Political Risk . There to two things driving volatility. The comfortableness the market has was Central Banks and the andsions of the fed hike the central bank of england and the dutch elections. The only thing the market cares polls is that we had h for all of the main dutch parties. Sout turn was under the poll. The market was priced here, he performed here, people were that there was an unmeasurable far right vote in europe that was going to show up on polling day. Big difference is between holland and france. It is not a direct correlation, but the market will still read it that there is less risk. Euro,he strength of the not the political strength, but the parity continues to get crushed. Lets start with the why. Why cant the euro go through parity . It is about it coming in . Richard until you actually have private outflows larger, you it is very difficult to get there. Tom when is that going to change . Theard our view is that change would come out of the u. K. Looking at the dynamics between the u. K. And europe, the uks the most important trading partner and vice versa. On u. K. S more dependent imports than people expect. 43 of that trade surplus in the u. K. Because of until you get a slowdown in consumption and demand in the u. K. , it will be difficult for surpluses to come down. Francine thank you. Richard cochinos stays with us. We will talk about brexit, may versus sturgeon, taking on the Scottish National partys leader. We speak to a former advisor to David Cameron. There has been talk about what happens when theresa may triggers article 50. He is surprised we havent seen more volatility on the pound because of the scottish referendum. We will go through the implications and the timeline. 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 good morning. Francine lacqua in london, i am tom keene in new york. We say welcome to all of you. I am looking very green today. Snow on the ground, a st. Patricks day parade that we celebrate going back to 400 a. D. Iople ask me if i am irish, am wales. My grandfather would say tommy, just remember, dublin is closer than london. Francine i was distracted because i was looking at pound moves. I dont know if you are scottish, welsh, or irish at the moment. You will remind me. Distracted at the top here 86 is where we are. 1. 2386 is where we are. Tom here is emma. Emma there little chance the Republicancontrolled Congress will go for the bulk of President Trumps budget cuts. John mccain said it is clear trump cannot pass the senate in the budget. 30 . T the epa by he is calling for billions of cuts for education, science, and housing. Angela merkel mays with donald trump. Hours before she left washington she spoke with trade about xi jinping with trade with xi jinping. And its allies the Saudi Arabia Oil minister in placecuts will stay if the Oil Stockpiles are still above the fiveyear average. Compliance is lagging among nonopec ministers. A group of 20 meeting in germany. Those concerned about the Trump Administrations America First message. Steve mnuchin says the United States doesnt want trade wars and has urged against competitive currency devaluation. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Francine lets talk about brexit. The queen has given her royal thent to the brexit bill, final stage. Prime minister theresa may is free to trigger article 50 beginning the withdrawal from the eu. A closered to form union with the u. K. , rejecting calls for a second referendum on independence from scotland. We are looking at the pound. We have seen a spike. Access tochinos has the bloomberg terminals or he can figure out what is going on. An advisor toas David Cameron and director of the think tank. He is the head of International Trade at ey. Welcome to surveillance. Our global audience, who has the strongest cards. When theresa may starts negotiating, is she in the forefront or the backend . Mats it depends on who you ask. People who believe leavell say willin who voted leave save britain is in the negotiation position. Those who voted to remain will have it differently. It is a balanced negotiation. Eu is a bigger player with more firepower behind it. It probably has an edge, but britain is strong and is that Third Largest market in the union. A very big player. A big financial player. I think britain has leverage, it is not a wounded dog. Isncine do you see the eu playing hard to get . It is talk they are all together because they dont want to show the rest of the world that if you leave the union you can benefit from it. Is this negotiating, or will they stand together . Mats these negotiations will come down to a clash of political red lines rather than economic redlines. They want to give the impression easy,eaving the eu is not because of not wanting to give euroskeptics. The optics will have to be Something Like britain not getting a better deal than what it had inside the European Union. On the u. K. Side you have a read line about bringing back control over immigration and borders. Economic, itmarily is a political discussion. That is not unusual. There is the scope for a deal. Tom what should be the good optics for the Prime Minister forward . It has been a tumultuous week. There has been a lot of gentry back and a lot of pageantry backandforth. Mats at the moment, she can keep it relatively optimistic with a quite cautious tone. It is about managing expectations. Any country will go into a negotiation giving the impression of failure. She is striking the right tone. What is interesting on the optics is she wants to give the impression of being willing to walk away from the negotiation table. She has used language like no deal is better than a bad deal. She wants to give the impression going into the negotiations that if she gets a bad deal britain is willing to walk away from the negotiation table. This, thek at stability of sterling and the u. K. Economy doing well, in your expertise, are you optimistic about the u. K. Economy as a backdrop . Just to the end of this year . Mats Economic Indicators have held up well. ,onsumer spending, for example there are significant levels of consumer spending. Perhaps, unexpectedly so. We have not moved into article 50 territory yet. Inflation is on the rise. There might be more tricky Economic Times ahead of us. Im not of the school of thought that i think we are headed towards armageddon in the u. K. It will be uncertain and uncomfortable. The next couple of years, the economic front will be key to watch. Think both will go through this in reasonably strong shape. Francine i love having an fx strategist on their at our disposal. If we had a question about why violent moving, the moves that happened in the last hour and a half, a pretty big move, Richard Cochinos of citigroup knows why. Richard it comes down to the shift of the bank of england. Banks, butl especially the bank of england, was surprised for the vote for hike. That was a significant shift. Short sterling is continuing to drag forward. A first rate hike expected by the boe, which prior was in 2019. It has been pulled back almost 100 to september of 2018. , the yieldt rates differentials, open up, you will get radical shifts in the fx market. You are having treasuries not shifting around a huge amount. That repricing of the first hike potentially from the bank of england is the key driver. We are probably not done. Francine have a cool inflation chart for you, richard. We will get to that. Well be back with mats persson and Richard Cochinos to talk about the boe and call for rate hike. Quinn up later, vonnie will talk to irelands Prime Minister. This is bloomberg. Francine bloomberg surveillance. I am Francine Lacqua in london, tom keene in new york. Going into yesterdays boe another member moved the market. Kristin forbes voted for a rate rise, pushing sterling higher. Continueys risk will and Monetary Policy shouldnt go on hold. Is the head of International Trade and former advisor to David Cameron. Richard cochinos is also with us. Helping explain the move in pound, but how much of a surprise was it that we heard from Christine Forbes that she wanted a rate rise. We dont know with the economy will do. Was she right in voting for rate rise . Perspective, her absolutely. It is consistent with her approach to the economy and intersection between the markets and where Monetary Policy should be set. What the market was surprised on was the timing given most of the communication was twohanded from the bank of england. There are a few other mpc members that were not far behind her. What is surprising is not only did she call for hike, but several others are one or two behind her. Picture, ones is a of the ways of looking at inflation. Forward. Ing fiveyear in blue, the sterling fiveyear zero. Will inflation in the u. K. Kid out of hand . Richard i think the mpc has been clear that there is a soft upside in terms of what they will tolerate in terms of inflation. Will inflation rise . We would rise for the nearterm future . Yes. Francine your thoughts . Broader politics, an increase in the cost of living is always a political problem. Tom looking at sterling as the litmus paper of the system, what is it safe we have seen multidecade depreciation of sterling . Is there an urgency to provide support, or is it agnostic within the United Kingdom . Mats i dont know. I would say there are some who argue that sterling has been artificially strong for a while. That this is helping exports. This is very politicized. Some people say that a weaker sterling is helping us, helping exports, making us more competitive. We will see in the next few years with article 50. If i can jump in, the good story is that it encourages investment. You have an imbalance between deficits and in trade, a current large deficit. The weaker the Exchange Rate is the more longterm investment comes back to the u. K. Scenario thatit is a positive story. The Exchange Rates are doing what it should, pricing in uncertainty and opportunity. Tom you have to go, but you cant go, mats persson, until you help francine with her bracket. The basketball player, mats persson. What was it like to lose to st. Joseph, to take liberty to march madness 13 years ago . I didnt expect that one. That was unexpected. It wasnt nice to lose, but it was a fantastic experience to be in the big dance. , the brexit negotiation will be slightly more successful than we were in that game. Tom you hope that perdue will go to the final four. Our executive producer is a diehard boiler up. Yours goes to say perdue is your number one pick. Mats putting me on the spot. I would go with gonzaga. Tom lets look at what other people are doing. Here is bracket. I am not doing that well. Phil jackson from the New York Knicks is pretty good. Bloomberg outpacing tom keene this morning. This is a Great Charity. This is a Great Charity where a lot of people like steve balmer, yet a tough week but did a charity with us. 10,000 each to a great cause. A great start. Emma this is bloomberg surveillance. Bloomberg business flash. Apple will set it to Research Centers in china. The Largest Overseas market, one where the iphone has lost ground to local rivals. Foreign companies have built Research Centers in china to curry favor with the government. Briberyies linking to in the engagement business making it to a thirdparty consultants. Airbus says it is not an issue. An executive at the italian general wallace insurance is shocked that they were interested in a takeover. We are very surprised when we heard the first thought theynever would be interest from companies. Generali iss that not going to merge with anyone. Francine i am distracted i amRichard Cochinos changing the heat map to look at yet. How does this look . Is this what you are looking for . What does this tell me on yen . Richard this is a heat map for dollaryen. This isi would get japan, like europe, is a surplus country. We are in an environment where volatility is falling. The reason the market was long on dollar and yen was a more hawkish fed. That has changed. We should see dollaryen falling as that gets repriced. Japanese yen recharacterization. Read patronization. We also see a tendency for dollaryen to fall. Red is falling, green is rising over the month. Environment up an 110 ine could trade dollaryen before the end of march. How the market is reacting with the level of volatility is where the attention on emerging market and high data currencies are. I would say dollaryen is offered. Tom within dollaryen, we always come back to abenomics. Hope was to go like this. It didnt happen. You have continued enthusiasm yen ine might get the the vicinity of 120125 . Richard if you bring up the current account surplus, were 2007 levels. It was almost in a Straight Line of appreciation. That is difficult to overcome. Towill be tough for mr. Abe get the appreciation he hopes in the yen. It comes down to if there will be a shift. They are concerned that yield japanl in the bank of will come under increasing pressure in q1 and q2. Tom what is going on with the president and uproar in washington. Is yen a traditional safe haven, a trump safe haven . Richard it is still the best safe haven. If you see spikes across markets, the yen is what you in that scenario. Are we likely to get that over the next month or two months . It comes down to the french elections. The market has pared back its uncertainty. Francine something good happen in france of turnout is low. Were Market Sentiment . You dont want to be burned on this. For theirhe polls, weaknesses, are the only information. We track trends in the betting market and how the implied probabilities are shifting in one direction or the other. We know the three final candidates. Were pretty certain what the outcome to the first round is. Until we see the vote, it will be difficult to say there is a significant shift. Francine lets say that Marine Le Pen wins. Euro the nexto day . Richard probably 5 lower. Good 3 in 24 hours after the second round vote. Le pen winning is not the same as france exiting the eurozone, the brexit vote which was a definitive blackandwhite. It raises the uncertainty further for europe. Help me with u. S. Dollar. One of the surprises into the end of the First Quarter is dollar stability. Will we get more of that . Richard it will be difficult for the dollar to have the rally everyone was forecasting without further advancement from the administration, both in terms of the tax overhaul and border adjustment tax. There are steps in place that need to be met first. Then we can come back to talk about dollar acceleration. Even with the fed, who suggested that 4 hikes in 2017 is a possibility, the market seems to absorb that information well. Tom thank you for the briefing on a friday, setting up for a good weekend. In the next hour, we will link all of the action into what do you do with your money . Gabriela santos will join us. Cash,verything, go to load the boat, why did i buy canada goose . We do that with Gabriela Santos. This is bloomberg. Bloomberg realis yield. Leverage has been building over the last year. Broadly, yields are at multiyear lows. Fedthan even the way the to find that they are behind the curve. Counterproductive. That is from a republican in kentucky. All will be taking budget 101. The chancellor will meet with the president. Begins, brackets busted everywhere. Princeton heartbreak, northwestern triumph it. The madness starts. Michael bloomberg is doing better than me, what is that about . This is bloomberg surveillance. Our worlde from headquarters in new york. Francine lacqua with her bracket in london. It is lost in translation . Francine a little bit. As soon as you know celebrities are playing, that it is a fun it on the can do terminal and all the money goes to charity. Almostbriela santos canceled on us because penn did not make it into the bracket. A terrific charity involved on the brackets. We need to get to briefing our first word news. Here is emma. Emma a new twist to President Trumps claims he was wiretapped. British officials complained after white house spokesman cited a fox news report saying that president obama enlisted British Intelligence to spy. They are denying the report. Ofnding firm in the face opposition to their proposal to replace obamacare. Paul ryan told lawmakers he will not change the main pillars of his plan. He is considering changes like adding a work requirement for medicaid. Others are looking to rake the lockdown over the bill. Theresa may will issue a rebuke sturgeon for another vote for independence. She will stress commitment to the union between england, scotland, wales, and northern ireland, saying it is not the time for another scottish vote. At northrson look korea, visiting the most heavily armed border, the Demilitarized Zone between north korea and south korea. He said the u. S. Is considering all alternatives, he did not rule out a preemptive strike. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Thank you. Equities, bonds, currencies, commodities, i have one screen today. Francine will talk about sterling. A 48 handle, down from 49 in the last 24 hours. Francine quite a lot of positioning on the back of boe. I would point to a dollar for the biggest loss since february. A little bit of a pop for a lot of the equities. I want to show you vix and crude oil. Is returninghe day to the london financial center, the takeover of the Brokerage Company to build an investment bank. That crossed our wire and power and half ago. Tom a lot of reorganization in the financial system. What do you do with your money . Lets look at a bloomberg chart. You will do it with lower Inflation Expectation. This is five to 10 years. Inflation, down we go on disinflation. We have no clue where inflation will be. There is a huge debate over the trend of inflation. Stay with us with Gabriela Santos. We have to go to washington. He is with us daily, it is kevin rilli. Which part of the budget are republicans most upset about . Cut to programs that could directly impact key portions of the United States that President Trump won. Agriculture and entitlement programs known as the flyover portion of america, between the coast. Aides, with several top all of whom canned the budget. Tom a surveillance regular has given us perspective on the budget. In the second paragraph of the new york times. Ais is not a budget it is Trump Campaign press release masquerading as a government document. The next step if the Trump Administration does not know budget 101 . Kevin clearly a political document. The sources in washington tell me it would increase defense spending and cut several agencies. The Business Community is looking at it as another signal from the white house that they want to deregulate. Cutting agencies would seem they want to deregulate. Cuts to mih would hurt big pharma. Big Pharma Companies are relying on mih to boost trials and speed processes. This could have direct impacts, not because it has a chance of passing congress, but it does signal the priorities of the white house. Francine we also heard from secretary of state tillerson saying he would not rule out a preemptive strike on north korea. What will his main message to the region be . Kevin he said consistently they dont like ruling out any parts of military action. This is secretary tillersons first trip, with a lot of eyes on him in terms of a volatile region. He was criticized for lack of has toccess, but he essentially do this without any Major Political hiccups. He has not had any so far. All eyes in washington will be on german chancellor Angela Merkel when she gets to the white house. Tom always interesting to see, the secretary of state, all of the attention going back to 1953. Thank you so much. We have so much on central bank theory, International Relations, and politics, we thought what do you do with your money, bonds, stocks . Gabriela santos joins us this morning. Should i be in the stock market . Abriela we think so we are seeing an acceleration in Global Growth starting in the middle of last year. This is not only the u. S. Trend. Growth is picking up in europe and global markets. That is encouraging for risk assets. Equities, yes. The stock market, yes. Tom i want you to help with the , bring up this chart. This goes from the lower left to the upper right. I sorry, this is a trend i do not want to bet against. How do you and jamie dimon, how do you filter out the Political International relations noise of what do i do with bluechip stock . Gabriela we focus on the fundamentals. What do we know at this point in time about the u. S. Economy, the Global Economy, and Company Earnings . That is a healthy, solid picture. The one caveat we would make is we are ready for u. S. Expansion. We cant expect the same Earnings Growth that we saw. We need to reset expectations for the returns we will get in the u. S. Market. Up, but lower returns going forward. Francine does that mean we will do a correction in a lot of u. S. Equities, and will it be a heavy correction . Think moree need to carefully about equity exposure. Not only thinking about the by sector a sector basis. Usually what does better is the cyclical sector. We need to make sure the u. S. Global investor will not concentrate too much and just the u. S. We have more international exposure. In terms of correction, it would be normal to see a correction, just like every year. That still suggests a market that goes up throughout the next few years. Francine is donald trump not actually breaking the cycle . Or, is he reshaping the fabric of the u. S. Economy . Gabriela that is yet to be seen. Were thinking in the same Economic Cycle that began in the economic crisis about to embark on its ninth year. Thinking about lower return expectations going forward. We will see what policies are implemented and if fully reshape the Growth Potential for the u. S. Economy. Francine thank you. Gabriela santos of j. P. Morgan. Sset management donald trump will meet with german chancellor Angela Merkel at the white house. We will bring special coverage of that meeting at 1 20 p. M. In , 5 20 p. M. In london. They will talk about surpluses and trade. This is bloomberg. Tom bloomberg surveillance. N london and new york Francine Lacqua and tom keene. Good morning to the continent of europe. Michael mckee, the g20 in badenbaden. I can think of worse places to be. Michael, help me with the secretary treasury with a budget cuts. Can he get home . Will be able to get home for sure. The question is, how soon does he leave. The question as the g20 begins is if the u. S. Still fits into a group it used to lead. They are talking about language in the communique on trade, banking regulation, climate change. On tradeumps rhetoric is a heated issue for these ministers. Soundary mnuchin tried to reassuring. Secretary mnuchin our focus is creating Economic Growth that is good for the United States and the rest of the world. It is not our desire to get into trade wars. It is our desire to deal with where there is in balance in trading relationships that we have a means to address that. Michael the cooperative tone does not extend to the meeting rooms in which they are working on the communique. The u. S. Wants language resisting protectionism to be dropped, and language that calls for fair trade around the world to be included. The chinese are saying no to both. The french minister said they will not drop their call to resist protectionism either. The hallways at this g20 meeting . What is the backstory away from the photo ops . Michael does the g20 retain relevancy . Country,is the biggest the biggest economy, the most important player. All of a sudden they are coming in with a different point of view from the other 19, who have worked out for years common positions on issues. It will be a question if the if they can come up with anything that full reassure investors that the Global Economy is in good hands. Know you will probably have difficult meetings with some of the other finance ministers, including the german one. They met in berlin yesterday. What about saudi arabia, china . Worlds a big chunk of the cheered what are you looking forward to . Michael what were being told is that the u. S. And china, the two big actors with the most positions,ly opposed particularly on trade. When u. S. Talks about a clause on fair trade, they are referring to the chinese. The chinese know that and do not want that language in the communique. It is possible they will drop trade language and refer it to the Leaders Summit in july. Francine have you seen the russian delegations, what about them . Theael we havent seen russians yet, but they seem to be marginal players. And thech and germans Major Players seem to be leading the charge. Steven mnuchin may be playing an Important Role behind the scenes, but in front of the cameras he is fairly reticent because he is the new guy on the block. Tom with us today on investments is Gabriela Santos of j. P. Morgan asset management. We talked about equities. Within the International Relations there seems to be a regime change in bonds. Ring up this chart bring up this chart, which i have not shown in ages. Etf. Anguard total bond you can use other things. This is the lehman moment here. Down, priceprice down. Are we at a Tipping Point on bonds where we will see a legitimate higher yield lower prices . Gabriela we believe so. This is driven that a global synchronized acceleration in terms of growth and inflation. If we think about Central Banks, which have been holding yields lower artificially, we are feeling an important shift away from important Monetary Policy around the world. Ofs move curves. We have a g20 meeting distracted by this. If we get the jpmorgan outlook, do we get it with stability or we can manage our money given lower bond traces, or will there be in stable condition is that harm folios . Are alwayshere unforeseen risks. It will never be an easy upward or downward trajectory. We can argue there has been an important shift in terms of centralbank policy that we are expecting to continue. That is crucial if you think about the money that has gone into fixed income since the Global Financial crisis. A lot of clients are heavy and core fixed income, and we want to make sure we diversify. Francine what are the chances of something badly going wrong . We have been trying to figure it out in europe. It seems the markets have been ignoring Political Risk. Im thinking of brexit. Something sudden that means we are rethinking the Global Economy or bad on trade. What happens when the market realizes . Gabriela im not sure it is politics in europe. We are very constructive on europe, separating the political noise from the economic improvements on the ground. It is healthy to shift away from the Political Risk in europe, in terms of investment anyway. It could be, we dont know. It is always what we dont expect. Something in geopolitics, perhaps. We dont know. Tom i want to show a percent change. One portfolio down 5. 35 from the peak. The two years coupon has evaporated. Maybe it is the year and a half coupon. There has to be a Tipping Point of bond lost her everyone shifts from the yield study, wait a minute, i am losing money. Is that this year or next year . It could happen this year. We have been range bound in regards with treasury. There has been complacency settling back in. We would warn against that. Forould say the trajectory interest rates, yields in the u. S. , around the world is up. There has been a change in regards to growth, inflation, central bank politics. Tom talking about yield while the rest of us live price. We will be back, trying to figure out how to not lose money. Coming up on Bloomberg Radio and surveillance, this is an focusing conversation on the statements made by hhs. , measles, and rubella. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. Diamonds capital and a bank from qatar has taken over. Diamond steps down from barclays. We are joined by our banks reporter in london. We have been following this story with great interest. It was confirmed. Where will bob take gordon from now . S new yorkbased private equity firms said they would like to turn it into an investment bank. They want to make senior m a bankers, expand equities, and develop the coverage. That is a small Brokerage Firm in london. It has a great history. Father andons grandfather worked at this firm. It is a blue blooded institution, but handles tiny deals on londons junior market. Francine he wants to make it like a rothschild . Richard but for small cap deals. I do not see it becoming a titan of investment banking. I spoke with the chief executive who said that bob does not want to turn it into barclays 2. 0. He wants to stick to the knitting of the institution. It is a very small firm. Tom he wants to do and ever core. Of whatwith the chaos he is investing into her there is a debate over southside intensivend active management. What is the strategy given the turmoil in the city . Richard it is unclear. The firms in the smaller end of the market have found it difficult to make money. We have new regulations coming in. It is very hard to make money. Tom thank you for that briefing. Elping us on penn year gordon 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. Washington dc, the german chancellor is coming over to d. C. At the white house to meet with President Trump and you have Steve Mnuchin meeting the g20 finance minister. We will dig deeper into this alliance. Its get straight to the news. Emma there is little chance the Republicancontrolled Congress will go to the proposed budget cuts. John mccain said its clear the trump budget cap passed the senate. The president wants to cut the state department and the epa by 30 . He is calling for billions in cuts to health and education. Opec is maintaining Oil Production cuts after they expire in june. That is according to saudi arabia. He spoke with bloomberg today. Still above the fiveyear average. The market is not confident. We dont see companies and investors feeling good about the global oilhe industry. We will signal to them that we are going to do what it takes to bring the industry back to a healthy situation. Compliance is lagging along it nonopec members. Steve mnuchin it makes his debut on the global stage at the group of 20 meeting in germany. Those aboutng trumps America First message. The u. S. Doesnt want trade wars. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. I am emma chandra. Tom thank you so much. This is the most important interview of the day for those of you in the United States of america. We want to get somebody with some experience in washington. Former president of the rotary club of little rock. Far more importantly, he is one of the few republicans with a collective memory with george bush senior. What are you going to do with the embarrassment of that Budget Proposal yesterday . The democrats toward to shreds. The republican sport to shreds. What do you tell the white house to do . Good morning. The first thing is to recognize the president has laid out his priorities, but now that goes to congress and it is subject to oversight. And will set the priorities implement the budget as we are required to in the constitution. Of within the leadership your house, what will be the message to the president . I dont mean a secretary mnuchin. T will the discord discourse be within the Leadership Back to the man in white house . Its important for the president to lay out his priorities when they are brandnew in the white house. Its also important to look beyond simply cutting domestic discretionary spending. If we want to get the longterm house in order for the United States, weve got to look at the mandatory spending programs and those will drive the longterm it deficit. For me, thats not something i will find when i study the details of the budget. Thats something weve got to focus on. Tom i dont think its front and center for you, but i know it is for senator portman to take one budget item, the Opioid Epidemic we see across the midwest of the nation. How do you cut the budget for that through Health Services given what republicans heard and saw and observed on the campaign trail . Not only do we see it on the campaign trail, we have seen it in our districts with the daily work we do for our constituents and weve seen the horrific deaths in the new england area. Senator portman is right to be concerned. Thats why this will come to the congress and be dispatched by the congress and be customized with what we think the real priorities of the country are. What kind of budget would you put in place that would actually keep the people that have been hurting the most in the u. S. Happy . Longterm problem in this country with our cisco fiscal situation. Ridden its important to look at those longterm spending. I would be modest in the growth of discretionary spending. I would make sure we have the National Security issues in place. I would look at longterm Structural Reforms in our mandatory spending programs. We could lower that slope of the compounding. Our economy has grown for less than 2 . Youve got medicare growing at 6 . Francine you need to spend so much on defense if you keep your allies close . In the opening of the Trump Administration, this is something they have to assess. I appreciate the secretary going to the g20 to recommit that america is committed to nato and learn european partner should Work Together to offset the expenses that we need to defend europe and the north atlantic partnership. To me aboutlk regulation. I know this is what you look at closely and we had the board a couple ofthe g20 minutes ago saying he is concerned about the loss of momentum of global rules. Is this something we should worry about . After six years of doddfrank and a decade after the crisis began, its important to reassess where we are on the effort to regulate our global institutions. I think in europe youve seen in england and france an interest in taking a positive reassessing whats been put in place since the financial crisis. In the United States, we believe its a good time to reassess the impact of doddfrank, which was our law implemented. Tom you have to sedate congressman from texas when he talked about the Federal Reserve. How are you going to fill the slots at the Federal Reserve . We are for mr. Trump to make his nominations. Hearing onwe had a sound Monetary Policy. Unwindsed on how to we this unprecedented large balance sheet. Thats been the focus of the congress early. Tom one final question on a friday as we try to get in the weekend, you served with George Herbert walker bush, how we get the grace back in washington . We start out with one of my favorite quotes from president kennedy in his first inaugural which was civility is not a sign of weak us. I think people on both sides need to remember that as they go about their debates on behalf of the american people. Tom thank you so much. He is from the Second District of arkansas. It was wonderful to go there and see the budget. It is supposed to be a stimulus and i dont think were going to get that. What is the framework of your gdp call for the United States if weve got to dampen Government Support . Notiela our idea is changing meaningfully, even postelection. We think the u. S. Economy will grow at average over the past eight years, a little over 2 . 2 has proven slow but steady. There are healthy fundamentals. I wouldnt say its the worst case scenario. We want to think about the potential for fiscal stimulus. Whether its infrastructure or tax cuts. It may be too early to tell. We dont know the details. That could add a couple of basis points to growth. Tom this sets up where we are after the janet yellen soiree earlier. The terrificack to question which brought up the idea of noisy gdp is not all that important. Maybe not. We will continue to look at washington and our diplomacy. We are thrilled to bring you Nicholas Burns of Harvard University on budgets. Readyrk city is getting for the st. Patricks day parade. This is bloomberg. Emma executives were shocked when they heard the italian bank was interested in a takeover. The ceo spoke to bloomberg. Surprised when we heard the first noise. We all were. We are very confident that at the end, nothing serious what happened. Actually, we never thought there would be interesting synergies for both companies. Emma they are not going to merge with anyone. They are launching the biggest revamp and two decades. Asias Largest Airline will save 30 in employee costs. The savings will come from changes to middle and senior and its meant that will be announced in june. That is the Bloomberg Business flash. Japan where the have a huge business, the headline numbers are pretty good. What i did was look at the same source sales. I think its a 5 in the flagship store. Not that ive been in there recently. 11 . I was looking for comments on the president. This video is to buildings down from where President Trump lives. Francine, have you been to tiffanys recently . Francine i love the fact you are art chief luxury correspondent. I have not then, but theyve been doing well due to currency movements. Every time there is a movement, this translates directly into the revenue. Tom maybe its a little too much. Maybe more like the bangle theyve got. Theres a t bracelet. Now we migrate over to a serious discussion about the damage to budgets. No one knows the state Department Budget unless you live it as an ambassador. Is at the Kennedy School and joins us. He has steam coming out of his ears this morning. You are at school and you want to go to the state department and there is a massive process through counselor to be a young officer of the state department. Can you tell a kid at harvard, a kid at Wellesley High School today that they should work in this budget reduced state department . Nicholas i would still tell that young woman or man to go to the state department because i think the budget which would decimate the state department, its going to be dead on arrival on capitol hill. Most the severus vociferous opposition has come from republicans. Tom give one example of the mike rowe expense. You are in athens with some danger to Public Service. Youve got a 28yearold kid in the state department. Expense that person has at the president needs to understand needs to be there . Nicholas we are all about personal. The station state department aircraft carriers. You have to rent an apartment. Refugees andview immigrants and take care of sick americans overseas. They might try to help and export market. In theght be involved agreement to end the civil war in a place like syria. The state department is in charge of our relations with 190 countries overseas and it runs the gamut from commercial diplomacy to visas to war and peace. Defenset kennedy said and diplomacy are not substitutes for each other. Youve got to be strong in both. I am for a Strong Military budget, but it decimates the state department. A one third cut means substantial layoffs in an agency that is already small. It is foolish. I dont think congress will go along with it. Francine Angela Merkel is showing up today. What will be her main message . Does she speak for the rest of europe . Nicholas i think she is the strongest ally overseas. She is looking for some certainty from donald trump. Does he support nato . Does he support the continuation of the amick European Union or will he cheer as nations leave it . Will the United States retain sanctions with europe on russia. Ver its occupation of crimea i think shes going to have questions about the relationship. The trade counselor has said germany is a competitor with United States, that its trade surplus is a threat to the United States. Questions going back to fundamentals about the relationship between these two great countries. Francine who does donald trump listen to . If he does listen to Peter Navarro, what is in the interest of the u. S. If the eu were to take apart, brexit times 10 would be good for him. There is a battle between these radical conservatives like Peter Navarro and steve bannon and pragmatic sensible people like jim madison rex tillerson. I dont know whos going to win that. To suggest United States might not support the European Union when we urged it to be created , thee late 1940s flourishing of the eu has been a substantial benefit to the United States and political, military, and economic terms. This would stand a 70 years of american policy on its head if we urged country to use leave the eu. Its unthinkable. Tom this is not the movies. Its not hollywood. Its not tom hanks in that rate movie he did a year ago. Nobody knows who John Kornblum is. You do. In 1964. D he was there free reunification of germany and he is the kind of guy the president wants to cut out of the budget. Help me here with his Public Service area service. Nick he understood germany. When the wall came down and polemic, when germany had to be unified, he was there to advise american president s and secretaries of state of what the germans were thinking and how to advance american interests. We need meant men and women to be specialists. It costs money to train somebody, but not as much as a weapon system. This is penny wise and pound foolish to think you can cut a third out of the budget and layoff always diplomats and have an effective foreign policy. Tom ambassador, thank you so much. You can see all of this on tv. This is one of our great inventions on the year. Its all wrapped in here, including a conversation with nick burns. You can go over here and bring up a previous segment to see the brilliance. You can also steal that chart with my fan distribution of Inflation Expectation print its too much. It will even help you with your brackets in the ncaa. How about that . Kevin is always hogging the air. This is bloomberg. Goodbye. Tom there is no other way to put it. The foreignexchange report is the vanilla report, there is a lot in there. Thanks for the conversation on dollaryen. Francine i am noticing a pop. 123. 83 is distant from the gloom of so many. Lets do a single best chart. Earlier thiss with week. How about equities versus bonds. This is the s p total return index. This is up 47 of the total return. You can see the moonshot here off the lehman low. Wicked coolally index. Return bondtotal index. Early about bonds down yields up. Gabriela the chart was an interesting time we have been through. It was a sideways market area we have had to 50 drawdowns. Thats not what we see happening. Text values got overvalued. That is not how we see things today. Valuations are a little above average, but not one standard deviation above average. That other one, that second one over there was the Global Financial crisis, the big recession we saw. If we think about where we are in the cycle, we are getting closer to a recession. There a many different types of recession. It doesnt have to be a steep one that precipitated such a large drawdown. Where we think we are is escaping the sideways market and continuing to trend upward. Mentioning, a little less vigorously than over the last few years. Francine im going to put you on the spot. It is now a good time to get an emerging markets . Gabriela i am so excited about emerging markets. We see a good improvement in growth relative to develop markets. We finally see that external and a mastic stability. We see inflation coming down in some of those high inflation countries and we see very attractive valuations for equities. I think there is a very strong argument to be made about fixed income. Tom thank you so much. I am all in in my brackets. Lets go to it right now. Go purdue. Boiler up. It go purdue. This is bloomberg. Stay with us. Jonathan the german chancellor heads to the white house. Some reassuring words for leaders at the g20. Steve mnuchin says he does not want the u. S. To engage in trade wars. After another reserve rate hike, how long before the ecb makes a move. One official says it could come before qe ends. Good morning. This is bloomberg daybreak. Its all about the white house and it mean between these two. David it all has to do with germany. This is the most important meeting donald trump has had. Resident donald trump and Angela Merkel meet today. We will have special coverage of that event. You do not want to miss that. David we will talk to steve ratner about cars
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