Transcripts For BLOOMBERG Bloomberg Surveillance 20170322

First, the bloomberg first word news. U. S. , morethe attacks on the republican proposal to repeal under place of obama care. Major medicated sugar say they have serious concerns about the bill, which cut 880 billion from the medical program for the poor. Some republicans are worried about state budgets. Vote tomorrow. North koreas latest missile test has failed according to military officials. They stated missile appears to have exploded within seconds of launch. After theree days regime claim to have made a Major Development in the Missile Development program. In europe, turkey has asked it remove it from the place being covered by the new travel ban electronics on board when they fly to the u. S. The u. K. Has joined in on the ban but turkey says it shouldnt be joined in those restrictions. And french president ial gettinge macron is ahead of Marine Le Pen. 26 in a first round matchup with Marine Le Pen dropping to 24. 5 . Beats Marine Le Pen in a runoff. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Hi him taylor riggs. This is bloomberg. Tom a data check here after what we saw yesterday. Futures continue to erode. Ative seven on smp fear of negative 7 on s p 500. Thecurve is flattening on 210. We vix was a 10 handle and got more angst in the market. The yield is a lower yield. The color is wrong in the green. 10 basis points with a lower year yields this morning. A coordinated decline in the markets. Francine something we need to eye on. Congratulations to the team for pointing my eye at iron ore which is getting battered after thatd a significant round this years rally may be overdone. A bear market has been ingles with the china futures. So look at iron ore. A couple of contracts we need to look at. You were back to what showing on yields with the two10 year spread. The vix is gaining at 13. 0 nine. Tom i love that they showed you iron ore. This is what we love about surveillance, anytime we have a guest is on we have Andrew Wilson coming up i learn something. A single sentence yesterday from chris roethke. I have never seen this chart. A wild chart. This is adjustment for growing population. On the left, the green line was the nirvana. I remember helping build houses in the 1970s in my youth. Then the decline. Then the rollover from the financial crisis. And we have barely recovered back to 1. 2 million units. Francine i like that you are focusing on the u. S. Because that is my chart that is my focus as well. This shows the divergence. Is ins why the 100 mark red. Between international and domestic companies. And then we have the high tax and low tax stock. He correlation between these two different ones we brought it only to november 8, when trump got elected, and what you see in companies withat high tax bills have outperformed. The trump trade isnt priced in. This is a controversial chart but it begs the question of what happened yesterday with what is being priced in and what markets are expecting. Reflation trade takes a hit. A global selloff with the s p 500 sliding the most since the election. Ironwork, we just showed you that. Joining us now as the guest host for 30 minutes is Andrew Wilson from Goldman Sachs. No one better to talk with then andrew to see what is going on with the markets. Are you certain that this could be related to trump . Theight unwinding on markets not related to animal spirits . Related tohink it is the animal spirits. Since the election, stock markets have had a fantastic run. Are down. We are still up over five percent on the year. And what we see now is markets focusing not on the rhetoric, which has been positive for growth, reflation and he regulation point of view, but now getting into the details of dealing with the Affordable Care act, the repealing and the relationship trump has with congress. So now we have had the rhetoric reality,e get into the is he able to achieve all of the things he promised . Andrew francine is this a dip were a downward trend . We will see more volatility. It is volatility dealing with details, getting it through congress. We are not overly bullish on stocks with these kinds of levels. Has been bullish with these levels. So i think you should expect to see more volatility. Equityl see it in the market and Interest Rate market. The economy develops. And as we see these discussions take place. The otherowed this day. People love this chart. The total return of equities and bonds. 500 the total report is one proxy. The white line is more volatile. The bottom line is the total return sovereign for basic credit aggregate u. S. In that. What i want to know what is the confidence at Goldman Sachs in management for the bonds right down . Yields are price down. How do you manage that reality . We think Interest Rates are moving higher through the course of this year and maybe through the course of next year so i think it will be a tough environment to generate, leaving a positive return in fixed income. There are great opportunities in the credit market but it will be an environment with the fed raising Interest Rates through the course of this year a couple more times. Back to, howdy you position the portfolio . You may want to focus on the. Bsolute return type products it is a slightly different dynamic. For those looking for an absolute return, we think it is time to shorten the duration. Tom what is so fascinating about this is that the big hitters that andrew talks to, decisions. O make how do you go into equities if it is extended. Andrew these are longterm views. We are less worried over the course of the next 510 years. And amending the acid allegation. It is lower equities than bonds because Interest Rates are rising. Particularly on the long dated government bonds. Francine how much do you worry about liquidity . Andrew less than the financial environment. Liquidity environment is not that bad. We have had issues in the Corporate Market which is a way to get exposure. The u. S. Somewhere around 15 . So there is an opportunity to take it vantage of that. There is a little less liquidity but i think sometimes it is overplayed. You have the trade in the smaller size. At thee if you look risk since the brexit and policies and whether trump can reflate the economy or not andrew we have been in the environment where bond yields have come down. At an environment where there is growth in the u. S. , and more importantly, disinflation. That is the thing that worries you the most. So it is definitely a turning point. Whether it turns out to be a strong move higher in yields or a gradual increase, it is a debate and discussion for the markets. A lot of it comes back to the inflation environment. We see inflationary pressures picking up. The trend is clearly higher. On the other side, how much is thated going to vent on and raise Interest Rates to prevent rising inflation . It is priced in currently. Francine Andrew Wilson stays with us up next. Speak with the italian Prime Minister. We ask him about italian banks the eurozone. And some of the reforms. Look for that at 5 30 a. M. In new york. This is bloomberg. Taylor . This is bloomberg surveillance. Down a takeover bid. Exxons said the deal is too low and not in the interest of shareholders. Takeover would lead to job losses. Latest bankme the in the region to have negative Interest Rates. A charge oftroduced. 6 on a charge of one million euros. Those who dont agree how to close the accounts by april. Is doubtwarning there over whether it can stay in business. They have lost more than 10 billion in recent years. Growing concern language. The company says the comeback plan a may help to fix this problem. That is your Bloomberg Business flash. Francine the cleveland fed president said of the economy continues to expand, she is ready for them to change the policy. Further removal via increase of the fed funds rate will be needed. My Current Assessment is that this wont call for an increase at each meeting but it does need more than the one increase per year seen and the last two years. Francine they say it will call for the central bank to shrink the balance sheet. She will be a Voting Member next year. We are back with Andrew Wilson. First of all, when it comes to , does it take every time for fivesix fed president s to talk them into acting . Andrew i think the fed doesnt want to surprise the market. There was speaking leading up into it with the rhetoric being fully priced so they dont want. O do something we certainly agree that the fed needs to do more they on that one a year. We think there are at least two more hikes this year and possibly even three. So we certainly do mention them continuing to job own if the market isnt pricing it in. With the strength of the numbers we are seeing, particularly of those referencing the Inflation Numbers being so high, i think the market will continue looking at that. Will, the market definitely rise. Francine we had the fed president speaking this week. Made a compelling case saying, why do we need to raise rates now . Why dont we wait . Is there anything that pulls at your heartstrings there . Andrew it resonates with us. We dont want to overreact. And some of the strength of the u. S. Economy is predicated on the animal spirits that people have referred to. So people wonder how do those tax cuts play out and how does that happen. It again, i think we will come back to inflation because that is the area markets are not paying enough attention to. And you ditzy earnings pickup and the headline inflation pick up. The inflation process with the labor market is really tight. And we need to gradually remove that accommodation. Tom help me here with not the neutral rate i dont know where the neutral rate is and you dont know where the neutral where is thet riskfree rate . Day to day at Goldman Sachs, given the crazy fed and distortion, do you have a clue where in the world is the riskfree rate . Andrew you have to look at the projection of somewhere around 3 , that seems a reasonable estimate on where the federal funds rate needs to get to over the course of the next two years. So that is a reasonable estimate. Historically, we have had little risk premium in the curve and that generally means we need to see higher bond yields. Tom there have been a couple of until theycreases impinge on your world. Their distant from an effect in the investment world . Andrew view market is going to look at the trajectory for the federal funds rate over the next couple of years. And in the past, the fed has tended to be more optimistic about where growth and rates are going that has transpired. Moving on aee it stronger track. We see increases happening. And i think they will start to. Ake notice of that tom Andrew Wilson is with us. Kevin will be with us in the next hour. History was made yesterday on capitol hill and there are three fed speeches today. We will join the former vice 3 00. An alan blinder at he was brilliant on fed day. Stay with us. This is bloomberg. City of look at that london. Yesterday was sunny and today is less sunny. Yesterday we heard the u. K. Inflation accelerated more than was forecast in february. Breaking through the target for the first time in years. Tom and i talked about that on the air yesterday and it had a huge impact on the pound. I know you have a good inflation chart. This is just a look at the core inflation for the u. K. Lets get the thoughts of Andrew Wilson. This is five days before theresa may said she would trickle. Rticle 50 how does the market react to that . Andrew there is a balancing act. I love this chart because it shows the rate of increase in inflation. The level is benign. Look at the speed with which it moves. That highlights the landmark that the bank of england has. There is an appreciation of sterling. We can look beyond this and say the fed rises in inflation. Trade be pretty modest. Increased, they have to look out and say, we have to move rates. The u. K. Economy is going to slow, the bank of america the bank will look at it moving quicker rather than going to higher levels. I think this will be the debate the embassy is happening do we need to raise rates . I think others will be nervous. The slowdown in the economy at the end of the day is what will win out. You, for example, if you had sterling does that imply a weaker sterling . Andrew i think it does imply a weaker sterling. You have to look at where it comes from. Again, you do have to look at companyeight company by basis. Download pressure on sterling because of the slowdown in the u. K. Economy and the fact that the bank of england is going to stay on hold from a rate perspective. Francine where do you see the pound . Think the trade somewhere is around 1. 20 level this year. It is probably a second half event. From here. Ownside francine thank you, Andrew Wilson. Coming up, we speak to mario , the former competition commissioner for the eu. We want to ask him to recap about the nervousness on the markets when it comes to italy. For germany . T mean that is what we will ask the former Prime Minister of italy, mario monti. This is bloomberg. Tom bloomberg surveillance. An extraordinary set of events worldwide. London. Lacqua is in here is the first word news. Asia, threeting in days ago, north korea claimed to progress in its Missile Program but it has ended in favor. Ended in failure. Their missile exploded within the launch. Months exports rose last by the most in two years. Ago,than 11 from a year eating estimates. Up 28 percent. U. S. , neil gorsuch says he wouldnt hesitate to rule against trump if the law required it. The senatefying for judiciary committee. He defended a decade of his rulings. He made no promises to the president about his how he would decide any future case. Laundered cash pastor banks in the u. K. The Guardian Newspaper said the cash flow in from russia through a vast Money Laundering network went through the Worlds Largest banks. Among them is hsbc, rbs and barclays. Citigroup and bank of america are also said to be involved. All say they have strict moneylaundering controls. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. I am taylor riggs. This is bloomberg. Francine thank you. Italian finance minister to talk about italian banks and futures and the future of italy we are joined by mario monti, the former italian Prime Minister. A senator for life in italy. Always a pleasure to hear your thoughts and the insight on the Italian Economy. I think we need to talk to we need to talk about italian banks. Investors, they dont understand on the conversations why reinvesting in the banks are taking so long. What effect does this have on the bank and the Italian Economy . Mario well, i have some experience, having been competition commissioner for state issuesd the in particular pertaining to Financial Institutions are very complicated. So i am not too surprised that the conversation between the commissioner and the Prime Minister takes long. However, i do hope that they are soon concluded. It will help. Most importantly, i think, the general stance of the relationship between the eu and italy, concerning the control of the ministere has something to do. He has announced that. It is a complementary set of interventions to put italy fully in line with the requirements. Soon, asis is achieved i hope then i believe that is also the issue of the banks being surrounded by a more positive atmosphere. Francine is a recapitalization of banks needed . Or would you fix it in a different way . I think it is needed. Italy, and also for other countries, this time around, it has been experimental, after the shift the concept. Which i think was a sound step really fullyas not assimilated in the culture and in the behavioral institutions of government and supervisory economies. Cashhelp me here with the call we just saw from deutsche bank. We just saw another one from unicredit. Are you beginning to see european banking acting more american like and clearing the market . To some extent, yes. Do not go too far, though, in behaving like american banks because we had american banks even before there wasand the past not always exemplary, as we know. Does europe need a jpmorgan . You mean a historic personality like jpmorgan . Tom they have that in francine look why. That wewith the idea may need a jpmorgan equivalent that can compete with the american banks . Does europe need that . Mario europe may need that. Indeed. I think also, the nationality of banks is blurring a bitis and also the global ,ies considering jpmorgan certainly considering the upcoming chinese banks would be in order. It would be appropriate. Even though in many of our countries, there is a big problem of reaching the retail level in financing banks financing small and medium enterprises. So probably the two ends of the spectrum need to be reinforced in europe. Also thegiant and retail system. Francine one last question on banks and then we can talk about europe. When you to look at the doapitalization, you need to a lot of constant adjustments for the banks that will be recapitalized. Is the Italian Government the right person to do the adjustments . Well, it will have to be. And it will have to do that. And i think the current government, under the Prime Minister and the current finance moves toin the right do that, of course, they are in of the context. But they are highly aware of the and the the economy. Nchoring of italy back, marioome monti will continue with us. Coming up, a conversation with april College Professor at yale university. From london and new york with mario monti, this is bloomberg. Francine this is a bloomberg surveillance. From new york and london. We need to talk about political risk. The eu will celebrate its 60th marking the anniversary of the treaty of rome. But with the departure and the eu populace elsewhere, it will be unhinged with uncertainty about the future. Senator, when you look at the treaty of rome, is 2017 the year that the eu could unravel . Risk, lets is a face it. So this is an occasion in which members, Member States, they really have to get the act together. Vision foro have a the future. And to me, the fundamental effect which will decide whether the eu will unravel one day or is whether Member States will continue to drift towards short term nationalist population is him or whether we of historic sense instability because it has achieved a lot, immensely for europe. And it cannot and up as a side victim of irresponsible mostical behavior in international countries. Francine every time you look at in the longer, term they worry about the volatility of the italian public finances. And i have also heard people saying that we may need by the end of the year. What do you answer to the people who think that . Answer to say to have a quick look back. Italy was in a terrible situation and 2011. And we had a european country coming out of that without a year of international support. Last year, there was an amazing concern, worldwide, for the italian referendum in december. And the general view was that it would minister have been financial chaos in italy and europe that nothing of that sort happened. So i believe now, it is really important that italy does not go into the pre2012 situation, a situation where the anhas to put italy under excessive procedure. The Italian Government right now is committed to avoiding this. I believe that it will. It will be devastating from this point of view to run early elections this year. Cleared, onceis italy wont got back, i believe that tension will leave italy a bit and then france and then germany. Francine i understand the italian constitution doesnt allow a referendum on eurozone membership to happen. Bet do you think would it possible to do a referendum . What are the chances of having an antireferendum Party Heading in power . Mario the noise, the general noise perceived in italy is definitely for leaving the euro fact, as youhe say, that there cannot be a , as peoples minds then on voting yes or no an assault of realism will happen and i am pretty sure that italians will vote to stay in the euro. But i stress, again, there is not that possibility of a referendum. Francine thank you so much, the former italian Prime Minister, mario monti. Lets bring in james bevan, thank you so much for being so patient. Was saying there would be an assault on realism. Notthat italians would leave the eurozone. But what are the chances of france voting for Marine Le Pen or wanting out . Ames i suspect we need framework to determine what is really going on and what is driving the issues. And if one were to argue if there was a grow back from globalization, it goes to the postwar time when there had been lowgnificant turn from skilled people in markets to also theeconomies and pursuit of cheap capital. And using intellectual property to develop market. We have had a lot of welfare over the past year. Tom help me here with eight europe like america. It suggests that corporate performance is removed from the political valet. Help me here with european corporations. Are they removed from all of the chit chat about policy . James absolutely not. If one were to look at the way the companies are performing, they would recognize the challenges that lie ahead. We have a number of banks in the u. K. Arguing that they need to protect them selves by planning now how they will cope in a postbrexit environment. See 10,000 jobs and others related to financial services. That is the corporate sector wrestling with modern politics. Bmw saying if they want to take production away from the u. K. And have it in the netherlands or germany. Absolutely aligned to the real politics going on. Tom help me with where you are moving . In the last 48 hours, i have you moving to dublin, frankfurt, there is james bevan moving to . All of these articles about leaving london, do you buy it . No. S this twoyear window is extremely important. There are huge numbers of people supporting Business Activities sale in a the postbrexit environment. Those of us who work in a Small Community of people who actually have to run money dont necessarily have to move at all. Tom james bevan is with us today. Let me set up tv , it is very cool. For the bloomberg terminal users. Bring it up. You can come over here. Chart and you can pull on it and get the previous day and my chart on population adjusted algorithms. That is a wild chart and you can get it only on tv. Stay with us. Washington in the next hour. This is bloomberg. Taylor this is bloomberg surveillance. Statecontrolled oil company has posted the biggest profit in almost two years. They are emerging from the massive corruption investigation. Earnings have been hurt by the crash in oil prices but shares are up more than 60 from a year ago. In china, fourthquarter profits missed estimates. Operating costs are surge running and there is rising competition in the gaming market. . 10 adding more space to learn brands onto the chat messaging service. That is your Bloomberg Business flash. You. Thank with us in london is james bevan, focused on china. The me start with that. Why focusing on china as the linchpin for the Global Finance . James there has been so much talk about trump. What he has done is to ramp up sentiment that we have yet to see the followthrough. The realnt to look at driver for the improvement in corporate earnings and sentiment, it is certainly chinas economy, which would which did remarkably well. Data suggests that we are beginning to see china exporting. Oods at higher prices twoi think that we have constructions that fix the data. Observing e are there is a change in the global order. Standards bying buying Cheaper Services abroad. It is a badi think environment for the bond market. Tom the litmus paper with currency, if you look at the week sterling, the u. S. Return for the london shareholders is up to 40 . Here is the chinese currency over to the right. I call that the litmus paper. Your thoughts on china . James i certainly think that the r b is going forward. There is an interesting issue here. I hear a lot of people telling me that it will be strong. And the dollar is required to be materially weaker. Chain, there the is money coming back into the United States you need a cheaper currency. And i think that one of the key parts of trumps policy agenda overhead will be to work out how he can lessen the value of the dollar. Important point. We are distracted in washington and we will go to kevins a really in the next hour over the incredible plan for tomorrow. But if the president is distracted, what does that mean for china . I know it has to be an advantage for to the chinese foreignpolicy and for the investment policy as well. That i think trump knows he will fail to make Real Progress on obama care. Hehink he recognizes that if doesnt make enough progress on obamacare, he can turn around and say, well, i always warned you it wasnt going to work and now look what has happened. And then we get a clear run at the economic agenda. Because we fundamentally restructure the supply chain to companies and you bring in a deficiencys bring in inefficiencies and it may not create any jobs at all. Thingne what is the one when it comes to donald trump half say he will never start a trade war and the other half say that he may. James i think the sense of history is greater than people give him credit for. He recognizes the reduction measure than the average american person around the world. I get his agenda. I think that the challenge is that if you do change the supply chain, if you force American Companies and consumers to buy american, it will be reflected across the world, not just the United States. There is a risk inflation goes up more than anything. Tom very good. We continue with johns bevin in the next hour. We continue with james bevan in the next hour. Kevin cirilli joins us. Next, harm bandholz and mario monti and james bevan. This is bloomberg. This wednesday morning, the president and the speaker do not have the votes. So can trump care garner support . In this hour, Kevin Cirilli on trump. Trade trump reflation over . And scandal in paris. Is it possible there could be an election more surreal than november 8, 2016 . Good morning, this is bloomberg surveillance. London,score in francine lacqua. Macron where did he come from . Francine he came out of nowhere. I was finance minister and dont know whether he has been really great, he is at the top of the polls. I dont know if he is doing great or if everyone else is just doing badly. Including Francois Fillon, the favorite in january. Now there is a new saga with him. Paidif it could have 800,000, could he have run in america . Francine i didnt think anyone in france could still be in the is 2017, 2016, people keep telling me they are different years. Green fees at the the president s maralago. Taylor sticking with politics. Repealing of replacing obamacare. Representing major medicaid insurers and serious concerns about the bill which would cut billions of dollars from the medical program for the poor. The house is expected to vote tomorrow. Macron is edging ahead of Marine Le Pen. Macron at 26 ws in a firstround matchup with Marine Le Pen dropping to 24. 5 . The poll has macron beating Marine Le Pen in a runoff. Turkey has asked the u. S. To remove it from places covered by the new electronic span. Passengers traveling from several muslim majority countries cant take laptops, tablets or electronics on board when they fly to the u. S. The u. K. Has joined in on the band but turkey says it shouldnt be a part of it because it complies with International Security rules. The u. S. And south korea pledged to punish north korea after a failed missile test. The north korean rocket appears to have exploded within seconds of the launch. South korean and american authorities today reaffirmed their pledge to drop the weapons. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. I am taylor riggs. This is bloomberg. Lets go to the data check. An ugly day yesterday. Futures are going negative. A little better than they were an hour ago, i stand corrected. Flat,tures, spreads are flat, flattened. We will show this chart here in a bit. The next screen, quickly. One way away from 21,000 on the dow. Lets put the sterling up your i put sterling up there. Francine thank you so much for putting sterling up there. When you look at the miners, they are saving today. They are sinking today. We have had more and more warnings about the rally and you can see iron ore pretreating. This is demand coming into china. The fix is up. And i want to show you this at a whole. Learn from our guests, whether it is james bevan or harm bandholz. , adjustedusing starts for inflation. Here is the glory from eisenhower through reagan, and then there is a longterm rolloff near the peak where we almost got back to where we were in the beautiful 1970s. Housing, population adjustment, we are nowhere back to where we want to be. Hair yellen mentioned this underinvestment in the Housing Population adjustment. Francine this is what i have. A little bit different because we look at voter turnout. Yesterday i showed you how potentially the polls are positioning in frances president ial candidates but voter turnout is key. We had friends in the last election. We brought it back to the netherlands. In germany, you can see the last time they posted, the turnout wasnt great. And this is the projection, a bloomberg projection, of how many people will come out and vote amongst eu countries. This is the center of Marine Le Pen in france. Turnout is below 60 then that gives her a higher chance of becoming president. Tom interesting. In london this morning, james bevan, an investment banker. We have talked about in investment and china lots to talk about. Mostw york, one of the acute economists, harm bandholz. Where is gdp right now . Gdp . Is the noisy harman i think the cruising. Peed is up to 2. 25 tom that isnt good enough for President Trump or chair yellen and it isnt good enough for investment. Harman i think it is good enough for yellen. I think most economists have said that it isnt possible to to theselift gdp levels on a sustained basis. Get harms bevan, if we bandholz economic growth, we have to get more inflation . James i worry that we will get higher inflation and that it will shift in favor of inflation rather than real growth. And now it is mostly bad news for cyclicals and the risky parts of the equity markets. It will take rates higher. The victory would be to get normalization of rates and we are not there. Francine what happened in the u. S. Market yesterday . A reversal of the trump trade . It is not a trend . James the ratio has been stretched for an extremely long time. I dont feel that we are at the beginning of a long downturn. Francine what is your biggest concern . Is there something that makes you feel uneasy, apart from china . For a if we were to look trigger, we would need to see economic downturn or moods going lower. Ofwhere we have 10 months sub of five, we need to move point we. 5, at which real market. Francine what is the one thing that people understand about the market . I read an essay from neil kush , asking about raising gdp rates now when inflation is where it is. Question,oes to the how stimulated is the Monetary Policy right now . Theythe stimulus want to be sure. They want to see inflation picking up. They know they are behind the curve. Even though they dont say it as loud in public. And raising rates to quickly and all that stuff. So the fed has not become more hawkish, it has just become more less has just become dovish. There is no reason to say that they have been doing anything wrong by ramping up the pace. Neil cash kari was on fire yesterday, was it yesterday . Bring up the chart. This is where the president of the United States is he is right here, 2. 2 5 . Maybe 2 here. An underperforming economy. And i was just that is where president cash kari is. Do you assume at the end of the day that the president will wait for the data . Harm no. Because also chair yellen they all think about the cruising speed with potential growth is up to 2 . I think maybe it is a little bit less than 2 . If we are getting growth rates up to 2. 5 percent, that is enough to bring the Unemployment Rate down further. Tom lower inflation and a sub 4 . Nominal gdp . That is unplayable for america. Harm lower than what we have seen historically. But with what is going on, as i mentioned at the beginning, we do have to look at the gdp growth compared to potential. We cannot do anything about demographics unless we outlaw immigration. And productivity, we could try to do something about that. During 1960s19 80s, productivity had been very slow. Of the gdp. Review we will continue. I am looking forward to talking to kevins a really and we will do that next. What a historic day, yesterday, on capitol hill. Truly, history being made. Coming up, robert shiller, you will see that and we are looking forward to that on Bloomberg Television and bloomberg radio. Taylor this is bloomberg surveillance. Lets get the Bloomberg Business flash. Axon mobil has rejected takeover bid. They turned down a 24. 2 billion offer saying that the offer is too low and not in the interest of shareholders. It also said the takeover would losses. Job ubs has become the latest bank in the negative Interest Rates. It hasnt juiced a charge of. 6 on a charge of more than one million euros. Clients who dont agree have to close their accounts by the end of april. And sears is warning there is substantial doubt about whether they can stay in business. The retailer has lost more than 10 billion in recent years. Concerned the growing language to the annual report filing. Still, they say the comeback plan may help to fix this problem. That is your Bloomberg Business flash. Tom co i dont think enough has been made of this. Yesterday, history was made on capitol hill. The Supreme Court nomination process with neil gorsuch and we had over trump care, ryan care. Joining us now is Kevin Cirilli. The energy on capitol hill, i was blown away. Bring up the map. This is what you need to know about Kevin Cirillicare. The 11th Congressional District of north carolina. And what they did is they took , andille, more democratic they made it an uber republican district. The president is going after mark meadows like there is no tomorrow. I have never seen anything like it. How will he respond . Mark meadows is the chairman of the House Freedom caucus. Tea partyonservative members within the house of representatives yesterday, trump on capitol hill in a private meeting behind closed doors with Kellyanne Conway and. Regory cohen they pointed out representative mark meadows and said, you have to get on board. I spoke with a senior aide to mark meadows after that who said that he is still opposing and they have the vote to block this legislation tomorrow. Tom i know that you took a lot of political history to have you ever seen that before . When the president goes up to capitol hill . This is not lincoln with daniel. Ave lewis he lectures a guy in front of republicans . Has that ever occurred . Kevin no. And i went to penn state. You that the sources i speak with in the house of representatives tell me they can only afford to lose 21 votes. Magic number. That is the only amount of House Republicans this administration can afford to lose. Cruz are and ted rallying the troops, going across to the lower chamber, trying to hold this together to block the legislation. Why . Because it is the first test of the future of the republican party. Tom lets go to washington journal this is an amazing editorial. I rarely do this. This is on fire. Ring it up. If trump announced that north korea launched a missile that landed within 100 miles of hawaii, would republicans believe him . We are not sure. The president clings to his assertion like a drunk to an empty gin bottle. The week has been dominated by the news that he was repudiated by his own fbi director he is not having a good week. Kevin if you play this forward and should President Trump not be able to pass the Health Care Plan out of the house of representatives or the vote gets delayed, it will be an even worse week and show an emboldened new member of the republican party. Tom kevins, thank you so much. Francine lets go to harm bandholz and james bevan. I dont know how this cross fair i dont know, does this cross over into your sphere . Course. The u. S. Economy is in a sustained recovery so what excites everyone now is what is going on in the white house and capitol hill. It is important. Very good, harm bandholz is with us and james bevan, as well. We continue with that. Dont forget this afternoon, Bloomberg Markets has a conversation with alan blinder of princeton university. Maybe a little bit of discussion about trump and animal spirits. This is bloomberg. Francine this is bloomberg surveillance. Ands talk about brexit Scotlands Parliament vote on whether to start the Legal Process in motion for an independence referendum. Lawmakers in edinburgh are expected to give their consent but theresa may is against the idea. We are back with james bevan and harm bandholz. I dont how seriously we take the specter of the referendum in scotland and whether reichs it will mean that the union will unravel . There is no reason to expect that scotland will win the vote. Oil price fell and it became apparent that the revenue in scotland would be much less. That is a big factor. But equally, there are around 8 million votes described as blue labor traditionally votes for the left party and they dont like labor policy on immigration and theresa may has every chance of getting a landslide victory in the next election. Francine how long is theresa may a Prime Minister for . Ive heard everything for 10 years up to 20 years if there is no real opposition and how will she handle brexit . Be an interesting gear because we have a consumer boom in the last year based on borrowed money. We know that there is higher inflation but not much wage inflation. We now have the currency moving against us. Abroad, the dominated currency imported is priced in sterling so we have a fairly tale we have a fairytale improvement. I think it will be a make or break year in terms of popularity with the electorate. Francine you are saying that the economy will unravel and that households will be worse off. What can the government do to mitigate that . James there is a risk that they will run rates around 1 by the end of the year and we have retail price index inflation over 3 . I think they need to spend more money. To the hardcore conservative party i think they have to get the economy moving. Tom a million years ago, one Million Barrels ago in edinburgh bring up the chart. This is the oil production. And my message here, help me if i am wrong, is that it is not what it used to be. Here we are at one Million Barrels and down we go on this long chart and we are barely in a recovery here. This is not sustained scotland dialogue. James you are completely correct. Not only is production lower but the price of crude is expected to stay much lower than expectations. And the effect in terms of the skilled laborers and the industry has been dramatic in and cities you can observe how tough it has been and it is bad news for the scottish economy. Tom what do you predict will happen . What is your prediction on the momentous decision . I have every expectation although i am really bad at reading elections that scotland will vote to stay. When all is said and done, the way back into the eu is tricky as brexit proceeds. You, james bevan, very valuable. We continue with harm bandholz. Where do the jobs go . Joining us on television and radio at 7 00. Donald straszheim. The sunrise . Dont use your laptop flying into jfk. This is bloomberg. Bloomberg surveillance, francine and tom from london and new york. Lets get to first word news. The Supreme Court nominee neil gorsuch says he wouldnt hesitate to rule against President Trump if the law required it. He was testifying to the Senate Judiciary committee. He defended rulings on the federal appeals court. He says he made no promises to the president about how he would decide any future case. President trumps former Campaign Manager reportedly worked for russian billionaires to advance the interest of russian president vladimir putin. According to the associated press, Paul Manafort wrote a study in 2005 that he said could greatly benefit the government. He had contracts with a russian billionaire. Matt forte said his work was being unfairly portrayed. In asia three days ago north korea claimed it made a major break through in its Missile Program. Today, its latest launch ended in failure. Officials said the rocket appeared to have exploded within seconds of launch. Authorities are trying to figure out if it was a new missile the North Koreans had not launched before. 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. Jon there is a cause in our new secretary of states travels. Has been stormy, and decidedly different. Peter favors of Duke University joins us this morning. Policy and strategy with our professor, wonderful to have you with us. When we heard this from admiral trevinos yesterday, the absolute uproar that the secretary of state would skip nato and not attend the meeting. The white house has backed down and i believe we will see secretary of state tillerson at nato. When does this of ministration get on the script that you studied for decades . I think that was a scheduling pickup. I believe the chinese president was visiting the United States and it was overlapping and of course the secretary of state wanted to visit with the chinese leader. The scheduling problem can be fixed. Secretary tillerson and secretary mathis have been quite clear to our nato allies. They see the relationship and the scheduling problem and secretary tillerson will go and send that message. Tom taylor riggs just showed film in our newscast of rockets red glare in north korea. How should the United States respond to the new aerodynamics of the north korean government . This is a very serious crisis. During the campaign if you had asked foreignpolicy specialists on either side, republican or democrat, they both would have said north korea is going to be the first urgent challenge of n. E next president , whoever wo is not a surprise that President Trump and his team will have to wrestle with this. The north Korean Nuclear arsenal is on a rapid expansion based and they are quickly crossing thresholds that once crossed we can never go back on the other side of. Secretary tillerson and the trump team have tried to force the issue, force china to push pressure on north korea. The u. S. Has been trying to do that for 20 years without much success. We will see if they succeed. Tom help us with your treatment of power filling a vacuum. If we are stumbling, uncertain about trump foreign policy, do you just assume bad guys fill the vacuum of indecision . That is a clear lesson of the last. 5 years. Thats the last 25 years. The last. 5 years. If america leads it can confront global challenges. You will not lead find other states filling the vacuum in a positive way. You will find rogue actors making the problem worse. Ae challenge is, finding formula that the u. S. Public will support but that addresses the real global challenges. If you campaign on a promise of only focusing on americas promise you may mislead the American Public into thinking that you can ignore the rest of the problems, that problems abroad wont come back to our shores. What they do. That is what this administration is going to have to figure out. Francine china seems to be wanting that role. When you call them a rogue actor . China wants to lead but not in the way the u. S. Has led. They do not take the lead in addressing and resolving global problems. Iny are issued interested asserting what they see as their interest in that respect like every other country out there seeking to coin its own. To the u. S. Approach leadership is different in that the u. S. Doesnt just seek its own interest, it also seeks global order. That has been a rule that other great powers have not been willing to play. The u. S. Has played that role and it is getting harder to do so. The costs are great. But if the u. S. Doesnt do it no other state will. Francine do you believe the u. S. Has been for filling that role in the last five years . How would you describe the u. S. Relationship with russia after the crania the crimea area and how it dealt with the middle east . And what does the data to asia look like in the u. S. Standpoint in the last five years . That is a fair critique, that under president obama, the u. S. Leadership role has receded. There were doubts about u. S. Staying power. There were doubts about u. S. Commitments. Many of our partners around the world have been a little bit too cautious in responding to putins aggression in eastern europe, and likewise chinese assertiveness in the south china sea. Of course, obama was slow responding to the rise of my soul. The rise of isil. The question is, can the new team resolve those doubts query and resolve those doubts . They have raised new doubts. It is so early i think they have time to write the ship. When secretary tillerson and secretary mathis meet with our allies, the allies seem to be reassured by what they hear and how the u. S. Will lead going forward. Tom we greatly appreciate that. Are you sure this dialogue it comes up to a new world order. Is there a new economic world order as well or are you still saying there is a britain would consensus or a get consensus . I think one comes with the other. The old talk about alliance between the u. S. And western europe, that has been as much as political as economic. The newt signals by administration, taken at face value, they want to renegotiate everything and start from scratch. As a european, that has been alienating people in europe. They dont understand where the u. S. Wants to go. Tom you came to fame and a claim with a historic paper on oil. And on saudi arabia. There is an example linking International Relations economics to a new regime, a new government and a collapse in oil prices. View onthe unicredit hydrocarbons as we go not into next year but in the next five years . We have always been more bullish on oil. The developments over the past several two years or so, the big drop in oil prices in the increase in supply and the new shell gas players, i think the Renewable Development is it wont be reversed. I think people are trying to get more maneuvers. The supply of energy is huge so pressore i think the increase in oil is limited. Countries like saudi arabia, they need to figure out, they get thesee where they revenues from. They have to move to a different business model. As saudi arabia tries to transform its economy. Francine how will the u. S. Transform oil . We talk about shell gas and shell oil. The we have that more the regulated in the United States . I think the u. S. Is on a good path to get there. Trump haspresident been promising is a revival of cold. I dont think it is coming back not because of regulation but because of market fall and because natural gas is so much cheaper. Ingredients to become selfsufficient but it would be a mistake to completely neglect cannot further support the buildup of renewables. Understand that oil and gas is plenty and one has probably not exploded all the resources in the country, but i think it has to be at least supplemented by further increases in renewables. I think the ministration should go down that path. Tom we will continue with a killer chart on manufacturing. Mike allen, just publishing within his reporting, four more hard nays to stop from care in the house. Four moore is is sourcing on that battle. Coming, alan blinder of princeton university. Listen to that conversation in the 3 00 our. This is bloomberg. This is bloomberg surveillance. I am taylor riggs. Lets get the business flash. Statecontrolled Oil Companies have posted the biggest profit in a most two years. It is emerging from a massive corruption investigation. Earnings have been hurt by the crash in oil prices. Shares are up 60 from a year ago. In china, profits missed estimates. In the face of rising competition in the mobile gaming market. The company is revving up its battle with alibaba in advertising. It hopes to leeward brands onto its chat service. That is Bloomberg Business flash. Francine thank you so much. The latest polling in france suggests that independent candidate Emmanuel Macron is the big winner after the french debate. A satirical newspaper published details of Francois Fillons ties to the russian government and the probe into his affairs. We will get the latest. I dont know whether it is Emmanuel Macron be in actually popular, whereas it is the other candidates actually being less popular. It is a little bit of both. Onron it well in the debate monday. He faced criticism from Marine Le Pen and Francois Fillon creswell. He had a lot to lose but now he is at 26 according to this latest poll, even in front of Marine Le Pen who is falling by 1. 5 in the polls. Francois fillon is falling further at 17 . Francois fillon is not benefiting from the latest allegations in this paper. You see it reveals the allegations back in january about the employment of his wife and children. These newspapers are saying Francois Fillon spoke with m putin desk with vladimir putin. With vladimir putin. Thethe meeting between candidate, the russian candidate, and the ceo. That is a very sensitive time and not helping him in the polls. Francine i am looking at a great bloomberg chart which is trying to figure out voter turnout in france but also in europe as a whole. How many people are undecided about who they will vote for in the first round and second round . About one third of the french people at the moment are still undecided. The is interesting is that base of the various candidates is different. Take Marine Le Pen, 80 of those who have decided to vote for Marine Le Pen are sure of their choice. For Francois Fillon, this number is around 67 . For Emmanuel Macron, it is closer to about 50 , meaning that a lot of the base of Emmanuel Macron could change their mind for the election. What is madam le pens to do list right now . It is wednesday afternoon in paris, shes got six people sitting at the desk, having a fancy cup of coffee. What is the battle plan for le pen . Marine le pen is going to travel to chad in africa over the next couple of days. And then she is doing a big rally over the weekend in france. It is her region. This is where she did more than 30 in the Regional Elections back in 2015. It is really her based class,ate, the working the people who suffered from the to theial Condition Services sector over the past 30 years. Marine le pen will go back to her based over the weekend. Francine thank you so much in paris. We also spoke to the former italian Prime Minister ahead of the 60 Year Anniversary of the treaty of rome. He said that european leaders need to up their game. There is a risk, lets face it. This is an occasion in which the leaders of the Member States will have to really get their act together. Have a vision for the future. With harmwe are back bandholz of the unicredit. What are the chances of the eurozone breaking apart this year . We should not say zero but i think it is very close to zero. Europeanshat we, as from the european continent theys complain about is limited willingness to understand the political dimension of the entire project. It is not just an economic union, it is mostly apolitical union for prosperity and peace in the entire area. Including there is so much determination to save the whole project and to basically do whatever it takes to keep the union together. Tom we are going to come back and talk manufacturing here in a moment. Tv has stopped, we have a response for trading. Here is harm. You can look at a previous interview, bring up the audio, video and you can grab this chart. This is my chart on housing as adjusted for population as well. From london, and from new york, with a most interesting two days coming up in washington, this is bloomberg. Foreign exchange, dollar weaker, dxy through 100 or 108 on the euro. The mexican peso, we had an 18 print. Stronger peso from 22. Francine . Francine bloomberg daybreak americas coming up with Jonathan Ferro and alex deal. What are you most excited about . Francine i am excited about what kind of selling we are going to see. The s p off by two points. , allave got dollar, yields lower over the last five days. We will help tell you the story of why. Here to do that is robert shiller, macro cofounder and nobel laureate. We have not seen this optimism and stocks since 2000. We remember what happened in 2000. A little bit of bloomberg will be discussed. Francine also where the bottom winds up being. Is this something we are going to see increased volatility . How do you play that . Is this about the trump agenda or Something Else . We are going to drill down into that with robert shiller. Tom thank you so much with david westin and jon ferro in a little bit. The u. S. To economist has written thoughtfully over our single best chart, which is a decline in manufacturing. Is there any number of ways to show this . I did this chart a decade ago. This is population adjusted manufacturing. Here is where we are right now. Is ain population, here Longterm Technology and productivity improvement. A steep decline on a long basis. Withust screams to say her now on manufacturing. The big drop we have seen since 2001 coincides with chinas dissent. Removing the shackles has put itself. China has been punching below his waist for sometimes for some time. We dont even have to point to currency manipulation. China is just artificially honing itself back to that point. China took some jobs, no doubt. The other point is productivity increases. The best thing is you want to bring back jobs. Is there is ar good correlation between the wealth of countries measured by gdp per capita or Something Like that and the share of manufacturing goods that this society demands. Because the u. S. Economy is pretty rich with high gdp per capita it depends it demands a lot of services, more services than goods. The employment producing sector is lower than it is in other countries. Points, if you want bad news for President Trump because he is running with the idea to bring back manufacturing jobs, but i think these longterm reasons mean he is not going to see the effect. Francine when you look at productivity i was quite taken by the chief economist saying the problem in the u. K. Could be that there are companies that are not as strong as they think they are. Fact that wethe have been supporting companies that just wouldnt survive otherwise. Could you see parallels with the u. S. . That goes into the idea of the Zombie Companies benefiting from low Interest Rates. Interest rates in the u. S. Have been extremely low. That has probably kept some companies alive. But overall, i think there is a healthy Selection Process in the u. S. I do not think that the problem is as big. Tom thank you so much and congratulations for your Research Report on americas manufacturing. We will continue on radio with dr. Harm bandholz as well. You need to be in the equity market. It is a good time to speak with anthony dwyer. He has been right on the most unloved bull market since time began. Stay with us through the day and television and radio. Markets on the move. Pay attention to what is going on in washington with the health care vote. A colder day here in new york. But beautiful. A spring day in new york. This is bloomberg. Jon the politics of d. C. Test the patience of High Expectations of wall street. The republicans failure to tax at the Health Care Bill could impale tax reform. Treasuries rally and commodities rollover. And why negative rates and messy politics me no easy rates for banks in europe. Ubs has charges extended to more of its customers. Good morning and a warm welcome to bloomberg daybreak on this wednesday. I am Jonathan Ferro alongside alix steel. David westin is away today. Lets get straight to the board. Futures are softer in the United States. 1 10 of 1 on the s p. A drop since october. The euro, giving us some of yesterdays gains going south by 1 10 of 1 and europe treasuries, down. Dollaryen, 1. 11. Down seven days, the longest losing