Transcripts For BLOOMBERG Bloomberg Surveillance 20170403

On todays show, were speaking and peterhaffer dixon, Global Equities economist at commerzbank. If you have questions for either of them, go to the bloomberg. Run the tv function and hit the id show producers function. You can stay in touch with us throughout the show. Weve just got some breaking news to bring you. Eurozone manufacturing pmi, it hs bang in line wit estimates. This after we got a little bit of a softening in the inflation data last week. This number coming in strong. Lets get to the markets, see how they are performing. It was a Strong Quarter for global stocks. Equitieseing european starting a quarter on the front foot. The stoxx 600 up 0. 2 . Euro rebounding after four days of losses. Little bit of sterling weakness coming through. That is off by 0. 1 . Wti holding above 50 a barrel. 50. 56. Lets get the bloomberg first word news. Heres Sebastian Salek. Sebastian donald trump says america can address north Koreas Nuclear threat unilaterally. Summitments, ahead of a between the u. S. President and his counterpart, xi jinping. South africas parliamentary speaker is considering a request or a vote of noconfidence in president jacob zuma after he made sweeping cabinet changes. Zuma and his cabinet would have to resign if they noconfidence vote succeeds. In france, Marine Le Pen has described the euro as a deadweight and promised the french people will have the final word on leaving the french currency if shes elected. Melenchon appears to be gaining ground. A poll on friday put him one point behind Francois Fillon. Confidence among japans large manufacturers improved for a Second Quarter in a row according to the Tankan Survey. From the previous period, though that was short of expectations for a reading of 14. The weaker yen helped profits rise to a record. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. Im Sebastian Salek and this is bloomberg. Nejra thanks. Scotlands first minister says the u. K. s refusal to negotiate a date for an independence referendum is untenable and she vowed to keep pushing for a vote. Nicola sturgeon spoke to anna edwards. Scotland should have a choice over our future. When the time is right, when the terms of the exit from the e. U. Are known. Is en it [indiscernible] the Prime Minister is very clear that the timing is to conclude those agreements by the autumn of next year through to the spring of 2019. That seems to me the appropriate moment for scotland to have the choice over our own future and we will seek to pursue those discussions in a constructive way. This is about scotland not having a future imposed upon us but choosing that future direction so that we can remain that open, welcoming country that is not just in line with our values as a nation, but so important to the prosperity of our economy. Anna Prime Minister may has suggested you wont get that date. Decision just another . That is for the Prime Minister to answer that. I dont speak for her. The Scottish Parliament which represents the people of scotland as voted on this matter and has voted to endorse the timetable ive set out. I dont think the position of the Prime Minister, which appears to be to stand in the way of the will of the Scottish Parliament, is a sustainable one. I will discuss this with the u. K. Government. The will of Scottish Parliament has to be and must be respected. Nicola sturgeon was speaking ahead of a trip to the u. S. To drum up investment in scotland. Theresa may is on her own mission, visiting jordan and saudi arabia. Joining us with more details is our Bloomberg Markets middle east anchor, yousef gamal eldin. What can we expect from this trip . First trips is the of the Prime Minister since giving official notification that the u. K. Will be leaving the European Union. There is a focus on trade, saying, if theres so much that we can do together with immense potential for saudi investment to provide a boost to the british economy. If you look at the data, 8. 3 billion with of goods and services in 2015, and saudi arabia a Major Customer for u. K. Arms exports. If you look at what a british parliamentary report published last year, saudi accounted for almost 3. 8 billion of u. K. Arms sales in the nine months through december 2015. That is one element of this conversation, the trade part. Looking at the security element as well, the u. K. And saudi arabia share intelligence services. They work on a lot of different issues related to that. Tos going to be looking delve deeper into that conversation. Just about a week ago, we had the decision from the u. K. To ban electronics from certain countries in the middle east and saudi arabia is one of the countries on that list in terms of taking electronics with you on those flights. Perhaps that will feature in some conversations. [indiscernible] nejra thanks so much. Yousef gamal eldin in dubai. Lets bring in peter, global macro strategist at rbc europe, and peter dixon, Global Equities economist at commerzbank. Peter, peter, good morning. Great to have you on the program. We did get some clarity towards the end of last week on the lines the e. U. And the u. K. Are going to take in these negotiations and trade was a big thing. The Sticking Point is the u. K. Wanting to negotiate the trade in line with the exit negotiations. E. U. Wants to do the exit first. Theresa may heading to the middle east. Is this a sign that she thinks getting those trade negotiations with the e. U. Wont happen simultaneously . Two peters are very confusing. In any case, im not sure whether theres a sign that she thinks something is going to happen or not happen with the e. U. What she has been saying all along is that the u. K. Wants to reach out to other countries as well. It is the u. K. s prerogative to do that at the current stage. I think that is what theyre doing. When you look carefully at the data, you can see the Sticking Points that we have identified. One is investment and the other is consumption. She seems to be addressing the former. Nejra do you think these negotiations, peter, i mean weve had chancellor Philip Hammond saying that michelle bonnier had pledged talks as soon as theres progress. Hes in india, trying to beat the drums of british business. How fast might the negotiations go and how is the market preparing . Im not sure the market is prepared at all. We will get more information up as time passes. Im not sure how fast it will progress at all. Im pretty sure most people would agree it is impossible to get a comprehensive deal in the twoyear timeframe and weve only got one year. Forlast i think we can hope under those circumstances is some kind of transitional arrangement. I think that really has to be what the respective sides are aiming for. I think were all aware of the complexities involved in these negotiations. It is a gordian knot which will take time. Nejra i want to show you a sterling chart that ive got here. We heard that large speculators have been scaling back their record short sterling positions. This chart really took my interest. It shows the percentage of net shorts as a percentage of total speculative positions. Tiltsows that the bearish t have been more extreme in the past. Peter, what does this mean to you . Sterling has taken a very big hit. I think theres even an article in todays press about this. Thatve to keep in mind clearly some speculative positions might be going that direction, but some other fundamental shifts, for instance of central banks, have not really been scaling down their exposure to sterling. So where does that leave us . I think it depends on how negotiations and perceptions are going. Wouldntgoing badly, i rule out another hit to sterling. Nejra so you dont think then that the market is a little shorter cable than it should be. What does that mean for u. K. Equities . I think the market is right to be short. About the markets worry the deficit. They shouldnt, but they do. I think there is every possibility that if it comes to the crunch and the signs are that the negotiations are ongoing, then sure sterling could take a leg down. What we do know from the equity side is that companies which are exposed to the International Environment tend to outperform. Given the strength of the u. K. Equity markets since june, primarily on the back of the currency, i wouldnt be surprised if a weaker currency gives u. K. Equities a further they got. Nejra where . I would like to put a number. The wind is behind us. If i may make one final point, weve seen that through the weakness of sterling the economy has received a lake up too. Until it hits consumers, right . Ok, thank you so much. Peter and peter stay with us. Just want to take a look on the rand. Weve got a fastmoving story with south africa. We are seeing the rand take a little bit of a leg lower. You can see the chart there. We are looking at the intraday on dollarrant. Still not close to those levels wheret was in late 2015, it was pushing toward 16. Lets get the Bloomberg Business flash. Sebastian Reckitt Benckiser is beginning a review of its business which includes brands like frenchs mustard. The company says it will consider all options for the food unit. Announcement comes after [indiscernible] china has seen the most Corporate Bond defaults ever for a First Quarter, with seven Companies Failing 19 are sure bonds. That compares with 29 for the whole of last year according to data compiled by bloomberg. The situation shows how policymakers attempt to reduce liquidity are causing casualties. Opecs secretarygeneral says the cartels output curbs are starting to work. Speaking in baghdad, he said he was cautiously optimistic that the market is starting to rebalance. The global glut has been a drag on prices. Tesla has set a record for deliveries in production in the First Quarter, beating analyst estimates. They shipped slightly more than 25,000 vehicles. The news comes as a boost for the company and ceo as he prepares to begin building the model three in july. That is the Bloomberg Business flash. Nejra thanks. Donald trump says america can totally address north Koreas Nuclear threat unilaterally if china doesnt cooperate to put pressure on the road state. The comments come ahead of a summit between the u. S. President and his chinese counterpart in the xi jinping. Meanwhile, investors get two snapshots of the u. S. Economy this week with fomc minutes on wednesday and payrolls on friday. New york fed president William Dudley said he saw the u. S. Tightening a couple more times this year. I think it is in a reasonable place. A couple more hikes seems reasonable. If the economy is a little stronger, we could do a little bit more. If it is weaker than we expect, we could do a little bit less. Nejra still with us our peter and peter. So we got those comments from dudley. We got comments from a slew of fed speakers. Im wondering what you extrapolated at the end of the day. Bloomberg intelligence does some great work showing the fed spectrometer. That argues that we need to put more emphasis on the voters and the dovish side. Is that perhaps why we havent seen treasury yields pick up and why we havent seen the dollar gained momentum . Peter . When it comes to listening to what the fed says, when dudley speaks, we listen. Hike, isays single rate think that is pretty much where we are headed. He will be able to bring along one or two members of the fomc with him. I think the markets are pretty much pricing in the two rate hikes. When it comes to treasuries, i think there may be a little more there. Because it is primarily all priced in, you really have to start seeing a lot stronger growth or perhaps more inflation in order to drive yields much higher than we are now. Nejra on that note of growth and inflation, i want to show you this chart. This was a great one. Weve got the pce here versus the 10year breakevens. What it shows you is that even though we saw the pce actually pick up, that core measure is not near the fence target. We then saw the 10year breakevens come down slightly. Peter, is this the market not being quite so convinced about inflation and is that why we seeing the flattening yield curve . Spot on. It is one of the key things. When you look at it not only in the u. S. Context, but when you look over in europe, the picture looks even worse. Haverope, the breakevens been coming down significantly. In the u. S. , theyve been flatlining. If i take a clue from your chart, if you go back in this chart even longer since before the crisis, it was 50, 60 basis points higher than where we are currently. Where Inflation Expectations are relatively depressed, it seems quite natural. May make one more point on this, and this goes to what youve been saying about the fed, the fed has been shifting their rhetoric slightly. We would even narrow the spectrum further down to yellen, fisher, dudley. These guys have been becoming a bit more hawkish. If that is the case, we will have to see how it imprints that. The yield has been pushing up. In the longer end, not really following. We will have to see how the economy can take slightly higher rates. Nejra is that slightly more hawkish, just to prepare the market for if we were to see a faster pace of tightening, rather than actually becoming more hawkish . We think they actually become more hawkish. It is not necessarily only because of the data over the last three months or so. We have been stressing and our research has shown that the u. S. Has been quite strong for some time. We have argued that the u. S. Probably could have done with slightly higher rates even earlier. Weve seen that materialize now. Independent of what the Trump Administration might be doing. Nejra just a quick one for you, peter. We keep talking about why volatility is low, but Cameron Kreis highlighted this rate trend with credit spreads. This is about economic fundamentals. Should we be putting that question to bed and what does that mean for the u. S. Stock market in terms of how much more potential it has to push higher . If you look at the chart, it is quite surprising how low that volatility measure is. I think in many respects the markets are being very complacent. Impossibleit is not that if we get some kind of shock or whatever it is, some change of tact from the fed, that we could see that major move up a little more rapidly. And as a consequence you might start to see the edge coming off the u. S. Equity market. I think most people would agree that u. S. Equities are pretty well priced. Much, i guess,e by way of higher Interest Rates, to perhaps make investors think again. Nejra peter and peter, stay with us. Up next, the land of rising confidence. Why japans manufacturers have an optimistic outlook. This is bloomberg. Im nejra cehic in london. Confidence among japans manufacturers has improved for a Second Quarter in a row according to the Tankan Survey for the first three months of this year. 10,iment rose to 12 from although that was short of expectations for a reading of 14. The improvement comes as a weaker yen helped profits rise to a record. Still with is our peter, global macro strategist at rbc europe, and peter, Global Equities economist at commerzbank. I suppose the big question here is how much data like this is going to feed through two inflation. Probably not very much at all. Skeptical ofery abenomics all along. Whatever happens to inflation is not being driven by policy as such. I think there is a global trend towards higher inflation. Part of it is due to energy. Perhapsan economy which is showing signs of more strength, but ultimately the japanese economy is going to continue growing relatively slowly. In an environment where youve got a big capital stock, you have a reasonable amount of spare capacity. I dont think there is a huge inflation bubble down the pipes for japan. Nejra peter, the large manufacturers forecast the yen is going to train at 108. 43 to the dollar for the year. That is stronger from where it is now. Where do you see dollaryen going and is the impetus going to come from the u. S. Side . Generally i think yes. It is probably more the u. S. Side. We discussed the fed early on and it has been one of the key tradestones of the dollar , dollaryen, whatever. If i may make one further point, i dont know if it ultimately will feed into inflation. Further,e it one point does it feet into markets . The question here is, does it doing . What the boj is i think the answer must be a resounding no. But if it were, we have to monitor very closely. Is cap on yields in japan one of the key drivers for global fixedincome markets. Nejra peter and peter, stay with us. The leftwing candidate Jeanluc Melenchon appears to be gaining in the polls. Is he about to make a already unpredictable French Election even more complicated . We are live in paris next. This is bloomberg. [ engine revs ] [ screams ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] [ [ screams ] ] [ shouting ] brace yourself this is crazy [ tires screeching ] whoo boom baby rated pg13. [ screams ] nejra you are watching surveillance. I am nejra cehic in london. Says north trump korea can the comment in the Financial Times, head of a summit between the u. S. President andy chinese and the chinese counterpart. A second referendum on independence from the u. K. Is the right one and will keep pushing for a vote. London said they will not discuss a date while brexit negotiations are underway. Nicola sturgeon said the position is on telephone untellable. The will of the Scottish Parliament is sustainable, but i will discuss this with the u. K. Government and the will of Scottish Parliament has to be and must be respected. Sebastian this bigger is considering a request to recall of jacob zuma after he made cabinet changes that Officials Say some were without consultation. Largeence among japans manufacturers have improved for a Second Quarter in a row. Sentiment rose to 12 from 10 . Profitsovement comes as rose. Global news 24 hours a day, powered by more 2600 journalists and analysts in more than 120 countries. Salek and this is bloomberg. We are just about to bring breaking news on the u. K. We have u. K. March manufacturing pmi, falling to 54. 2. Eurozone pmis the we got in line with estimates. Terling. 3 lower a little bit on the data although it was lower earlier as well. Weve also got some breaking lines from Boris Johnson saying the sovereignty of gibraltar is not going to change. This coming after some heated political debate over the weekend. Whether brexit can apply to gibraltar. We have had a lot of that over the weekend. A diplomatic spat over the status of gibraltar. With less than three weeks to the French Election, Jeanluc Melenchon has been gaining brown ground. Lets get the latest from bloombergs mark in paris. Is there any sense that melenchon could make it into the final two . Mark i think we are quite a ways off from melenchon making it into the final two. He is going in third place at 16 . He is essentially 8 points to hide where he needs to be in the runoff. I think it is not impossible and we are talking about this because the momentum as we speak but he hasenchon, got a long way to go before he makes the runoff. I think what would need to would is that melenchon need to get a lot of support from the people voting socialist and i would possibly be the socialist candidate dropping out, which is very likely to happen, or simply a migration of that vote over to melenchon. If the socialist candidate collapses further, it is likely some of his support will go to emmanuel. I think we are not quite at the stage where we contemplate a nchon and le pen rhetoric on the euro throughout this campaign and for years i think it is really interesting. Is tryingtrances, she to attenuate the rhetoric and reassure the french that she doesnt want economic chaos and that she will listen to a referendum or respect the results of a referendum vote against leaving the euro, but this is these comments you are citing show that the euro exit referendum is still very much a part a part of her platform and that is probably something which is essentially providing a limit on her ability to extend beyond her base. Nejra mark deen in paris, thank you for joining us. Still with us, peter dixon from commerzbank. I am wondering if this is positive for the markets because it puts more of a . Ver a le pen victory is it negative because it creates uncertainty overall or is it to soon to tell . It is probably too late for melenchon to make much of a run. I think the market is focusing on the fact that it will be a macron and le pen runoff. I think thats where markets are headed. We are not really seeing a sign that markets are concerned about what is happening in france compared to a lot of the discussions people are having at the start of the year about how difficult this would be. As we get close to the wire, it looks like i might be wrong about this, but it looks like it will be a much more orderly election. Polls can be wrong, but we only found that out in early may. I think at the moment, investors are going with macron. Nejra does that mean, Peter Schaffrik, the market is perhaps in any way overestimating Political Risk in europe . Is the market overestimating it. Peter s i speak to clients and investors outside of europe and Political Risk is one of the key concerns, no doubt and i have said in our research that once the French Election is out of the way, we think that Political Risk could be priced out to some degree. Having said that, being in the market for quite a while, we always have differentiate between longterm, medium risk chances and the shortterm here and now movement we have seen. I think as peter just said, markets are not really focusing on the speculative term on risk. If there is anything that changes, a perceived outcome in the French Election, we will she see shortterm election shortterm change. I think we have to stay very attentive to any of these developments even though i agree with peter in that most likely it seems to be a le penmacron runoff. We have had quite a lot of push up. The main case is that the dollar will be relatively strong and could should keep the euro dollar in line. You could create a scenario where the euro gets a lot of support. Nejra when we look a european equities. We are still talking about the fact that there might be opportunities. The is just one measure of index that shows opportunity in european equities. Do you think it is too late to get into this . We saw that inflow into funds last week. Peter d i must admit i am rather cautious on equities, generally. It certainly looks to be the case that european equities are set in price than their u. S. Counterparts, but i think given the expense of the rally, investors have to be very cautious, which may or may not be about the putting ahwhile little bit more into european equities, i think, but be prepared that if things perhaps turnaround, it might be time to get out very quickly. Dont go too long and expose yourself to nejra Peter Schaffrik and peter dixon, they stay with us and you should stay with surveillance, because there is plenty coming up, including the rand rank, jp consumer may face a nonconfidence movement. And opec outlook after they cost out the cast out the european the general secretary. This is bloomberg. Cehic i him i am nejra in london. Broadly higher today, but one index i am watching is the dax, nearing the record high 74, thatose above 12. 3 is the current record. We are about half a percent away. That comes as germany deep germany gave the manufacturing paradigm, in line with estimates and expansion on that figure. The u. K. Unexpectedly calling for a third month, this is sterling short waning slightly. This contract coming off more even more than when we had the flash crash in october, sterling plummeting. Investors are less pessimistic on the sterling as they previously were essentially because the market is pricing in hike. Of england rate sterling up more than a quarter percent in the three months leading up march. Eurosterling we are interested in as well, the pair we are interested in because it is rising today, but under pressure. Will it fall before below the 84 level . And oil, we see a drop in net long shorts. The white line is your net long wtithe blue line is your futures. We get this correlation here as rate increasing and u. S. Demand and more talk of opec cuts being extended beyond the june period. Nejra thanks so much. Now South African president jacob zuma could face a motion of noconfidence following the cabinet changes that Ruling Party Officials said were done without consultation. The speaker of the Parliament Says she is considering a recall of lawmakers to debate and opposition motion which would force zuma to resign. Lets get the latest from our reporter in johannesburg. Talk us through what could happen at this debate takes place in parliament. We know that president jacob zuma faced quite a number of motions of noconfidence against him in the national assembly. This would not be something new. What is new is it is coming at a time when officials in the Ruling African National conference have come out criticizing the fact that president jacob zuma did not consult them on some cabinet changes he made last week and also criticizing the fact that he fired the former finance minister and his deputy. It comes at a time when it seems as though the president may be in a weaker place going into the possible motion of noconfidence in the national assembly. ,ejra what is at stake here given the heightened political tensions over the last week . That is at thing stake for the country at large is the countrys Credit Rating. We know the Credit Rating agencies have come out and said last week they will be monitoring the implications of the cabinet reshuffle, which came up strongly to say the political turmoil is something they will watch leslie as they draw near to their assessment. We are still yet to hear from s p, which we expect may issue a reaction of statement later today and reacting to what we have seen, the increase political turmoil and especially given that they have stated Political Uncertainty is something that could really be a risk to the countrys Credit Rating. Nejra thanks so much for joining us. Peter schaffrik from rbc europe and peter dixon from commerzbank, Peter Schaffrik, let me start with you and simply ask how likely is it that zuma will be ousted and will the market see this as positive or negative bearing in mind that there will steve still be a lot of certain uncertainty . Peter s to answer your first question, i dont how likely it is. The one thing i can tell you is what the market doesnt like currently and we have seen it in the chart when you put the rand up, the uncertainty particularly in countries that do not have sort of a strong stability record and this is something that most recently is relatively new again because we havent seen a little bit of turmoil in any of the emerging markets for quite some time in the last thing we have been there was for different reasons. It was more for Dollar Strength reasons rather than their own weakness. I think it is something the market doesnt like at all. If he is to go if he was to go, we would have to see what the real alternative would be and where we would be heading. I think initial reaction would probably be more uncertainty means more currency weakness. Nejra you agree, peter dixon . Peter d totally. Difficultition is a one because he doesnt really. Ave support anymore domestically, he was under pressure. Will he be ousted . I dont know. It would be almost unprecedented , i guess, to see that happen to an amc leader. In terms of the uncertainty, i totally agree. I think the market is increasingly looking at a South African saying, what have you got . You got an economy not performing that steadily, relatively high unemployment, and political instability. Nejra i want to quickly show you this this chart. The rand was actually performing pretty well and kind of outperforming if you look at the carry trade with other current season then it has fallen off a cliff somewhat. That said, foreigners bought a of southbillion rand african bonds in the week ending last week. At what point does this become an opportunity . Tough question, i know. I dont think we are there yet. I think we need to have much more and that will take a while. In the meantime, unfortunately, you start to see a lot of other things sort of start to kick in and people might lose interest in south africa. The political situation might be such that they decide they want to sort of look over emerging markets while in south africa. Of a buyingospect opportunity in south africa has passed. I suspect investors may want to stay clear of it for quite some time. Nejra of course as the downgrade comes some funds would have to automatically pull out. Peter s markets are behaving very typically if there is uncertainty in until you sort of see what could be in that tunnel. It is typically a very one based i think at this stage, it is way too early. Nejra Peter Schaffrik from rbc europe and peter dixon from commerzbank. Opec outlook as the secretary general paints a optimistic view. Is the oil market finally rebalancing . This is bloomberg. Nejra i have nejra cehic in london i am nejra cehic in london. A Strategic Review of the food business which includes brands like frenchs mustard. They have a history about performance. The announcement comes after they agreed to buy meat johnson theition china has seen Companies Failing on 9 on shore bonds this year. Most of the defaults are in heavy industry and construction and situations show how policymakers attempt to reduce causing casualties. Tesla has set a record for deliveries and production in the First Quarter, beating analyst estimates. The maker of electric car and Energy Storage devices shifted more than shipped more than 25,000 vehicles. Elon musk repairs to begin building model 3 in july. , now. Lets talk Oil Stockpiles are starting to decline in assigned a production cuts are bringing the market into balance. Mohammed barkindo says he is cautiously optimistic and they saw the biggest weekly increase this year after speculation that opec could extend the deal to curb outlook. Peter schaffrik of rbc europe and peter dixon from commerzbank. Are we seeing a rebalancing . Peter s it looks like it. If you look at the behavior of oil futures, they seem to be relatively stable. Certainly we have up and downs of the market, but if you look at it on a monthly basis, we seem to be stable. If i take that as a broader point, i think that is helpful because what we have seen initially over the last couple it has caused significant disturbance in markets and the economys reliant on oil and now we have stabilized the economy and thereby, the Global Economy has stabilized and it helped of course bring inflation and Inflation Expectations back in line. I think it is very important we have stabilization to of the oil market. Nejra with stabilization, does that mean we see oil in the 40 range to 60 range for quite a while . Consider. Shale as well . Peter d 40 to 60 is a very wide barrel. Saudis decide to do what they usually do and ramp it up a little bit, the discussion is whether opec can hold onto it. Emerging markets point out shale , recount is going up. I think over the course of the next year or so, we will stop a further boost from u. S. Shale. Itsink overall, opec lost and i think it will struggle to hold 50 on a struggle to rise. Nejra what does this mean for Energy Stocks . I was showing a chart last week of Energy Stocks in europe, analysts are starting to raise projections for Energy Stocks. A good time to get in . Peter d maybe. I think a lot depends at what aree the Energy Companies hooking stuff up to the Balance Sheet. Problems ifto cause they dont hold those levels and you could see disappointment there. The coalition between Energy Equities and the price of oil is actually not that great. I think you have to be cautious. Nejra and briefly, commodity Commodity Currencies . What is your deal on them, positive, negative . Peter s what are they typically priced against . When you look at the cross against the dollar, we recommend there is quite a bit of strengthen the dollar yet and that would make it hard. If i make a last point, it not only depends on where crude is going, but also where the economy broader is going. Nejra and it all comes back to the dollar. Peter schaffrik and peter dixon,. Hanks so much for joining us bloomberg continues in the next hour with tom keene and guy johnson. This is bloomberg. Is not in the balkan islands. Anyone to call down. Sustained bonds with scotland. Of 2017. A dollar shift higher brutally higher. It is april, the French Election is upon all of europe. Jonathan fenby on Marine Le Pen. Good morning. This is bloomberg surveillance. I am in new york. Is off this week and guy johnson pulled the short straw. Visit of the chinese leader to america but the frencht that election is here. Guy i can tell you are missing francine. Behind the data that is important. A low turnout will favor Marine Le Pen. That is something we should think about. Tom stunning to see ian brunner last week predicts that Marine Le Pen would win. Much more on that in the coming days. Here is the first word news. Taylor in the u. S. , trump warns that the u. S. Would act alone on north Koreas Nuclear threat if china refuses to threaten the regime. The president told the Financial Times that of china will not solve the north korean problems than we will. Europe, spain is moving to calm down a diplomatic dispute over the u. K. Over a dispute with gibraltar. Michael howard suggested that the u. K. Could go to war over the territory. Spains foreign minister suggested that is going to far and someone in the u. K. Is losing his composure. Gibraltar is located at spains southern tip but has been controlled by the british since 1713. Firsta may is making her overseas trip since triggering brexit last week. She will visit saudi arabia. The goal is to build commercial ties. They are expected to give jordans air force more support. Nicola sturgeon says the u. K. Refusal to negotiate a date for another referendum ofi dont think the position the Prime Minister, which at the moment is to stand in the way of the Scottish Parliament, is sustainable. Will of the the Parliament Must be respected. Taylor the British Government has said a Scottish Referendum is not up for discussion while brexit is going on. 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. Thank you. We have a great set of guests coming up today including Jonathan Fenby on the politics of europe. A quick data check. Not that much going on. Eurodollar is in with a weaker euro. A reset for the equity markets in the United States. The swiss franc is stronger over the last five sessions with the elevator dollar. What do you have in europe . Absolutely nothing right now. Equities are going nowhere. French markets, a little bit of underperformance there. The eurodollar did you see that piece that came out earlier on . 8 if we extrapolate that into what the gdp numbers should read, it would be an elevated number. The rand is on offer whats again. We will talk about that. We could see a noconfidence vote for president zuma and then is the german 10 year. The ecb has a lot to think about. Tom lets begin the Second Quarter with a chart that trump will have to confront. Trade is front and center for over with a rhetoric china. Here is reagan, dust to gdp. Bush senior we have shown was before. Here is the clinton surplus. Here is obama and trump. All you need to know is that we are at 100 of debt to gdp and 2 33ent reagan was at 30 percent. Decidedly, for trump, it is now the world that reagan knew. Guy i am structurally longer pound. Lets talk about what is happening with the pound. A trendline pointing south. Sometimes positioning is as important as politics. We are now starting to see the possibility of a pulse coming through. Trendline going down but now, it looks like we could break to the upside. Alberto gallo has negative things to say about what is happening in the u. K. First, lets talk about what is happening with the fed. This hike trajectory week could add. See. We may get data today but wednesday, we will have the release from the feds last meeting. And it is the start of a new month and we get new jobs data as well. Lets talk about what is happening here Alberto Gallo and Jonathan Fenby, director of political research. Good morning. Alberto gallo, lets start with you. It is data dependent which pieces data will stand up this that maybe there is upside potential . On the the parity limitation of trump policies. They have hinted at that but you are looking at Corporate Tax reform that needs to be delivered and him for stricter spending. So i think that is key to have three hikes rather than to hikes. This week we have jobs data. I think the key is policy. They have hinted at that multiple times. But they are on a stable hike past, i think. I think it is more to them three. Thethere is some risk to trump team under delivering because they dont have a coherent strategy yet. Protectionism. Priced in . Grip on. Et a full we will talk a lot about what happens later this week in florida im sure the weather is delightful but will there be rain clouds over this meeting this week and how should the markets be positioning themselves . Be rain there may not clouds but there will be uncertainty. Are goinge chinese into this feeling confident. Things have been going their way this year. Including on the free trade mobilization. Ignoring things that are prevalent with data at the same time. They are going into this and theyre waiting to see what trump is going to do. The ball is in the court. Alberto gallo, help me with this chart from 90 days ago. This is the francegermany spread. The different the difference in yields between france and germany. The ugliness of 2011, we are right back to Peak Financial crisis. The tension here is interesting. Does this tension stay as we go to april 28 . Days,o in the last feed markets have const down about the risk of Marine Le Pen. The spread is high but it has got a little bit lower compared to where it was a month ago. So i think it is possible that we have another scare. Things have been going really well for macron. Staying for over five months in the polls. You could have a small turnaround of events towards the 21st of april. Having said that, markets are overestimating Marine Le Pen by around three times. If Marine Le Pen wins, she has to call a referendum and convince parliament. French people are 65 proeurope , over 60 . It is hard to make a referendum pass. Tom translate the good Economic Data we are seeing on europe,nder 10 Unemployment Rate translate that good feeling into what it means for the european bond market . Alberto bonds are a loselose. If things go well, the ecb has two, at some point, recognize this and shift their policy. If you look recently, they have been dovish because they want spreads to be stable but the macro data is positive and continues to be positive. If things go bad some bonds will lose because if you have wounded, that means inflation and higher goodds but even in a scenario, german are over 36 the bondsance dont give values to investor. Low value to investors. The same thing for the u. K. Yield. Lets go back to what is happening with the china story. It has it is interesting that this will be a factor for europe, as well. To complete the conversation we had earlier on, there seems to be incredibly little upside potential. A trade war. Is there a downside . It is difficult to see what the chinese president that would be worthwhile. And equally much, im not sure what the chinese could give to this important year in china. We going to an important conference at the end of the year. So i dont really expect much to come out of this. It is to people meeting. And with Financial Times in north korea, he has finally said something on north korea as he has been quiet on it up until now but now he is steering the chinese. We have an extraordinary morning. What a treat to have Jonathan Fenby with us. We come back to the one volume on france. The president will meet with mr. From egypteurope and we drive the conversation forward. Up, the reset on the dollar that didnt move. Sebastien galy joins us. On the Second Quarter and a resurgent dollar. This is bloomberg. Taylor this is a bloomberg surveillance. Bankers are considering a sale of the business to pay for the 16. 6 billion acquisition. The British Company is reviewing options for the unit, which it calls noncore. That includes frenchs mustard. In asiaies executives from Deutsche Bank according to a person familiar with the matter. Critics up in restructuring the Global Market business and they have named a new chief for the asian unit. That is the Bloomberg Business flash. Guy lets talk about what is happening with french politics. The french president ial election is almost upon us. Published by the political magazine says that the leftwing candidate could get a 16 share of the vote in the first round. That is just shy of Francois Fillon, currently standing at 17 . Tomorrow night, we have something of the debate. Lets go to our french government reporter. Good morning to you. What is the set up into the second debate . We are talking about him today because he has the momentum. I wouldnt want to overplay it. Currently going for third place and not second. He has quite a long way to go before he is a real contender. But with three weeks to go until the first round of voting, things are very intense. The debate tomorrow is another important moment and the performance there will probably set the tone. Tom helped Jonathan Fenby by writing his sequel. What are the what are the undecided looking for . What is the giant norm is the ginormous underside and what does it signal . The indecision signals that a lot could happen. I think for investors, that is what you want to focus on. Things are still in flux and things could change. To the American Election in early october last year when it seemed sure that Hillary Clinton would be in the white house, but, you know, a week is a long time in politics. And a lot can happen. Mark deen, thank you very much. Lets continue to think about this with Alberto Gallo and Jonathan Fenby. Those are still on set with us. What are the key numbers with the French Election, is it turn out . Jonathan it is turnout. Have lostoters confidence in the main party. The comparison with the u. S. Election is not correct, really. Because you still have the Republican Democratic party. Trump was unexpectedly the republican nomination. And then you had to almost certain contenders for the runoff round in may. Represents the Mainstream Party. Marine le pen has been around for quite some time. I remember seeing her when she was a little girl back in the 1980s. You have her and then you have who only set up his party a year ago. So this whole thing has been thrown up in the air and people are uncertain about where they should go. They dont like the setup but the obvious answer to that, 67 of people say they would never vote for her. And she cant get extra votes for the second round. Macron is 39 and he doesnt have much experience. He doesnt really have a party and he is a leap in the dark. Tom Jonathan Fenby, i want to congratulate you on your book. It is phenomenal. Big typeall, it is in thank you for that, i can actually read it. Chapter 22 on a time long ago. Bankers out the they are not in this election. Where is the recent past of france . Is it in the election . The past of france is that periodically, you do have revolutions or upsets which say they will change the regime and sometimes they do. Republic. The question is, are we in one of those moments . I dont think Marine Le Pen will weigh in. But if she would win, you have an unparalleled situation where you have a president of 30 members of parliament and she couldnt rule. If macron wins, you have the question of whether a broadly reformist market minded regime will take over. And that is really the big question. The influence of that on markets in the mediumand longterm, will be stressful. Betweenfrance 18301848, i get it. Healthy with what ian bremmer last week about Marine Le Pen going to win. Where will she win in the margin . Where are the voters in the margin that could assist her Going Forward . Jonathan three things have to happen for her to win at the frightening thing is they could happen. Five years ago, they couldnt but now they could. First of all, a low turnout rate. So her committed band of supporters will weigh more in the outcome than they would in a normal election. The rightwing of the conservative Francois Fillon have to go to marine the fine. They have to say they will help her because they dont want macron. Will protect our jobs. And most important at the moment supporters hon will they say actually, the way of making a protest in the second round is to go to Marine Le Pen . They will hold their noses, even from the left. She could put together the vote. Jonathan fenby will continue with us in Alberto Gallo. To speakimportant time to ted alden, coming up. The leader of egypt will visit the white house today. That is a huge deal for the Trump Administration. This is bloomberg. Guy im in london. Tom keene is in new york. Lets talk about the german data. Survey data was out earlier ron incredible levels. My problem, does this translate into hard data . Why not . Alberto gallo is still with us on set. Talk to us about the hard data. Why is the german data logging . The reality is somewhere in between. We are seeing hard gator we are seeing hard data improve. There are some there is some optimism hasmaybe gone too far across banks and companies. What if you look at the hard data, you are starting to see some early indicators of growth with bank lending recovering. So we are on a good path. In one year ago, people thought the eurozone would fall apart. But both politically and economically, the eurozone is in good shape. The key this year will be the german election. But a slightly higher consensus than Angela Merkel. Rather than listening to so that is a key point. Remember that the irony is that break that has made europe stronger. Guy we will talk about that in a moment. Alberto gallo and Jonathan Fenby are going to stay with us. The data board looks like this. This is bloomberg. Tom good morning. This is bloomberg surveillance. No april fools day. I cant decide april. The weekend or weekday, which is better . It is tough. A tough way to go. Guy it depends how tolerant your children or work colleagues are. Tom right now, she is vicious this monday. Taylor riggs. Taylor the u. S. Ambassador to the United Nations says that russia was certainly involved in the election. Fake news. Ts it is Mitch Mcconnell is confident that congress will avoid a Government Shutdown of the end of the month. He tells fox news that the senate will confirm Trumps Supreme Court pick this week. Confirms that gorsuch doesnt have the 60 votes needed to be confirmed. In venezuela, moves away from a move to increase his power. Theyve reversed the decision to strip the power from the opposition led party. That to criticism from the opposition in foreign government. In southern colombia, the death toll from a flood has climbed over 200. Heavy rain over Three Bridges flowed friday night. Global news, 24 hours a day 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. Tom thank you. As always, it is a conversation of complexity. China and its relationship with the United States. We begin our conversation with enda curran. Help me here with the politics of north korea . That was front and center in the president s discussion and the Financial Times. Tell me about the divide on the river . Look at thejing river and all of those people moving north into china . Evening. D i think this is the big issue overshadowing it all. Even though we know that trade of the economy will be central of the question, north korea is in the corner. Year presshis once a conference that nobody wants chaos on their doorstep and i think that is the message that tole that china wants bring to trump. To know culturally, a bigger and broader discussion, how does the leadership react to trumps bluster . On twitter. How does that play to the leadership coming to washington . Restrained so far. If you look at their responses, even on friday when they gave a after the latest twitter outburst about trade with china, they are sending a signal that these talks will be an opportunity to reset relationships with the u. S. , a new start. And these meetings could be useful for china, coming so early in the presidency. It will allow them to influence his decisions Going Forward. So i would say where there is north korea, trade china has been restrained. They are waiting for news rather than noise. And they are taking a very. Atient approach guy the chinese know how to play cards. And who met through the whole issue surrounding the one china policy and trump put it on the table and then it got taken off the table at now we have north korea being put on the table maybe it will get taken off in the same manner. How are they really viewing this, from a tactical point of view . Is it just a game . Enda they are very much happy to wait and see exactly whether he does get put on the table. Before christmas, there was a talk about tariffs as high as 45 . Reputations like an oldschool trade war. Since then, we have had the come back a long way. It isntressing that about china. So i think theyre happy to get. Larity this week this is exactly what trump is pursuing. And if it means giving him concession to grant him the view in when, the china, they will be happy with that. So it is like i said earlier, a patient approach on chinas part. Theyre happy to wait and see what trump is trying to put on the table. Guy enda curran, thank you very much. He was joining us out of hong kong. Lets go back to Alberto Gallo and Jonathan Fenby. Jonathan wrote a book on france and also wrote a book on china. On that note, lets pick up and talk about china. Is north korea the new one china . North korea is the problem that nobody needs that nobody knows what to do about. Trump is putting it on the table but it is easy to say you will do something radical if the chinese dont help you, but i dont know what that would be. A military strike on north korea would be suicide. You cant wipe out all of the facilities there and north korea has facilities only 35 miles from seoul. Theleading candidate in election is against u. S. Policy, which is to deploy the antimissile. So will he have the americans against thehat wishes of the elected government in south korea . Moreis sounding more and complicated. And i think what we can take out of trumps remarks over the iskend is that he desperately hoping that china will do something magical in north korea. But china has refused to do that year after year after year, because they are afraid of the implosion upon the north korea regime and the united korea on their doorstep. Guy talk to me about how i price in protectionism and any kind of a trade spat between china and the United States . Alberto i think there are three things you have to look at. All the populist regimes have three things in common. They create an enemy, somewhere, internal or external, and then it will be a trade war with more spending into military spending and infrastructure. So you have to be long in these sectors are you have to be afraid of the bond yields widening. Spending into public related sectors like infrastructure or defense or higher inflation. Me here with the tillerson pivot. Agent foreignode policy . Thethan it is all over place. In particular, the china policy. Flowing tough and another moment, making a phone call to say they have always believed in one china. The chinese reaction to this has just been that they have to wait and sit back and wait for the contradictions with the policy. And they will wait until there is a coherent policy. And then they will deal with it. Talk about nobody watching the show remembers. Moment, they the do get on, well enough. Positions been against the United States. And china, i think, is relieved that there wasnt a trumpputin rapprochement. But i think it is a thin one. From theodern weapons russians. And they are getting money from the chinese and help in the Financial Sector. It works but it is a transactional relationship at the moment. And on the siberian border, they dont love each other. Tom it is interesting but the tension having always been there. We will continue with Jonathan Fenby and Alberto Gallo. Im loving this conversation to get our monday started. What a treat. Withg up, a conversation this republican trump, trump, trump, on the path forward. From the brookings institution. This is bloomberg. In london. Tom keene is in new york. Keep calm and carry on is the message from the Spanish Foreign minister in the diplomatic spat as this comes into focus gibraltar. Michael howard made a comparison between the scuffle with spain and the 1982 war between the u. K. And argentina. We are back now with Alberto Gallo and Jonathan Fenby. Yourto gallo, early run, talked about creating enemies abroad. And in order to justify what you are doing at home. . Ny comparisons alberto they are starting out to be more specific when you look at spain or france. But clearly, it is a way to focus peoples attention and ther outside, rather than domestic issues with the u. K. . The u. K. Has a lot of longstanding economic problems and we think brexit is a symptom of the problems. It has divided the United Kingdom. A lack of access to education for the poor people. A gdp that grows strongly but not wages. Wealth doesnt go to everyone. So in and populism go handinhand. You have a dream that they sold closing thell be doors. Thehave an enemy i do have policies. At the moment, there is no plan. No plan to deal with brexit. Put this in context for us. On the other side of the english channel, which looks more comfortable . Jonathan the u. K. No doubt. Say, well, why did you vote like that . And now you have to face the pain of it. Guy is this divergence . Jonathan we will see divergence from here. Plenty of historical waterloo will be brought up. But these are divergence. And the question is, is there a plan . Does the u. K. Government know what it is doing or not. And so far, maybe theyre playing it so close that they cant see but so far, we see very little signs of it whereas you can see on the eu side, after the delivery of the article 50 letter, the eu has drawn up the negotiating position. Particularly, they wont talk seriously about trade until there is an outline agreement for how much money the uks going to pay and that will set off a huge row in britain. With the popular press saying they are asking us to pay billions and why should we . I think that is where they will have a big faculty. Tom i spent half of sunday brushing up on how we got to gibraltar. Help me here with the spanish tilting towards scotland . The thing we are reading this hindu towardsnish an independent scotland. This will be interesting to see in the next two years. Jonathan gibraltar is an emotional thing that will be played out in britain. They are rather stuck in this. Not too long ago they want to remain part of the u. K. And also of the eu somebody could have foreseen it would be a difficult position. But the Spanish Government has to be careful. Because you have a place called cap ohlone a on the mediterranean coast in spain which has a strong independent movement. Tom do we need to read kissingers diplomacy of the or can we read about world order . I think we are heading back to the strength of the nationstate and that being the supranational dream. The fundamental question is whether you can have that move back to National Sovereignty within the European Union, or whether it is contradictory. The had the fx call of quarter when he talked about a stronger strewing right at the bottom. Up it went. Bob has reaffirmed our reversal and put parity into the future. What is your call . . Ill it stretch will it be a euro parity . A weaker euro . The eurozone is getting better. Everyone said and has been saying that the eurozone will fall apart. The ecb is dovish by the Prime Ministers delay to keep the french press in check. But the ecb does have to turn a corner. They will, at some point, see tapering towards the end of the year and you have the german elections, which will finally unleash some the spending. So we do think that europe is turning the corner and banks are stronger. I see it stronger. And in the dollar space, i do see risk over the implementation of trump policies. Even in the sterling, no one is focusing on the fact that the u. K. Has not said what they will economythe postbrexit except that they will make passports blue instead of red. That is what we heard over the weekend. I wasnt sure whether that was an april fools joke. Are chuckling at this point. Jonathan it you dont need it for full say because the politicians are doing it for us. Guy so he is gloomy on what brexit will deliver for britain. Are you as gloomy . We should react. Saying i had to invest in Financial Markets how should i be preparing myself . Jonathan britain will have a much more juggle time than people think at the moment. But all of this is complicated even further because the britishu. K. Government policy on the brexit issue is driven by a small group of mps in the tory party. This is the internal conservative party politics. And how far that will continue with theresa may, and whether will kill for an election we are in a political no mans land. Of uncertain territory in the u. K. Which makes this whole thing unreliable. The german election is extremely important. Because if you get democrats continuing their rise under france youlz and in get macron who has said it has platform that the eu needs fiscal harmonization he is even talked about a europe budget minister. You have the french and the germans be the essential link in europe, which has broken down over six years, but have them coming together to say they will do something about it. Guy Jonathan Fenby, thank you so much for your time. Alberto gallo is going to stay with us. Remember that if you want to track the action, there is a great function you can use. Tv get the video stream, diligent atom is making those available for you as well. You can also get the radio function as well. A video stream. We can look at some of the key events and headlines. Tv on your bloomberg. This is bloomberg. Taylor this is bloomberg surveillance. Flash. Et the business signs that Oil Production cuts are starting to rebalance the Global Market according to the opec secretary general. He said he has already seen Oil Stockpiles declined. Six members of the cartel have called for production cuts to be extended beyond june. In canada, valley be widespread indignation they are delaying more than half the Compensation Plan for the six most highly paid officials until 2020. There was public anger in quebec after they boosted more than 50 . Received one billion dollars in taxpayer aid and now plans to cut 14,000 jobs. That is your Bloomberg Business flash. Tom lets go to Alberto Gallo with the final thoughts to kick off the Second Quarter of 2017. Lets bring up the Alberto Gallo chart negative rates are still negative. Switzerland, 20 or negative. Here is a chart we showed not that much in the First Quarter. That here is the twoyear yield which is staying negative. Alberto gallo, why do we lose something tos, as watch . Shouldnt we be focused on the fact of negative rates . Alberto the reason why german yields are so negative is that there is a scarcity of the bonds and also, people are willing to pay a premium because of the france. L risk of so if Marine Le Pen wins and they decide to exit we think it is a low probability and the pricing 5 of the risk but we think it is around 1 . Low numbers but we are seeing that the markets are estimating france exiting the euro by five times. If it goes well with macron, then you will have a stabilization in the premium that investors are willing to locking their money into 81twoyear german bund. To get back on track with the data they are not in a rush but they may do that sometime later this year. Guy is the ecb tapering this week . Alberto it is tapering and it was already announced. Are extending it for a long time and they say it will be here for a long time . Alberto i think that is the right thing to do. Because still, italy and france, they need low yields in the long term to be able to invest. If you put italian meals 1 higher than growth needs to be 1 higher. Reduceey should do is the shorthand of Interest Rates. Because that will help banks learn more. Important. Y tom we have run out of time. Alberto gallo, i really appreciate it. And that was with Jonathan Fenby as well. Coming up, the surprise in the First Quarter, a flat dollar. That is one of the themes of the next hour. This is bloomberg. Let the Second Quarter begin. After a start to the year, will we see growth and a stronger dollar . The president , will he possibly a doubt and adjust this week . Egypt,ce a leader of jordan and china as well as possibly the leadership of his Republican Party. And it is april. The French Election is upon all of europe. In this hour, sebastian galey on le pen Sebastien Galy on le pen. His is bloomberg surveillance we are live from a World Headquarters in new york. This is tom keene and guy johnson in for francine lacqua. Help me here with gibraltar. Guns blazing. Gibraltar. How does gibraltar resonate with the United Kingdom . It is great fodder for some of the newspapers, certainly. I think realism at some point comes into this. But nevertheless, what this highlights for me is that there are going to be a series of unknowns that are going to pop up throughout the whole process that are going to derail and make brexit ethical. Difficult. Tom some of that is not going to go a. To get you briefed on your first word news, here is taylor riggs. We will get to gibraltar but first in the u. S. , President Trump ones that are u. S. Could act alone on north Koreas Nuclear threat if china refuses to pressure kim jonguns regime. The president said if china is not going to solve north koreas problem than we will. He meets this week with president xi jinping. With present negotiations, British Foreign secretary boris son spain insists it gets a veto over any agreements involving gibraltar. Spain has wanted for brault or gibraltar back. It is Prime Minister theresa may is making her first overseas brexitormally triggering last week. The goal is to build security and commercial ties. She is affected to give jordans air force more support in its attacks against the islamic state. Scottish leader Nicola Sturgeon says it is untenable. She spoke with bloomberg tvs anna edwards. I dont think the position of the Prime Minister, which at the moment appears to be standing in the way of the will of the Scottish Parliament is a sustainable one. I will speak in a constructive manner. But my views are clear. The will of Scottish Parliament must be respected. The British Government has said that a Scottish Referendum is not up for discussion while the Brexit Process is going on. Global news, 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom lets get to the data. Currencies, to 51. Oils from up stronger over the last couple of days with a little lift to the dollar. We will stop to Sebastien Galy later. Guy paying attention to today, generally, the debate around germany has continued to be strong. European markets are gaining a little traction. Eurodollar is going nowhere. We are continuing to watch what is happening with the german 10year. That is the gdp. This is the chart of the quarter as we pieced together tax reform in the United States. Here is president reagan with 32 . That is the gdp. Then you bring it all the way up to mr. Trump at 100 debt to gdp. . Hat is this idea that is the Tax Reform Act of 1986. 46 is where we have joined debt to gdp. We are not right there now. Guy the pound is struggling a little bit now. But with Politics Today it is about the data. Nevertheless, we continue to defer that with the data at the back end of last week. An incredible trendline has been downwards ever since we had that brexit story. We are just on that point now. On the pound index, life could get very interesting. Tom guy johnson, thank you so much. Lets go to washington now. What a busy week. Our chief washington correspondent Kevin Cirilli. What a weekend between the tweets, the cheap shots at chuck todd and everything else. How does this white house regroup this morning . How Many Republican parties and i dont mean parties like legislature, i mean how Many Republican groups are the president speaking to this monday . It is a busy week as President Trump is going to be hosting a series of International Leaders including chinese president xi jinping as well as looking to see the confirmation of the Supreme Court pick neil gorsuch over the finish line this weekend. Then there is that pesky russian issue which refuses to go away for this white house. Hearing on capitol hill scheduled with top intelligence officials. Tom all of our heads are fishing are spinning. Whenever a police our heads are spinning over how this administration regroups. That is clearly the theme and what i read over the weekend. Where does mr. Prethis fit in mr. Priebus fit into this group . He will have to figure out a way to work with the House Freedom caucus in tax reform. Steve mnuchin wants that done before august. He has a long history with clashing with members of the House Freedom caucus and he is going to have to smooth that over because him and paul ryan, while they might be on the same page, there are members of this Republican Party that are just not simply on that same page. Tom in the minutia of the week, and i seened a judge Democratic Senators moving away and i guess the Senate Running away have to make a key constitutional decision. Is this the week where they go nuclear . I think essentially does Democratic Senators including centrist senators continue to oppose judge gorsuch, which, of course, the minority leader senator Chuck Schumer says they want to hold steady against an block that opposition, this would allow the white house to use the socalled Nuclear Option which would change the rules, essentially, and allow them to just pass on a simple majority vote. Guy is there any overlap on the vent diagram between what happens with the china meeting at the back end of the week and domestic politics on the hill . A little bit. I think when you look at it more broadly, when you focus with the president tweeting about north korea and south korea ahead of visit in thes second half of this week, i think when you look at it in terms of russia and the questions circulating you have to remember that these are questions coming from not just democrats but also republicans. There is a lot of interest in terms of that particular issue. I am certain that the administration will get questioned on the International Guy let me steal from johnson right now. I love that idea of the event diagram. But from then diagram the trump venn diagram. Evans really, we greatly appreciate it. Tireless efforts in washington. One of the great surprises of the quarter was the dollar didnt move. With Sebastien Galy of Deutsche Bank. What is the wife . What is the why . It did actually weaken with the emerging markets. For several reasons, they were cheap. The managers were reluctant to intervene. What mr. Egarding donald trump do as part of the u. S. Treasury report. Also, some other studied about the commerce secretary. Tom did mr. Trump have to do kevinll of that stuff cirilli just spoke about . Did that have anything to do with dollar stability . It weakened the probability of a fiscal policy but much of it was baked in with the dollar. Particularly on the dollaryen side, we basically traded between 100 and 115. And also, more importantly, a lot of investors are not interested. They are more interested in emerging markets. It takes a lot for the dollar trade. Tom on tv today, this is a bloomberg dollar index. Here is where we are right now. We are basically right back to where we were in the early winter late winter, early spring of 2015. There is the big dollar move. The u. S. Five euros going nowhere. Inflation is expected to stay around the mark. What happens to the reflation price . It died a good death. Equities are still performing inside of the u. S. Or outside of the u. S. The story on the inflation side is typically driven by republicans who are more optimistic regarding what front is doing. That is what state is the week. That doesnt change much. It is actually tightening overall growth in the mediumterm. It is clear that donald trump could change that and do some fiscal policy but it doesnt mean he is going to change productivity. There are early signs Capital Expenditures might actually increase. However, these are very tentative at this point. Has donald trump shifted the growth in the United States . In the short term he might have he might be able to. But if you look at the five years ahead guy how do i price invitations . Has the market, in any way, priced in any downsides from the meeting friday . Lets get a sense of the volatility. Thats a good question. Now the policy is pretty much on hold. Inbably, we will be hiking june. Another three this year. Talksould disappoint but have already come out. There is very little divergence, very limited divergence in the fact that there is not too much to expect. What is being expected more is turning the data coming up, whether it will be good enough. Wagesrticularly whether will pick up. I think that answer is probably going to be decent. Tom this is a real treat having you on set. We will talk about his experience in a moment. Coming up later today on bloomberg surveillance, really looking forward to bringing to you every all than in the council on foreign relations. Look at that in the 6 00 hour. China, ted alden. It is a beautiful new york. Has theutive producer best bracket since the beginning of march madness. Rachel moore has been killing it. This is bloomberg. This is bloomberg surveillance. I am taylor riggs. Lets get the business flash. Bankers are considering the sale of the business to help pay for a 16. 6 billion acquisition. The bentley the baby formula makers johnson. They are offering noncore. Brands include hired twosse have senior equities investors from Deutsche Bank. That is infinitely matters. It has been restructuring its Global Market business. And the European Union investigation into mcdonalds is entering its final stages. According to people familiar with the case officials have been gathering information on whether mcdonalds unfairly benefited from a big tax break in luxembourg. A ruling may come before august. That is your Bloomberg Business flash. Now, another twist in the french president ial election. The poll published by the magazine says left wing candidate Jeanluc Melenchon could get 60 of the vote in the first round. The first debate takes place tomorrow evening. All 11 candidates will participate. Sebastien galy is the Deutsche Bank director for 08 t. Trading 60 north. Is that the right price . The probability of Marine Le Pen winning are actually extremely small. In a stress test environment you can match places where she can win. Some of that may provide some support. It may switch to Marine Le Pen. There are some odds which are very small and under extreme scenarios. Arerally speaking, markets basically risk neutral, pricing modest this year, they underpriced the probability. If you look at what could happen in terms of reallife probability, will it eventually small. These are very the fear should be much more elevated than it currently is. At let, it is being reflected into very lower levels of volatility for most rounds of the election. Reelection probability is exceedingly small. Guy lets talk about trying to figure out where we are expecting a spike before the first round. Are starting to see some polling numbers. It makes people nervous. In european newspapers, talking about the bank, that the macron vote isnt as solid as it looks because of turnout. Nationals say where it has support is relatively on solid. It has been improving. We clearing the bouts involved . We do have a Television Presentation with the candidate on tuesday which is coming up. Is in the probability netherlands and other elections in the west. Particularly in the few days ahead of the election. That is the key risk. Onehat issue, macron has vulnerability which is the financial side. Tom we in america remember 10 00 p. M. September 11 where everybody went, boots, this is going to come a differently. Ian bremmer on this show, a bombshell on thursday was going with madame le pen. I understand that is an outlier view. If she was to win or if it was even close, what would happen the next morning. What would happen to france . What would happen to the financial and the cultural Financial System if le pen did far better or actually won . There were probably be a riot. Tom you think so . This is not a Mainstream Party that is taking over. This is really a party which is far more extreme than the netherlands, for example. Tease 08 t oats would rise. It will reacts not necessarily with a lot of logic. It may try to ease monetary condition. Tom this is a key question and we are honored you are here with us. We have got madame le pen, weve got her father with all he said nice is she has a she as a niece who is younger her not agree with father. There are three parts, the legacy of the father, her running for office and this nice talking about the legacy of the grandfather. There is the napoleon type of france which is essentially what is in supporting le pen. Otherf it is within places which a less easy to understand and then you have basically degradation going on by his wife. His wife has been able to widen her base by having a more moderate message. Hasizing a lot of health she has done an excellent job. Her daughter is very marketable. Doing an excellent job in terms of marketing so she is very appealing. The one which is is relevant. Thank you so much. Tom we will continue on financial aspects with Sebastien Galy. Coming up with ratings from brooklyn on President Trump. Stay with us. This is bloomberg. Tom what will this view look like in seven days . President trump has the most busy week, egypt, jordan and china on the radar. Also some domestic issues including the stability of his white house. Thanks to Kevin Cirilli for his brief year 20 minutes ago. Guy johnson with me as we look at trade. In the new york times, executive orders in question were to use a technical term, nothing. Knewrump whined nobody health care could be so complicated. We were talking moments ago about brexit being complicated. It is going to be a complicated week for the president , isnt it . Is the Health Care Story one that in so many ways defines the last political theory of the democrats. It was one of their key elements that came out of that. Came out of that period. I dont think you are comparing apples with apples. Tom maybe the idea is he wants a zero sum. Or a more unilateral america. The United Kingdom wants to go the other way with brexit. They want to be a multilateral juggernaut, right . Juggernaut may be slightly pushing the point. Maybe but i joke. The point we were making earlier gallo is it will be hard to replace the trade area with the rest of the world. The geography is a simple thing. It will be interesting to see through this year and into next year. Let me do a day to check right now. Equities, bonds, currencies coming out of this. The average that weaker. Guy absolutely. Problems for our president. This is bloomberg. Guy that is london. Looks lovely. I am guy johnson in the british capital with tom keene in new york. Lets get our first word news update. The u. S. Ambassador to the United Nations says that russia was certainly involved in the u. S. Election. Nikki haley said there is no question of that. The President Trump says it is fake news. Mitch mcconnell is confident the congress will avoid a Government Shutdown at the end of the month. He tells fox news that the senate will confirm president this Supreme Court pick week. Still, he acknowledges that neil gorsuch doesnt have the 60 votes needed to be confirmed. In venezuela president Nicolas Maduro backed away from a move to increase his power. The country pots highest court has reversed its decision. He had asked the court to review its original ruling after criticism from the opposition and foreign governments. In southern colombia, the death toll from a flood has climbed to over 200. Hundreds more are missing and injured. Heavy rain caused three rivers to overflow friday night. News 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom youve got to love her. Lindsey bell. You can do better than that and the beat goes down. It is about what she said with earnings, cash flows, maybe higher yields to compete with equities. This is typical at this time of year. Earnings estimates always come in and are they coming in normal . The expectation is they will come in better than expected. Now, the consensus estimate is 9. 9 growth for the First Quarter and that sounds a little bit high compared to what we recently have seen. We are coming out of the trough of the earnings recession. Last years earnings declined. It is a good quarter but in part, dont forget, energy. This is going to be the First Quarter that it turns into a tailwind from a headwind. Tom i just spoke to sam who said this same thing. With standardkets everything and then energies over here remaining out near Energy Analysis . Or are they aggregate as you have done for decades . We like to aggregate but we look partitioned out. Growth would be less than the 9. 9 . In the first order of 2016 we would have seen positive growth of 3 versus the 7 down without energy. Tom that is very important, folks. Dont the negative seven because of the energy. Help me down the income statement. One of the great miracles i have seen is the lousy nominal gdp, single digit Revenue Growth but in this miracle of miracles going down the interim statement, we have approved the high singledigit earnings and double digits. Excellent. Does that continue . We are starting to get there but in the past you have seen these corporations have cut their share count down over the course of the last year just because of the low Interest Rate environment they are taking on. But we are starting to see that revenue topline growth. A lot of that is coming from the financials and energy, which have flagged severely. Last year it was a very bad First Quarter. Mode inn correction february. Financials are up against much easier comparison. The Interest Rate hikes we have seen over the last year, although very few have been benefiting the Financial Sector this quarter, technology will have the best growth of them all. 16 and a half percent. The sector leads in the First Quarter. The sector is up significantly. The only sector up double digits in the First Quarter. We are excited to hear from them. Stocks areconductor expecting Earnings Growth of 49 . They are benefiting from the ,ncreased components in mobile apples new phone coming in the back half of the year will benefit these companies and then a little m a. About small cap versus large cap. What does the earnings story look like . The small cap is definitely coming in with better Earnings Growth in the double digits for the quarter at about 12 or 13 . It is a little bit better and they are benefiting from the improvement in the current economic environment that we are seeing domestically. A little better than the multinational incumbent in the largecap factor. Guy if we were to see another homeland investment act, if money was to come back into the United States as a result, how would companies spend that money . It is tough to say because i am not so certain that they would invest in the business. Instead of just buying back their shares and hitting back the special dividends to the investors, they have a lot of time in the past done that. Tom help me. Basically help lindsey bell here and all of standards this morning. What is the dollar going to do . Homelandre is a repatriation act there is actually an impact on the dollar that is relatively minimal because all of the earnings are with china and brazil in the likes in dollars. The only parts which will be local would be wages. If you are waiting to invest the money, if you are waiting to invest in locally that might be the case. Most of the story is about how these cash cds very shortterm cash are transported to dividends and repurchases of equities and the amount of cash which was available, it is very much a treasury story. Tom what do you see with multinationals . Do you see the adjust . There is a challenge at Deutsche Bank. Do you have to adjust down earnings . It is a question we get a lot. It is so variable by company depending on where they have exposure. It is not even a sector thing. There are the largest sectors with the highs in technology and Energy Companies, having their revenue coming from overseas, so thehort it is an impact but dollar is about in line with where it was. Tom get with the program. We did this years ago. From awant to take this different angle. We talked about the dollar impact and what that has with respect to the exporters. How much of topline growth for u. S. Companies is driven by external trade . By external trade . I dont have that exact number but i could tell you that 50 of s p 500 revenues come from overseas. Guy do you know how much comes from china . I am curious, i am wondering which is the political event we should think about Going Forward . That is a big chunk of change when it comes to growth out of the s p . If we start on the china relationship, will that price in quickly or ignore . I think that could price in any sort of concern like that. But just like with any event in the market, when the market pullback significantly, it comes back quickly. There is the payback that comes right after it. Tom lindsey bell, thank you so much with cfr a. I am in the all cash double leverage fund, so it has been a great quarter. The journal today, with the article activist managers actually at the managers active managers having a pretty good part of it. It so appears. Coming up on bloomberg surveillance, ted alden will join us for the council on foreign relations. Bloomberg. This is this is bloomberg surveillance. I am taylor riggs. Lets get to Bloomberg Business flash. There are signs that Oil Production cuts are starting to rebalance the Global Market. That is according to the secretary general who already says he has seen Oil Stockpiles declined. Six members of the cartel have called for production cuts to be extended the aunt healing. Beyond healing. Canada is responding to widespread indignation. Planst plane maker has delayed until 2020. It was public anger after they increased compensation 50 . They announced plans to cut 14,000 jobs. Tesla set a record for delivering the production of its electric cars in the First Quarter. Elon musks company Beat Estimates by shipping just over 25,000 vehicles in the first three months of the year. As local Start Building its model three electric car in july. That is your Bloomberg Business flash. Tom maybe not for taylor, maybe not for me or guy or even , Sebastien Galy, edward alden is here. How americans got left behind in the Global Economy. Bring it up here. Here it is. Gorgeous, dense book. There he readable. An effort on what the new strategy has to be for the United States of america. I love your last story on a globalized world. We need a new strategy. Does the president have a strategy for trade . I dont think so. It has not emerged yet. His interview with the Financial Times in the paper this morning published over the weekend, very puzzling in terms of his trade strategy with china. From his perspective it is the biggest fish to fry. See if anything comes out of this meeting at maralago. Tom part of his history is big stick or small stick or even no stake. How does the bluster play within the ivory tower of trade analysis . I dont think the bluster itself is the problem. The question is, what is your goal . Get u. S. O try to companies to invest in the United States, that makes a lot of sense. But pointless bluster without a particular goal you are trying to achieve is just confusing. I think this interview really underscored that. Tom i am honored to ask this to you. Who is more mercantilist . China or america . China has been historically far more work into list and that is part of what donald trump is trying to rebalance. He is saying, we have been up against countries not just china, japan and korea and others so trump wants to rebalance that. The problem is we dont know what his strategy is. Guy one of the things that came out was the idea that the u. S. Could go it alone on north korea. It seems very similar to this idea that donald trump was talking about for the election. The one china policy. That got taken over after a fairly frightening conversation with the chinese. Re seeing the same thing here . Look at what he said. My former colleague lionel what is theas asked incentive for china to cooperate on north korea . Think trade is the incentive. It is all about trade or co i have been puzzling through that for the last 24 hours. With taiwan, he seemed to be implying that with continued poor operation continued cooperation, we want chinas cooperation on north korea and we are going to use trade as the incentive or that. By what hispuzzled strategy is to get chinese respect. I think you are looking at unilateral options of one sort or another. Guy i am trying to understand strategy and tactics and also trying to understand objectives. Is the best that we can hope for from this meeting the status quo . Is that as good as it is going to get . I really think so. A lot of it will be about the personal relationship between trump and xi jinping. We have seen that in every one of his meetings with world leaders. If we get a call statement of the status quo out of the meeting i think that will be a triumph. There has been a lot of disruption in the past couple of months. This is obviously the most important bilateral relationship in the world. Steady as she goes for a while would be a decent outcome. Guy could i make some some some comparisons . The meeting with Angela Merkel did not go well. Were Lessons Learned from that . Where their lessons i could use as a predictor to indicate the separate . Have that i read those different events . It is hard to know. President trump insisted that the meeting went very well and that the media had a again misreported it. But i think what i would look for is how much does trump push on the trade issue . Does that become the central issue of the meeting or does he work more on trying to shore up Chinese Support for other objectives including north korea . German trade in question was front and center. The team is moving away to emphasize broader relations with europe. The focus is on the big picture relationships or narrowly on the trade issue. Mexico,w mexico into ring up the chart. This is one of the surprises of the First Quarter which is the mexican peso coming in here strong. Here is a strong peso really well within trend. There is the election right there. Here is the mexico gloom and up we go. Youve me an update on border tax. Is it borderline border tax . Is it dead . The corporate opposition to it is so strong. The white house itself seems internally divided. The treasury secretary gary cohn and others dont like it. I think it probably is dead. I think the reason you are seeing the peso recover is investors saying the likelihood is going down. Tom on international relations, lets go to sebastian on Deutsche Bank. Sebastien galy on Deutsche Bank. Did you actually pull that off . Ever but he else did. I dont think i did much of that. Tom are you surprised for the rally in peso . Is there a threeyear trend to continue with a weaker peso . It is telling we reversed the risk premium that was coming up with the border. There is still some potential , but there isance far less relative to the dollars. Low sotions are too there is a risk on the mexican peso side. Tom but this morning, are we going to get 25 pesos in the next year or two . I think if you map a chart of the peso, that is all very encouraging. Tom that was april fools. We spent linear track at april fools. Lets go to one final question if i could this morning. What the secretary tillerson need to do . What a mess, a jungle it has been. What is your prescription . Hes got to Start Talking to his people. His friends in the state department seem baffled. He is completely aloof, he has not introduced himself to his staff, when he travels abroad he is not visiting the embassies. He needs to enlist his staff. The state department has an Impressive Group of experts who have been working on these for years. To continue to be a marginal player in the administration. Thank you very much, ted alden from the council on foreign relations. For sebastian Sebastien Galy very shortly. You can use all the video screens and access the radio streams as well. You can use some of that personality we are talking about. That functionality we are talking about. This is bloomberg. Dollar strength this quarter. We will find out the economic flows. Sterling at 125 of the bottom. Euro shows a little bit stronger , that is all. 111. 6. I think it is an incredibly quiet day. Guy this is where we are. Coming up shortly is due is bloomberg daybreak americas. David westin, jonathan ferro, alix steel. Maybe a quiet day in some places. One of the several things we have, one of them is neil gorsuch. That judge is going to be voted on in the senate. We will be joined by david boys. He is the one you go to when you are betting or company. For the case of al gore, your entire presidency. Why should the Business Community care about neil gorsuch . More broadly, what donald trump is going to mean for litigation and regulation. Tom what is so important about this interview is the focus is on justice kennedy, a centrist on the court. I would suggest justice breyer. Se never gets enough attention. I would like to think about the corporate tone of this next Supreme Court. David the Supreme Court is actually quite light on people who know america. He came out of that world but even neil gorsuch really doesnt know corporate america. It is a real challenge. Tom i am really looking forward to this. Look for that here in a bit. Right now, Sebastien Galy has been here. And on the single charts, maybe this is a litmus paper for 22. It very much works as well. Here is one day after the election. Wave one down, way to down, wave three down. Now we are down here now. Do you just presume it further curbs, flattening into this quarter . What you can see when you run your models is there is a bit of a risk of taking. Of peaking. When you look at the entire world, it is essentially within the u. S. Treasury but also in the longer and. Longer end. With the tapering coming in, there are probabilities of a steepening curve and a reprice higher. That is past the French Elections and in some of these huge risk premiums which are still in the u. S. Treasury curve and we probably will start to see that. Fed rat itss the Balance Sheet . Does it do a mix . How does that work . Friday it doesnt really make much difference. It does, but generally speaking, our expectation is that there is not much of a difference in both assets, even they will have to run up a mortgagebacked security. But it is not really a credit issue within the Housing Market and therefore, they will run about 300 billion over one year. That is the at public about 20 basis points on the 10 year. Tom thank you so much. We will continue and speak about france as well. What a treat on radio today, from the Washington Post and the brookings institution. The future of the democrats. This is bloomberg. President trump said the u. S. Will address north korea. The officials threaten not the beginning of the end despite an improving euro zone economy. Just when you thought the worse was behind, credit swiss turn around plan faces another blow. From new york city, good morning. Welcome to bloomberg daybreak, im Jonathan Farrell alongside david and alyx. Alongside the president s of the two largest economies, lets get to the markets. This is how were set up monday morning. Futures in new york, stable and going nowhere. The euro goes nowhere. At one point 0. 56. Where is the price now . Alyx steele, treasuries, unchanged. Alix you have sterling moving slower after the manufacturing data in march. 4 . And gold and crude relatively soft