Transcripts For BLOOMBERG Bloomberg Surveillance 20180104

Surveillence. Is a look at european stocks. Theyre getting the most in two weeks. Its a little bit better than our preliminary estimate. We see the German Economy powering through overall. We also saw some unemployment figures that beat estimates. Commodities extending a little bit of a record run. Eurodollar, a lot of focus on the currency today. Yield is atyear 1. 95. This is a we have coming up on surveillance. We will hearing from john chen. 10 00, we will be joined by Stephen Michael smith. Cklowsmith. A they will be seeking to joshua green. Will be speaking to joshua green. Onto nejra cehic. Officials debated the risk to american outlook last month with some concerns about inflation and robust growth. The minutes of the meeting show most participants reiterated support for, quote, continuing a gradual approach for raising the target rate. In three moreiled hikes for 2018. In the United States, the worst storm of the winter season has knocked out power to thousands of homes and businesses and canceled thousands of flights. It threatens to bring more snow, ice, and cold from florida to nova scotia. New york could get eight inches of snow today. Boston make it 13 inches of snow. German consular Angela Merkel and its perspective coalition of aers said the chances successful conclusion to their talks as a fruit. She wants said exploratory talks to be concluded by the middle of this month and formal negotiations to take place soon after that. Japans Prime Minister has called on north korea to shift course and drop its Nuclear Program and missile tests to become a wealthier nation. Shinzo abbe also raised the strengthening their countrys defenses. Provocations by north korea put japan the were security situation since world war ii. To strengthenned japans defense capabilities to meet actual means and would like to propose a constitution that brings hope to a new era. These have stolen precious jewels that belong to the qatari royal family. Golden jeweled brooch and a pair of earrings. Its a renowned traveling exhibition of indian inspired jury jewelry and precious stones. This is bloomberg. Francine . Thank you so much. Donald trump has announced his former top strategist denounced his former top strategist, steve bannon. He said obannon, quote, and he was fired he not only lost his job, he lost his mind. In advance of experts from a excerpts from a new book in which bannon criticizes trump and his family. Joining us is stephanie. What is going on . The book that the guardian got an excerpts appeared in new magazine sees bannon attacking donald trump, jr. , calling his meeting with a russian leader last june as treasonous. I think this seems to be a step too far for President Trump. Now, what we have is, yet between the president and his former advisor. Sorry ite appears that this is not unusual , they have had rifts in the past. Its a question of whether its a permanent rift and whether it has a Lasting Impact on the november elections and the fact that bannon has in they series of candidates. Will he view that endorsement as somehow tainted . Donald trump yesterday was very clear in pointing out in various tweets that he was elected thanks to himself and not thanks to steve bannon. A danger that trumps space actually follow steve bannon and abandons trump . Question. Good the Republican Party has changed. There are trump republicans but the vast majority of the Republican Party is antiestablishment. Rift,ou saw and responses Establishment Republicans pointing this out with glee. Finally, bannon has seem to have had his moment and they are rejoicing because they think this will give them the upper hand. Bannon has repeatedly attacked Mitch Mcconnell in the socalled Establishment Republicans. I think it remains to be seen whether this will play out. Benin has backed candidates like roy moore, that did not do well. Its another reason for republican candidates to question whether or not bannon support is useful to them longterm. Francine does this affect your world . I think there is the potential to. Theres been optimistic optimism in markets and optimism in the tax plan. It was the most unifying thing that republicans could have passed. Now theres significantly less agreement. Time, you have this phenomenon that it off president ial years, the party out of power does well in the Midterm Elections and theres the potential for that again. I think the market is coasting on the taxcut. They want big upgrades for earnings in the fourth quarter. As the year goes on, its likely and maybeism fades that will be one of the biggest things that gets done. Francine what is the market worried about . Donald trump losing congress . Its not that that will necessarily be with the market will be worried about, but there are couple of things they will focus on. What you have seen in terms of policy progress may be more a oneoff than a new start. Im different Midterm Election results if you get a democratic wave, there may be a discussion over whether policy will swing the other way. There already backlash against the tax plan. Will that carryover and create a shift in policy the other direction . We see more pages being released and is it have an impact on the russian probe . Caught the to have white house by surprise. They were not prepared for it. , bannon cooperated extensively with the author. What other revelations are to calm remains unclear. Bannon still hasnt said anything, i dont believe hes commented on this. The white house is attacking a book, undermining its legitimacy and saying its tabloid fiction. We will see what other comments they have. 200 white house advisers and people that have spoken with them. Theres probably more to be seen. The wrists. M sure thank you so much Stephanie Baker and andrew sheets. Stay with us. Inflation worries still linger. This change the gradual approach . Who isn the show, runnable to hacking . We will be new the implications. Who is a vulnerable to hacking . We will bring you the implications. Politics,economics, this is bloomberg. Its get to the Bloomberg Business flash. Heres nejra cehic. The u. K. Retailer has issued a profit warning after week holiday sales. They said sales dropped by 1. 3 . Post Christmas Trading fell short of expectations. And 65oing 55 million million pounds, competitive conditions continue. The company is passing of a traditional public offering. It will test whether investors are ready to buy into the music industry, left four dead a few years ago. Record sales have increased a few years ago. As the fed welcomes the new chairman, they worry about how the times two raise Interest Rates. The gradual approach is concerning that low inflation will continue. Our guest joins us. Caroline, welcome. And your thanks for sticking around. Vince take aes wrong bet on inflation . Andrew the challenge is how banks respond to it. That youcky in 2017 had Central Banks that aired on the side of caution. They continue to not push back at all despite that growth was quite strong. A big reason for that is they havent good excuse. Inflation wasnt budging. The future,ook at inflation picks up. That will create more tension between the central bank responses. What was remarkable about the fed minutes was how relaxed and they seem to be. I think its very consistent with the current data. I think its a potential tension point is the year goes on. Francine let me bring it to my chart. , its u. S. Erday treasuries and inflation protection and security. Two Percentage Points on tuesday. D believe that inflation will actually pick up, not only in u. S. ,t not only in the but elsewhere . Caroline we think it will gradually pick up as the year continues. I think what comes to centralbank policy, the key is that they remain debt dependent. The path is set for tightening and its a case of win. March, june, september . The market is prepared for rate hikes. Its being positioned in sectors and areas of the markets that will be tolerated. Theyre going to be fairly gradual hikes. Germane is it the market . What is a mean for the rest . Is a prettyink this in a scene dynamic. I think you have slightly different yield curve reactions from the fed and the ecb. Ecb might have the easiest time. Remaining dovish in spite of data. Its mandate is narrowly restricted to inflation. Plus its an earlier cycle than japan or the u. S. Means higherng now odds of normalization further out the curve. That should steepen the curve. I think youll see german bonds steepening in the u. S. Curve flattening. See the u. S. Treasury curve completely flat by the end of the Third Quarter. If inflation goes quite quickly in europe, it ties Mario Draghis hand. Yes, in terms of their forecast. Its a key point. You need to figure out where inflation will be in the time horizon. But theres a lot of excess capacity in europe. It change are medically from the worst point. Its still quite elevated. Theres a lot more time on their side. Versus what the fed is facing. Andrew the other part related they will have different currency dynamics. Youre the stronger euro, which will probably help druggies case for keeping the policy little more dovish. Have a dollar tailwind behind the u. S. Economy , which will be an upside force. Francine where d. C. Eurodollar by the end the year . See the euro at around 1. 25. Euro strike story. You get fromt do your clients, caroline . Do they were done inflation, geopolitics . Caroline thats a much inflation. Either geopolitics and market disruption or valuation. I think its because the market, we see them hitting new record dont alwayseople distinguish between the price in the valuation. We dont think valuations are actually that extended. Globally, they are around in line with averages. Francine it means you expect equities are going to go higher . Caroline yes. We have a modest upside to markets. We dont think well see cap look capital depreciation to next year or the year before. Francine youre looking at your curve in the u. S. For how long . Andrew i think its a major theme for the year. Consistent with the cycle in the hike. U. S. Yields been a record high differential versus of the markets, i think what is interesting is that in that backdrop, energy tense to do consistently well. When the curve is flattening. That fits with the fundamental view of our team. If there is one concern the people have, is that the market is complacent and can deal with the Interest Rate hikes. Will they be in a big shock into 18 . Andrew i think there are two risk to the market. What is that weve misread the central Bank Reaction function instruments or wake up one day and say policy is way too easy. Thats a risk, but i think that risk is low. Its a slowmoving ship. I think the biggest challenge is weve been in this pleasant. Where you had upside surprises in almost every piece of Economic Data. Low inflation. Yet around the end of march, think calendari effects will mean those inflation series start to rise. Itse same time, mathematically difficult for pmis to keep increasing. That means theyll be declining. I think the risk for markets is will we feel that good in the months if its rising inflation and declining bmis. Francine thank you so much. Caroline is from ubs Wealth Management and andrew is from morgan stanley. Lowerthanexpected numbers for the fourth quarter. We will break those the next. This is bloomberg. Morning, good everyone. Im Francine Lacqua in london. Tesla has broken another production promise for model three. It shipping fewer units than expected in the fourth quarter. They were now shipped 560 vehicles, less than half of the estimates. Pushed back its 5000 cars per week milestone into the end of the Third Quarter. Our reporter joins us from paris. How big the deal is this . Another broken promise or something smaller . It feels pretty significant. Shares are already down. This is for the critical model three series, which be model market is looking for tesla to show it can deliver. Its critical. Its a well watched number. We will see what happens when the u. S. Wakes up. Francine our customers sticking with them . Obviously, demand is there. The problem is they are burning through so much cash. Theres a lengthy wait list. But they have to pay their suppliers. The question becomes, at what point to the need to raise capital . Thats the question that analysts and observers are watching. Do they need to raise more money . Theres a lot of goals when it comes to automation. That handed their plans for five or 10 years . Robotics, very sophisticated models that require a lot of investment. A lot of. Of cap x. When theres so much demand there and they have all the new tools, it requires a lot of investment. Ai is great but a lot of the other carmakers are coming on scene and posing a threat to the company. This is missioncritical. Francine think is so much. Jackies images are executive editor for business. Kessel is down 1. 7 in premarket trades. We will talk equities next. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Economics,ncine finance, and politics, i am Francine Lacqua. Lets get first to the bloomberg first word news. Thea officials debated risk to americas economic outlook, with some concerned about low inflation while others pointed to robust growth. The main its show minutes that is asarties policymakers raise Interest Rates by 40 Percentage Points. U. S. President Donald Trumps lawyers reported he sent a legal notice to steve bannon. According to abc news, bannon has been warned that legal action is imminent after the publication of excerpts of a new book in which he criticizes the president and his family. Storm ofs. , the worst the u. S. Season knocked out power to thousands of homes and businesses and canceled thousands of flights. It threatens to bring snow and cold from florida to nova scotia, and new york could get eight inches of snow. A blizzard warning has been issued for boston. Bloc hasrkels cdu led said the chances of successful conclusion to their exploratory talks have improved. The comments came after a meeting yesterday in berlin. Merkel wants exploratory talks to be concluded this month and further talks to take place. Speaking during his new year press conference, shinzo abe raised the issue of strengthening his countrys defenses amid threats from pyongyang. Provocations from north korea put japan and the worst security situation since world war ii. We are going to secure the safety of japanese lives. We must strengthen Japanese Defense capabilities and would like to propose a constitution that brings hope for a new interim. Have in venice, thieves stolen precious jeeves belonging to the qatari family. Jeweledeized a golden brooch and pair of earrings before blending in and escaping. It is a renowned traveling exhibition of gold and jewelry. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am nejra cehic. Longine Jeremy Grantham known for his bearish views, said the markets next move could take stocks dramatically higher. Pmi numbers out of the u. K. Are better than expected. Figures just crossing the bloomberg terminal coming in better than expected. Cousin interesting, the it has been a trend over the past couple of weeks because it has been a trend over the past couple of weeks to have stronger data from the u. K. December is a longer month and it serves as pmi, 54. 2 and the estimate was 54. I do not know either we have a pound check. The impact is limited but something we have to keep an eye on. Jeremy grantham says the markets next move could take stocks dramatically higher. Market onehe current of the highest priced in history. Japans nikkei 225 started the new year with the best opening performance. Lets get back to caroline managementubs wealth and andrew sheets from morgan stanley. You are expecting a lot of these equities to go up. Any exceptions question Mark Caroline not really. As long as there is Earnings Growth delivered out of the market we think that could drive the market higher. We have some regional preferences. We think the eurozone will be better than a u. K. It being a more cyclical market. Andrew we think the u. S. And europe will be the bestperforming markets, the basque best risk reform this year. That is a change from last year when we liked japan. Start,s off to a good but it kind of treaded water in december and i think it is a market that will have more challenges going forward. We think the yen will strengthen as the year goes on, and i think the bank of japan has a potentially large gap between where Economic Activity is and where policy is that is not appreciated by investors. Japan is becoming a much more popular market. Shipping money out of japan into europe is a move we like for 2018. Francine kuroda is the front runner to have another term, but he may not get it and the markets are questioning his policies more than 12 months ago. Andrew that is precisely what worries me a bit about japan. You have these positive stories of cheap valuation and corporate restructuring, and those are positive stories, but they have been there for several years. The japanese market has not done consistently well for several years, so there are times those things matter more or less. What we are worried about is those positives will be outweighed by the uncertainty of, is policy overly accommodative . More questions about leadership and changes, and at the same, that sentiment has increased. Francine do you have a breakdown for sectors of the ones that look expensive . Technology comes to mind, or whether you just look at it more regionally. Caroline Consumer Staples would be the one sector that everyone highlights as being expensive. It is expensive to the market and to its own history. It is probably the main expensive sector and obviously the reasons for that are through this recovery, people were never quite believing the pace would be as good as it was, so they are hiding in more defensive and predictable companies. That pushed those valuations higher, particularly because the base rate is so low. The one outlier on the valuation side. The other sectors, some of the discretionarys in the u. K. Are trading below average. Tech we do not think is particularly overvalued. It depends on which indices you are looking at. We tend to look at the s p 500 tech sector, and that looks ok to us compared to how would normally trades litan to the market. Francine if you look at these equities somehow how much to currencies impact them . Will we get a lot of volatility in 2018 . Andrew i think the currency part is important. I think something the u. S. Market has still at its back going into the First Quarter is that the dollar weakness we saw last year is only now recently coming into the earnings, so i think that is still a tailwind the u. S. Earnings growth. It is an expensive market but i agree with my colleague. I think it is japan where we are most worried that currency strength will be a headwind, and europe where there is the greatest odds you could have a good market environment despite a strong currency. Something that is underappreciated about europe is it has a lot of exposure to emerging markets from an ebitda perspective. That has been a drag over the past few years as em growth has been weak, but as it picks cap, i think it will be a tailwind for Earnings Growth. Francine when you look at real there a linkage between real estate and the way that equities perform . Caroline not in the underlying real estate markets. That is driven essentially by credit lending conditions, employment levels, and consumer sentiment. Particularly in the u. K. This is. The currency can affect the u. K. Real estate market, reticular leave the london market given that lots of our particularly the london market given that lots of our flows are from investors. Nearly half of the volume in london has been historically through international investors. Francine what do you do in the u. K. . 1. 50 the pound could go to by the end of the year. Andrew it is a tricky currency because it is very inexpensive. But any valuation measure or even if you regularly travel between the u. K. And another country, you know this is a cheap currency. It is also a currency that has very negative real rates, some of the most negative real Interest Rates of any developed country, a large budget deficit and current account deficit, which are negatives. In our view, the valuation this year, the positives of cheap valuation will be offset by the headwinds of real negative rates and a current account deficit, and thus will not allow the pound to appreciate materially. This is a currency where the distribution of outcomes is wide, and probably wider than what is being priced in the volatility markets. Francine do you like the u. K. . Caroline we think it will outperform europe. Earnings growth will not be a strong this year for various reasons. We do not have the currency boost we had from the weak currency last year. We do not have the same pickup from the commodity cycle. It is a bit more muted. On the currency, our forecast against the dollar is 1. 36. , it is a is saying very undervalued currency, but what will be the catalyst to unlock that valuation and when is harder to see. Francine thank you, Carolyn Simmons and andrew sheets both stay around. Intelith surveillance, says its ships are vulnerable to hacking and performance slowdowns. No longer in turnaround mode. John chen discusses the companys future, and growth strategy. This is bloomberg. Francine this is bloomberg surveillance, i am francie in london. Shares in intel i am Francine Lacqua in london. Intel confirmed yesterday its chips contain a feature but other semiconductors are also susceptible, and disputed its products contain a bug. Nate lanxon joins us. Caroline simmons and andrew sheets are both still with us. How big a deal is this . ,ate it is a pretty big deal affecting every intel processor made in the last 10 years. Thel makes over 90 of processors in the world, so this is a huge deal. What is key to point out is at the moment there have been no known exploits of this whole, so nobody has been attacked. Basically it has not been taken advantage of, but researchers are working to fix it. Fix it . how do they these are chips you make and put in your devices. Do you need to get back the device and replace the chip . Nate that is the hard way and not likely what we will see happen initially. First way is software, so amazon and microsoft and google who use a lot of these chips in their hardware, in their servers, the cloud, they can write software that works around this and fixes the problem to make sure it cannot be exploited. That is happening. Most companies are already doing it or have done it. The other thing is to replace the processors. The processors that will be hit hardest are the older ones because they will be issued with this patch that makes them slow down. That is not necessarily great for the old ones. You can try and replace those but then you are talking about replacing processes that are not manufactured anymore and that will be a nightmare. Francine who is affected by this, and does it give a space for chinese chipmakers to come in . Affected arecesses any made in the last 10 years, so if you have got one of those, chances are you are affected. China is really interesting on wanted tose it has increase its influence in the Semiconductor Market and processor market. It has invested a lot of state money into increasing its own ability to make and distribute these processors, so the fact that this is happening to the biggest supplier of these chips suggests maybe china is not as far behind as they thought they were and maybe that is in their interest. You should be buying from us, buying a local product. This might help in the near future. Francine we were talking about some of the big disruptions that could happen for the next five to 10 years and a lot of it was artificial intelligence. If china suddenly becomes a more dominant force, where does it leave european markets question longterm ortoo something you need to think about . Andrew if you think about the structural challenges of the different equity markets, you cannot escape the fact that europe has significantly less tech exposure, almost a diminished amount of tech exposure relative to the u. S. And em. One of the surprising parts of 2017 is a lot of people probably bought emerging markets thinking, this is a cheap market with good exposure to global gdp. What it turned out to be is a great tech play. With somewhat narrowly led strength. The big structural story is as you see this huge tech strength driving the u. S. And em higher, how much further cannot go in terms of leaving the em, and is em changing and becoming a different market, or will it transition back to its more traditional self . Caroline on technological changes, there are two opportunities, invest in the companies that are doing well and providing growth, and the other is a reminder. Perhaps todays news flow is a good reminder, disruption has caused the risks and particularly the reminder is to diversify. Away from industries that might be disrupted by tech, away from one or two tech names you might like into a broader exposure and then you have more chance of benefiting through a supply chain overtime. A lot of the structural shifts that occur, people tend to overestimate the Immediate Impact and underestimate the longterm impact. Francine when you look at these bigger trends, automated cars and you spent time figuring out how we will live in the future, is there a trend that will start taking shape in 2018 . In terms of self driving cars . Francine self driving cars or the internet of things . If you are an investor, where do you look for the next big thing . Andrew Autonomous Vehicles and connected cars, the idea of 5g connecting every single individual car with every other car and individual garage and feel station. That is definitely the next big thing. Whether it will come will be the most interesting to to look at. You have people making the cars and making the software and making the hardware that underpins the software. These are all different people and we have seen lots of different players from ford to qualcomm, a ride wide range of countries doing their individual bit. Not to mention the legislative impact or the moral impact, if one of these cars crashes, for example. It is not one Single Player that will do everything. Francine thank you so much. Nate lanxon, thank you for joining us. Andrew sheets and caroline salmons. No longer in turnaround mode. We will bring you that interview. This is bloomberg. Francine economic, finance, and politics, this is bloomberg surveillance. I am Francine Lacqua in london. Lets get straight to the business flash with nejra cehic we will get to that in a second. Blackberrys effort to push further into the self driving car has pushed off. In all cases, we are providing the safety upgrading securitysafety and part of the operating system for the Autonomous Vehicle and the platform. T is how we are going to you know very well, when we first talked about me taking this job, was to really create a new category for us to dominate in. I would not use the word dominate, that we are doing extremely well now in that category. How will blackberry help by do become a common player player . Come a large john they are ambitious and creating the Autonomous Vehicle so they ared putting together some code and a lot of partnership, and they brought us in as one of their operating system platforms. Because of the safety and security certification that we have, and with that they should be rather complete in going after the car industry. I assume that the Auto Industry will go beyond just the auto that you and i know of today. They are going to provide maps and Digital Information also. I think this is a pretty Good Partnership and that we are bringing some very good things together. Emily talk to us about the impact that you see of this partnership on blackberrys business, and give us hard numbers if you can. John i cannot give you any hard numbers, and you know that. I know you have to ask. It is going to be out role platform. My Grow Business is on the enterprise software, especially with security and cybersecurity. The next link about growth is with the auto, and that is why the design is so important, and we will go beyond the auto into the embedded world and the iot world. It is a huge market and it is growing, and we are very fortunate that we can play well in it. Francine that was john chen talking about the future of blackberry. A lot of us think about blackberry and think of their first job 10 to 15 years ago, and it is amazing they want to go into automation. European stocks seem to be gaining the most in more than two weeks. There is a lot of sign that only from the Global Economy that especially europe, that it is going ok, that 2018 will be ok. Commodities for example, extending a little bit of a record run of gains. Oil up, climbing for the highest closing in three were just years. Builders and automakers leading in europe. Most of the sectors are green. Dollar is slipping a touch, u. S. The fomcs declined as continues to back a gradual approach to raising Interest Rates. Core european bonds, i will show you that in the next hour with tom keene, they paired some gains from yesterday. Surveillance continues and tom keene joins me out of new york. We will talk donald trump and steve bannon. This is bloomberg. Francine the optimism trade, stocks hit more records after the nikkeis best opening since 1996, as the fed rustles over the rustles over the inflation outlook. Says when steve bannon left the white house he lost his mind. Another setback for elon musk. This is bloomberg surveillance, Francine Lacqua in london, tom keene in new york. Tom there is terrific news flow. Washington was bizarre yesterday. Beneath all of this is a bull market that just will not stop. Nine, but theder backdrop is just a stunning and continued bull market. Do we see doubt 25,000 today . Francine this goes back to valuations, whether they are frothy or still attractive. Lets go to the bloomberg first word news with taylor riggs. Taylor a lawyer for President Trump is threatening legal action against the van and. Steve bannon. He is considered one of the architects of the complaint campaign and is accused of making disparaging statements about the trump family in a new book. Trump saying he has lost his mind here at aggression a leaders have signaled progress on the congressional there is no deal yet. Among the issues being discussed, pushing budget limits on defense to avoid triggering automatic cuts. Conditions, the u. S. Is preparing for the worst storm of the winter. It has knocked out power to thousands and canceled almost 3000 flights. Boston could get more than a foot and new york, eight inches of snow. Prime minister theresa may believes Michel Barnier is bluffing. Him when he believe says there will be no special post rex a deal for Financial Services. They think barnier is faking about rolling out an agreement that will let banks move freely across the you the e. U. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. I am taylor riggs. Tom we are going to do a brexit update later in the hour. I need to get caught up on the barnier battle in europe. Francine has been watching that. Futures up four. Dow futures up 79, putting them at 24,987. Huge emotional landmark. Curve flattening to near record flatness, and the huge trend we have seen through late 2017, the euro does not tell me the story. Oil is elevated, and there is the vix. We were at a 10 level just a few days ago. Earlier, thatr that is an extraordinary level. Anything below 8. 6 is a huge deal. The twoyear yield elevated up two basis points. I threw in bitcoin just aggravate francine. Francine thanks, it worked. What about the new years resolution . It is all about the markets and all about this rally that we have seen. If you look at the Global Economic expansion, we had some pretty good prints on Economic Data, and that is pushing benchmark pushing to benchmark levels that we saw in 2017, pushing them higher. Looking at core european bonds, their wealth bear with me. This is quite big, and i disagree that euro is a big story because we had Economic Activity in the euro area accelerating the most in almost seven years. It kind of distills what 2017 was in one data point for europe. Tom looking forward to the bonds, german yields higher coming off the low negatives. This is economics. This is the most optimistic chart i have on my personal bloomberg. This is jobless claims adjusted for inflation. I believe i just got a headline that because of the snow, those numbers may be delayed. Here we are with the gloomy recessions of the 1970s and 1980s, we do well in the 1990s, and here comes the same kind of arch. Nearly fully employed among americans that are employable. Fore is an optimistic chart 2018. Francine i like a little bit of optimism, especially when it is january 4. I have a less optimistic, until chart, simple to talk about the news we have today intel chart. You can see the sos index, the semiconductor. We will push it out on social media for our radio listeners. The revelation yesterday that the worlds most esteemed chipmaker may not be invincible. People will lose because you can probably hack into some of the it may be fantastic news for china so that brings me back to the emerging markets and the rally that we find thanks to chipmakers. Tom it is a thrill to have with murrayy, leslie binger makes the first appearance for 2018. She is from Chatham House. Right now we will talk of this strange american politics on your strange bull market. I am still in the triple leveraged allcash fund. I have been killing in performance on that. Morningi said this this , i have no idea what this afternoon will bring. It is still almost a dysfunctional cacophony day today in washington. Is there any way general kelly can come to the rescue . Leslie it has been an extraordinary couple of days and many people came back thinking that donald trump having scored a victory with the tax bill tom exactly. Leslie despite its unpopularity might have a more strategic think 16 but we saw i tweets that first day on every major forum poly policy injury issue in a fairly destructive way. Tom let me ask the question everybody wants to know this morning worldwide. Does general kelly, the chief of staff, does he have a button . Forget about the Foreign Policy button. Does the adult in the room have a button for the many dialogues of 1600 pennsylvania avenue . Leslie i think we keep looking to see whether or not there is a degree of control and strategy coming. Inevitably, the answer seems to be that we are going to 20 is going to continue to be episodic 2018 is going to continue to aboutsodic, to be a story the team around the president to try to catch up with those tweets that disappear when he goes to his private quarters. Should those tweets be ignored . Should we look at what the policy actually is, or do we have to take the tweets into account . Over the last day or so we have seen that we need to take them into account because other countries are taking them into account, and making other plans. Look at korea, china is courting of pakistan steps up. Unfortunately, we are going to see perhaps more chaos. The president has returned in an unsettled position. Francine talk to me about steve bannon. There has been drama and drama in the past between the president and steve bannon. Hereere is a rift that is to stay, what does that do to the Midterm Elections . Leslie we are seeing now that that rift, wherever it was, has been inflamed by the release of the excerpt from the book. Thatps there is a threat there might be a lawsuit by donald trump against bannon for disclosure and lack of confidentiality. Bannon has demonstrated he will continue to be a force. Part of the Republican Party really listens to him and he is not going away. Donald trumps numbers continue to come down and they are very low. Midterm elections and pressure censusding, and this across the Republican Party will scensusy well dy among the Republican Party will not play well. When they look at a Republican Party that is in disarray and they look and see what are the real implications of what has actually been done for me, it is not boding well as we run into an election year. Francine how difficult is it to put into numbers, how much of a base donald trump loses because steve bannon is now almost against the president , or is it a story that the president is distracted by this instead of focusing on the shutdown and various congressional matters . Leslie i tend to think it is a bit of the latter. What a lot of the bannontrump plays about the big story, apart from the personal politics and dysfunctionality in the white house, the big story is russia. The russia story is not something that Donald Trumps base is especially worried about. I think that the numbers are pretty very low, but the base is probably going to hold on. This all comes down to alternatives. Hard to talk about elections and politics in a vacuum. When people go to the polls, they look at their alternatives. Francine the markets do not care. They are on a tear. Record after record. Measurets are a nominal and therefore when the economy is growing on a nominal basis, you would expect markets to be making new alltime highs. On the point about politics, they want to get into discussions, but from my point of view, it is not helpful and politics is a soap opera, so you have to cut through that and see what is going on underneath the surface. There is a lot of encouraging things going on. Tom we will dive into a Market Analysis and a minute. Affecting that Corporate Investment next year . That jpmorganeme sees on investment right now . Stephen you would expect at this point in the cycle to see capex picking up. It has not been thus that disappointing in the United States. It is entirely rational to expected to pick up, and embedded within the tax plans is an incentive to bring forward capital spending, so that may be another leg to u. S. Growth this year. That would come back to what i was saying, good things are happening underneath the surface. 25,000, we will see. Shocked, thunderstruck the last time i spoke to the admiral of tufts university. On Bloomberg Radio today, an important conversation. He knows and understands there is no nuclear button. This is bloomberg. This is bloomberg surveillance, i am taylor riggs. Debenhams are plunging today. The company warned earnings will be less than expected after a week holiday. Their post christmas sales fell 1. 3 despite aggressive markdowns. The worlds biggest chipmakers and Software Companies are having to deal with a widespread problem that leaves computers and Smartphones Open to hacking. A feature in computer chips could give hackers access to Sensitive Data. Google, intel, and others have issued statements assuring customers and shareholders. That is your Bloomberg Business flash. Francine thank you so much. His is a significant story i got briefed on it by nate lanxon. The concern is that it took a little bit of a long time for intel to say if they are vulnerable to a hack, how do you replace it . Do you replace the chip . It is costly and will take a long time. You have to look in asia and the Chinese Semiconductors to see if they can come in and get market share. Tom Eurasia Group had a Technology Angle to it that was extraordinary. Let us turn to the markets. Leslie wants to know what to do with her Retirement Plan so she came along for the ride. Here is a chart, the msci global index. One of the things we know is behaviorally, we all know you have to be cut have courage at these low points like the lehman point in 2009. It is even harder to have courage within a bull market. Where do you summon the courage today to own equities and acquire new shares . Stephen tom, i think a lot of fromood news potentially the later state of the cycle has yet to play out, so if we think about what has been happening in the last seven to 10 years, global trade has stalled. We see that in the trade stance. That kind of means you can pick out the companies that are not necessarily driving benefits from the supply chain, but they might, and that may be holding back profitability. Picks and the dynamics improve and you get a bit of chartand there was a good this morning pointing out the capital goods inflation has been zero for most of the last 10 to 15 years. So you buy better machines, they give you greater activity. It does not cost a great deal. There is another leg to productivity that can potentially come out of that. If that drives a further uptick in earnings, that is good news. Hermannterday, john modeled out 3. 11 unemployment in the United States. You and i do not know that within our lives. Maybe we know it in the early Dwight Eisenhower america. Our the Central Banks prepared for a labor prosperity that will drive this will market higher . Stephen i think the fed has thatclear about the fact they want to tighten Monetary Policy said they have retreated from qe and they are shrinking their Balance Sheet and are engaged in h tightening desk in a tightening cycle. In a tightening cycle. The ecb is reducing extraordinary stimulus as well. The unemployment number is incredibly low, but we know the Participation Rate fell relatively dramatically over the last 10 to 15 years. There may be better news in employment from a Participation Rate if that rises, and that translate into a broader rise in consumption. When you go from out of work into in work, your income rises. Francine if there is one bit that you need to get right this year, it is whether inflation picks up or not. Do you believe it well . Stephen i do. It has been extraordinarily low, depressed partly by the issues that was formed i the financial crisis, partly also by the plunge in commodities prices over the last three to four years. If i look at inflation breakeven rates within bond market, that is starting to trend up. Was makingt i earlier, if you think about the economy in the nominal way, recovering real gdp growth in inflation leads to higher nominal gdp growth which leads to revenues and you derive from that some earnings. That is why markets are feeling fairly positive. Optimism. Oo much we will go to leslie to get leumi. Gloomy. Stephen Macklin Smith with us from jpmorgan. Tomorrow, john silvia with us from wells fargo, one of the great experts, particularly on labor mobility. This is bloomberg. Tom bloomberg surveillance worldwide, francine the clot in london, tom keene Francine Lacqua in london, tom keene in new york. Happy 2018. We welcome all of you in the world. Thrilled you are here with us on economics and finance in january. Leslie is focused on january at Chatham House and stephen is a jpmorgan. January from congress, i have never seen this. The date calendar for the next 26 days is extraordinary. Where will we be february 1 . Leslie before january 19, they have to a spending bill through and there is a desire on the part of the president to move forward with more strategic initiatives, especially infrastructure. Unlikely, the tax bill, there are a number of calls from people like senator Susan Collins who want to see the Health Care Market stabilized. There are questions about the immigrants. There are a number of issues i think that are going to get in the way of pushing more pushing forward on a more strategic agenda. This is a very expensive tax plan so it remains very unclear, where is the money going to come from if the president wants to move forward on anything more significant in the runup to the Midterm Elections . I am skeptical we will see another bill. There are a number of more discrete issues that need to be resolved. Francine will they avoid a Government Shutdown . Democrats are under quite a lot of pressure to reject anything that takes away from dreamers, and you have a law for ensuring the poorest children insuring the poorest children. How difficult will this be . Leslie it will be difficult, but there is an incentive by all to make sure the government does not shut down. Get another stopgap spending bill or something that can take us through fiscal year, it seems possible that we keep moving through these shortterm spending bills. A number of issues, there is a split in terms of what people want. Democrats want to see the nondefense spending equal to any increase on the defense side. Francine thank you both. We will be talking a little bit about brexit and will go back to the markets. More bloomberg stories, be sure to read the latest Bloomberg Businessweek focusing on the conflict in a ron. Iran. Surveillance, francine in london, tom in new york. We are focused on steve bannon and so is taylor riggs. Split it is a dramatic the terrain President Trump the man considered an architect of his campaign. The president says steve bannon has lost his mind. This came after the publication of excerpts from a book in which dan and criticizes the president and his family. Bannon criticizes the president and his family. President trump resolved the Commission Due to investigate election fraud, saying states refused to cooperate. The president says he would have won the popular vote had it not been for millions of people who voted illegally. A verdict in a Bank Fraud Case in new york is likely to make relations between the u. S. And turkey worse. A turkish banker has been found guilty of helping iran evade sanctions and faces 10 years in prison. The turkish president says the u. S. Is trying to harm his countrys interest. In venice, thieves have stolen jewels belonging to a qatari royal family. They made off with the jewels by mixing in with the crowd on the final day of an exhibition. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Riggs. Ylor this is bloomberg. Francine thank you so much. It is your brexit update. Theresa may believes Michel Barnier is bluffing when he says there will be no special deal for Financial Services. Thecials privately think brexit chief negotiator is faking a hardline stance. The brexit editor Emma Ross Thomas is here as well as Stephen Morris. Is with usklowsmith sticking around. Bluffing,ook at the bluffing, double bluffing, does it make us any wiser of what happens to the banks . Emma the banks from the very beginning have been making contingency plans and have led the pack in planning for the worst case scenario. They are not relying on maintaining passporting, so what barnier says is because of the red lines the u. K. Set out the u. K. Will be leaving the Single Market and therefore they cannot maintain the access they have got. View, a u. K. Point of year ago they did not seem particularly fussed about Financial Services. What we are seeing now is the u. K. Is relying a bit on the e. U. 27 being divided. It r has set out as an an initial negotiation, but there can be no passporting. What the u. K. Is hoping for is certain countries do want the u. K. To continue to be, as carney says, the banker of europe after brexit. Francine what does it mean for the banks . They are already taking their decision, so will it be quick for them to bring people back, or are they taking their time . Ofphen we have not heard that many people being moved wholesale to the continent yet, as banks are waiting as long as they can before having to make a decision because it is disruptive and expensive to move people across europe. Most. K. Has backed down on of the negotiation so far, but they seem more confident about the Financial Services. Much to the e. U. Has as lose to try to put the Financial System back together, so they have been slightly more confident. This looks like an attempt to reassure the Banking Industry that the disruption may not be as big as it seems. Tom there is back and forth on this. The telegraph writing that brexiters should not lose their nerve. What is the mood in the United Kingdom that brexit is lost . Do brexiteers need to hold their nerves . Emma i suppose it depends on who you listen to. This morning, we have tony blair weighing in, saying this is the year that is make or break. If brexit does not get reversed it will be too late. There has been some evidence perhaps that the remainders haves if you like gotten a new confidence and energy. Of course the tory party is not government. Theresa may has made clear that brexit is brexit. Leading brexiteers are in her cabinet. Francine Stephen Moore tom Stephen Morris, do you watch the italian elections . Do the italian elections matter to the resiliency of europe, and is that folded into the Brexit Debate . Where i amris from at in london, i do not think our politicians look to those in europe very much at all for influence. I think theresa mays cabinet is set on its ideas about what it wants and i do not think they would consider themselves similar to italy. They see themselves as trying to forge a new relationship with europe, and with all the negotiations going to way they have, it seems like there is conflict among the british political establishment, trying to work out what they want their relationship to look like. Francine there was a brilliant interview, one of my favorites was when we spoke to the italian one of the italian ministers. He had a massive fight with Boris Johnson over process go prosecco. We will keep an eye on it. You cannot in the italian constitution have a referendum whether you stay in europe or not. Tell me about pound levels. Stephen macklowsmith longterm, the pound is undervalued. It was sold very aggressively after the referendum so it has gotten to the level where it could conceivably rally. Bad news is in sterling, and if there is good news to come out of trade talks, i would expect to see sterling reacting swiftly. The dollar sold off quite aggressively last year on a trade weighted basis, and that means the year on year selling is up against the dollar, so that will be a slight headwind to q1 earnings. The comparison from last year in ftse. The fx markets are going to remain politically dominated, and i am surprised to see the euro making new highs recently because as tom was pointing out, there is uncertainty about the italian elections and you have the ecb winding back some of its extraordinary stimulus. The euro is not a oneway bet. Francine emma and stephen, when you look at clear winners of people moving from brexit, do we have a capital yet . It is not paris or luxembourg or madrid. Will we find out . Far it would say so looks like it is quite atomized. Frankfurt perhaps is in the lead, but amsterdam has also had a few key wins. It will depend on the deal. The other thing to point out, we are talking about a deadline in october and this will have an outline deal of the future relationship, but that deal will not be necessarily detailed so it could be that even in october , thanks do not have a clear idea about the terms of the future relationship banks do not have a clear idea about the terms of the future relationship. Tom i have never asked this question. You synthesize all of our brexit coverage. Does Prime Minister may have an optimal sterling valuation on cable or eurosterling . Is there a right level . Emma whenever we ask hammond that question, they are always very coy about commenting on sterling levels. Francine you know that, tom. They never answer. We always ask. Tom francine, save me. I need to have my prosecco. Francine stephen macklowsmith, is there an optimal level for theresa may in this brexit negotiation question mark stephen macklowsmith the government is very coy about what level they might see sterling out. The fx markets are relatively efficient and they just react to events as they see them he read it is incredibly important to have a productive trading relationship with the rest of europe and it is in both sides interest. If there is a positive outcome, you could see sterling rally. Tom that was fabulous. This prosecco is flat. Open another bottle. Francine you have to go for the real stuff. Tom Emma Ross Thomas, thank you for your commitment to our brexit coverage, and Stephen Morris as well. Stephen macklowsmith with us as well, with jpmorgan. We will continue your briefing. There is a snowstorm but there isnt it seriously, there is a snowstorm from long island. 25 years of Bloomberg Radio, this is bloomberg. Bloomberg surveillance. Long branch, new jersey with a little bit of snow. It is a major storm and the question is, where is it . It is in the Atlantic Ocean and this is a winter hurricane, a drop in barometric pressure is typhoon like. It is off the coast. Maybe being hammered our boston, massachusetts, and parts of long island, but it is very variable now. It is south of new york. I am going to call that partial january as we look at a serious storm across so many of our viewers landscape. Francine Oil Extending Gains from the highest close in three years, wti trading above 61 per barrel. U. S. Industry data showed cruised stopped crude stockpiles continue to fall as opec is holding steady. We have a terrific briefing from having your boss javier blas yesterday. How hard will it be for opec to replicate 2017 . Handle ongood production cuts whilst getting russia on board. The year started off very well for them. You have a pretty significant increase in prices through christmas and the new year, so i think opec will be happy. The challenges come through in the second half of the year down. E has drawn there is not that much left, and if our balances are right which they have been, we should not see any inventory overhang left. What happens in the second half is interesting, do they continue with the cuts or slowly raise production . The market is tightening very quickly. Francine talking about demand, how is that going and where are we seeing demand from . Amrita very strong right now, and it is really broadbased. China doing very well, india picking up. It had a bad year in 2017. The standouts are still oecd countries like the u. S. With that tax cut you can get more of an impetus from that, and of course europe. Accor Economic Data and oil demand are very strong. Latin america has really suffered over the downturn because they are very linked to metals and oil prices and they are starting to pick back up. There is a lot of upside risk to oil demand this year, which i think the market is underestimating. The underlying economic momentum is very strong. Tom you are very good on the cartel ballet. This is a screen from the bloomberg terminal. This is why people subscribe to the bloomberg terminal. I usually do not show pie charts but this is a great pie chart. I will do this later for Bloomberg Radio. Half of the cartel is saudi arabia, iraq, and iran. Do all these other Cartel Members even matter . Do they even have a voice in vienna, or is it just posturing . Kuwait,i would say that uae, saudi, they are the biggest and most influential in many ways and like you rightly said, followed by iraq and iran. Those would be the few that matter the most after the gcc. The african countries are smaller, but in terms of influence, venezuela was extremely influential in the past. As production has declined their influence has waned, but i think 2017 and 2018 venezuela will be crucial. Their production has declined life far more than they were supposed to cut because they do not have the money to produce oil. They are really struggling, and that has helped tighten the market a lot more than anyone expected. Francine talking about macro data macro dacian, when the price of a commoditys forward or futures are trading above below the spot price expected spot price. Amrita given the and inventory drawdown, we have drawn down over the course of the last those go years and now we are back with it. One of the things you are seeing now, and that is why oil has really rallied, we are starting to get new investors and the space. Backwardation, they get a strong yield. People are talking about inflation and oil tends to be an inflation hedge, so you attract new buyers and that enforces reinforces the backwardation. We think it is here to stay for the foreseeable future, because the supplies continue to tighten. Unless you get an economic meltdown, the backwardation should not be going away anytime soon. Send, thank you so much. When you look at backwardation, i do not know what the oil story is. Is it just a valuation play . Commodities are up and a lot of the oil stocks are not. Stephen macklowsmith if you think about what the oil price has done, we were discussing how the oil price is denominated in dollars so the weaker dollar should denominate into higher oil prices. When we think of what is going on in the eurozone, the euro strengthened point dramatically since june of last year and that means the oil increase in oil price has been much list much less steep. We have a modest recovery in inflation predictions. Fordlked earlier about inflation swaps and indexes and breakevens. There is an up sloping trajectory. Francine stephen macklowsmith. Thank you. Calling him the great bull on markets, but there is a caveat. If you want to ask some questions to stephen macklowsmith on the markets, go to tv and ideas underneath the video screen. This is bloomberg. Francine this is bloomberg surveillance, tom keene in new york. I am francine in london. Units thaned fewer expected in the fourth quarter. Delivery hit 1550 vehicles, nearly half the analyst estimate. Simmons, how much of a setback is it for teslas the confidence in tesla and their bigger ambitious plan five to 10 years down the line . Jackie i think the thing for the model three, which is the very much watched benchmark for entering the new stage into their new affordable model, it is a huge gauge that the market is looking for. There are expensive models through past expectations. The model s and ask were up 33 . The markets are still looking to see how the model three takes off. I do not want to play security analyst with you, that i do want you to analyze the sweat of this odd company youd they have 10 buys, 11 holds, a number of cells as well. If you go to the financials, the financials are a leap of faith 2018. Bring this up. This is the financial screen on the bloomberg, and Free Cash Flow will miraculously move from 4 billion to 2 billion loss over 2018. How do they do that . Is it just more units sold . Jacqueline excellent question. What people are really looking at right now, they are burning through a lot of cash. They have got a lot of demand and they have got a finance debt. You have a lot of money going out. They cannot really keep track. What people really want to know does tesla have to go back to the markets . Do they need a Capital Raise . They have managed to put it off for several months. Tom we have to continue this discussion. Maybe another cash call on wall street. We make a smart call with stephen macklowsmith from jpmorgan as well. Right there is the idea of the finance of 2018. What do you see on m a . It has got to be more and more transactions. Stephen macklowsmith we would expect that, and particularly crossborder transactions. It looks as if companies are generating Free Cash Flow and they need to deploy that. We referred earlier to the likelihood some of that will express itself in high intentions capex intentions. On a sterling basis, you translate that back into dollars, some of the u. K. Valuations are attractive to foreigners. Francine we were talking about the u. K. Market valuation and tom called you the great optimist. The flipacklowsmith side of that is that Central Banks are withdrawing stimulus, so we should be expecting Interest Rates to trend up this year. You get a dramatic move higher in 10 year yields, that would not be good for equities, particularly if it was discounting a sharp move up in inflation. Have to recognize what is going on on the Interest Rate side because that translate into cost and capital and that has an impact on your dcs. Tom stephen macklowsmith from jpmorgan, thank you. The vix 9. 06 off the bloomberg terminal. It moves tick by tic through the Early Morning hours. It is a bull market. Jobs day tomorrow, the perfect time to talk to john silvia of wells fargo on the American Labor economy and the drive of an Unemployment Rate below 4 . Stay with us. A busy, interesting thursday in washington. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Tom it is a continuing in 2018, the bull market with the vix signaling the end of fear and will the dow jones current 25,000 . Tomorrow is job state and we consider a fully employed employable america and john silvia of wells fargo. Bannonnddesist, steve defamation by libel and slander is a bad thing and legal action is imminent, a devils bargain with joshua green. This is bloomberg surveillance. Live from new york i am tom keene and Francine Lacqua is in london. Beave no idea where we will at 7 00 p. M. Tonight. Francine welcome to 2018. Much like 2017. This could have an impact on the markets which is why we watch it so closely because it has an impact on the base of President Trump and the Midterm Elections, the animal spirit being affected by it in u. S. Companies. Tom and our last hour, guest says she went back to the analysis of 1600 pennsylvania avenue and various debates about russia. Lets get to the first word news. A lawyer for President Trump threatening legal action against former white house strategist , oneeen in, steve bannon of the architects of the campaign is accused of making this very thing statements about the donald trump family disparaging statements about the donald trump and President Trump said he lost his mind. Signaledonal leaders progress on a budget agreement needed to avert a Government Shutdown this month. There is no deal yet. Among the issues discussed are budget limits on defense and dismissed it domestic spending. The east coast is preparing for the worst storm of the winter which is knocked out power to thousands already and forth to the cancellation of almost 3000 flights and boston could get more than one foot of snow and new york may get eight inches. Prime minister theresa may believes Michelle Barnier is blocking senior officials, theresa may does not believe the chief negotiator when he says there would be no special post brexit deal for Financial Services and thinks he is ruling out an agreement to let banks operate freely across the eu. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. What a lift to the market yesterday, a data check, the first day where i say maybe we see the dow at 25,000. Futures elevate and the curve flattening, down to the new weakness or flatness in the twoyear, 10 year spread and oil with elevation. With an eightix handle earlier and the doubt is the locally 5000. I put in bitcoin because it is bitcoin. Francine i like curve flattening, it thousand eight feature film. Of it sounds like a feature film. Fantastic data in europe showing accelerated,vity the fastest pace in almost seven years and look out for european bonds and some of the things we look at, such as eurodollar. I want to show you my favorite chart, not only of last year but of the First Quarter of 2018, the spread between the u. S. Treasury yields, twoyear with german bunds. This fight pressure overall, german bunds have not but. Have not budged. Tom the president tweaking on election dynamics and we will get to that with Kevin Cirilli and a bit. Our esteemed guest on your American Labor economy. This is the most optimistic chart i have or john silvia has at wells fargo. This is population adjusted jobless claims. The blue in the middle is the boom of the 1990s and we have an equivalent boom under one standard deviation of nirvana over a dearth of claims, a nearly fully employed, employee will america feared america. John silvia knows this, the chief economist at wells fargo securities. John hermann yesterday published as analysis, forecasts to 3. 1 Unemployment Rate. Is it feasible we could drive under 4 and get to those levels . That is the fed prepared for a quite as an like unemployment eisenhowerard Unemployment Rate . John we have a sub 4 Unemployment Rate. Tom is Jerome Powell prepared . John the fed will have a challenge, the model is an incredibly low Unemployment Rate relative to what we think is low unemployment. Where is the big inflation we anticipate . Is the phillips curve model a model of the current economy . Tom you took your northeastern academics and brought real marketbased economics to the behavioral aspects of jobs. You lead on american mobility, what is your alteration about the behavior of the American Labor economy in 2018 . John we lost mobility in two ways, geographically, and on the lot of people moving between states and jobs. In terms of mobility by income category, not a lot of people not moving up as they traditionally have in the past based upon a lot of treasury and irs data. You see a lack of mobility in both ways which explains the significant gap between the Unemployment Rate at 3 and the Unemployment Rate at 6 . Francine when you look at the fomc minutes and what you just said, how much more does the curve flattening . John we still have the yield curve continue to flatten, it flattened last year and another 30, 40 basis point of flattening this year. To raises on a path shortterm Interest Rates which will raise across the oneyear tbill and the twoyear treasury rate and we also look at the longerterm rates where, going back to what we just discussed, not a lot of inflation and the longerterm Interest Rate comes down. Francine if inflation is coming, whether inflation will accelerate and maybe surpass estimates, or whether it is stuck to what we saw in 2017. John the fed benchmark picking 2 by the end of Second Quarter and early part of the Third Quarter this year. Going back to the interesting question, what does Jerome Powell do as the inflation number picks up . It does not accelerate dramatically in the 3 but it has gone up. What does he do and how does he react . We think march and june, the fed raises the federal funds rate and september will be an interesting decision. Tom i get Death Threats over the new york yankees and Boston Red Sox and love notes about wage growth. We try to make a debate about where is the wage growth and what does it mean . Are we not getting wage growth because the job growth is parttime hamburger flippers and the rest of low skilled americans . John part of the story is we do not get wake with because we do not get productivity gains, you do not pay worker more if they are not being more productive and on average the productivity numbers have not picked up which has hampered wage growth. We see inflation picking up and we think about paying a worker based upon employment and productivity. With us fromvia wells fargo and we will continue through the hour. We have much to talk about with john silvia on the American Labor economy, that is a good thing and also it is good to speak to james of the test fletcher school, he was scathing in his last visit on the u. S. Foreignpolicy. We will do that later on Bloomberg Radio. Lets get to the Bloomberg Business flash. Tesla has broken another production promise, the electric car maker has pushed back a target for making its model three after shipping fewer than expected sedans. They expect to make 5000 model three a week by the end of june, three months later than it had expected. Shares of british the promise for owner devons are plunging, the company once that earnings will be less than expected after a week holiday time. Their post christmas sale fell 1. 2 despite aggressive markdowns. The worlds biggest chipmakers and Software Companies dealing with a widespread problem that leave computers and Smartphones Open to hacking, google researchers say it is a feature computer chips could give hackers to access to Sensitive Data and google, intel, microsoft and others have issued statements to reassure customers and shareholders. Microsoft says it has released a security update. Thank you. It is quite significant, chipmakers, the revelations from intel that some of the products chips could be hacked and a window of opportunity to a lot of asian chipmakers, including chinese to get in there. Not all concerning news for the industry as a whole. Tom we will see that in the coming days and take tune of the careful analysis and conversation across Bloomberg Technology here the president tweets on voter integrity and voter fraud, that may be chen gentle, Kevin Cirilli has the what ane button extraordinary day yesterday. Lets go to the people and the adults in the room, how does general kelly respond to general kellys white house . What is his to do list today to once again try to get control of this uncontrollable president . Kevin the response to the white house from the white house in regards to steve bannon as a result of his comments which have been festering for some housetime, that was encouraged y general kelly, according to the folks i talked to. The senior level folks surrounding the president feel that this is a long time coming. They have been frustrated with steve bannon for a long time. They told me this was the result of several statements over the past several months, including in alabama and his public commentary and links several months ago. I spoke with sources who work closely with steve bannon and they said he is not shaken by this. And that he will proceed as business as usual. Tom i know you will be watching and joshua green will join us with his acclaimed book the devils bargain. What is the devils market for the speaker house and the Senate Majority leader who have a horrific january ahead, do they like a president distracted or do they need him to move on to the business at hand . Kevin they would like him to move on. [laughter] i thought it was telling that Mitch Mcconnell yesterday, his twitter account, a very timely trolling tweet after the critique of steve bannon. Fact that the relationship between Mitch Mcconnell and steve bannon is not good. Francine what does this mean for the Midterm Elections . There has been drama in the past between the president and steve bannon, how bad is it this time and does it turn off or turn away parts of Donald Trumps face base . Kevin it is bad but whether it turns off the base is remains to be seen. There are alternative conservative websites out there and thought leaders who are not steve bannon. The loss in alabama is really telling. He took a hit. I have covered donald trump for a long time. We have seen them throw people under him throw people under the bus and slowly bring them back in, like roger stone, corey lewandowski, and to some extent the other Campaign Senior staff officials. He has gone today but whether he is back in several months, we will wait and see. Francine the bigger question is do we know what else is in the book . Will revelations come out almost everyday . Speaking,torically and any presidency, there are these bombshell books that drive a new cycle or two. The administration is pushing back not just on criticizing steve bannon but pushing back on several facts in the book. Aggressively. You know, they have been making their way through social media, various tidbits. The force of which they are pushing back here we will pushing back. Tom lets go back to the observation on november 6 of 2018, but schuster and now bill shuster of your pennsylvania and bill shuster, the younger is retiring. This is a distressing habit, where is the tip point of retirement for the republicans in congress . Are we getting near where they count the dead bodies . He is chairman of the House Transportation Committee and as the committee chairman, someone who would be ushering through the president legislative agenda and he wants that as his final keynote these of hallmark legislation from a policy standpoint but no details on the president s infrastructure plan. It is a great point because we have focused on orrin hatch but bill shuster saying he will not go anywhere. It makes for one heck of a Midterm Election cycle. Tom thank you. He is our chief washington correspondent. John silvia has been decades watching the political dialogue in washington. Do we care, does it shake confidence . John at this point, when you have the employment never so strong, gdp numbers look solid for this year, at this point it does not shake confidence. When harder decisions need to be made, schuster talking about infrastructure spending, when that is challenged, that is when confidence falls. Tom they run rate of 3 gdp, do you get ready president is on a make it great again . No, on a sustained basis, 2. 5 , 3 this year but back to 2. 5 next year. Market,e employment unless you have the gains in Labor Force Participation and productivity, you will not have sustained growth. Tom that will be our single best chart later, labor participation, not as optimistic as what we saw. I am loving today, a lot of fun across these many different themes. Coming up, this is a great guide, a brigadier general, he is a chartered financial analyst. In the 1 00 hour, the general. This is bloomberg. Francine this is bloomberg surveillance. Lets talk about the topics in 2018. Here is a group the Eurasia Group with predicting a tough year in mexico with two key events for market impact, the outcome of nafta negotiations and the countries july 1 president ial election. Carlos us in new york is and john silvia of the wells fargo is still with us. What happens in the election . What is the most risky . Probably the perfect storm if they increase, nafta and the election. For the markets, probably the nafta renegotiation is more risky than the election. Nurture thed, they potential risk for the country. Francine what happens to the wall . Will we talk about it or is it old . It is forgotten, the president of mexico and donald trump agree to leave the topic aside as it was too problematic for both. Nafta is the most contentious issue between the administrations and the talk as they move forward, a round of negotiations in january which will be important. Administration presented a contentious proposal on negotiations between mexico and canada. They will have to present something the u. S. Can accept and something mexico and canada are willing to accept. They will try to find a middle ground, that will be be challenging part. We believe the incentives for mexico and canada and the u. S. Are to have an agreement but these contentious issues could derail talks. Francine do you believe the Donald Trump Administration will not backtrack but find Common Ground when talking about nafta . I think they can. Stakeholders in the u. S. , the Business Community and congress on capitol hill, and different states, especially the red states that produce agricultural to mexicond export are pushing strongly to convince the u. S. Administration that nafta is important. I think the Trump Administration understand it is not just about trade and the relationship with mexico and canada about trade, but about other important issues in the bilateral relationship such a security, Border Control and mexico has been a great partner over the years. The willingness is there for an agreement but the contentious issues make it problematic. Francine thank you very much. Toget back to john silvia talk about the markets and the flattening yield curve. This is bloomberg. Tom on the earthquake scale, over six gives attention and over seven is tragedy but we do not have that situation now in San Francisco and towards berkeley. 4. 5,rthquake of roughly people were awakened but no sooner me. Unami. Ts earthquake, just breaking. Petersonue with carlos on latin america, mexico, and bodies moving over the border. Amazing discussions on immigration, it comes down to children, socalled daca. What does mexico want out of American Immigration policy . , mexico hasuestion played a friendly strategy with the u. S. And try to help out with the border and the southern border of mexico. The strategy of the Mexican Government has been global rather than a policy. Tom health our american audience with the percent of , the bodiesdebate coming across the border, no wall or wall, that are not mexican. The assumption is everybody is from mexico. That is not true. That is correct, the immigration flows have changed, originally more of a mexican issue and more mexicans were crossing the border, that has significant changed. Many countries in Central America are the ones sending people, there are people coming from their rather than mexico. Tom do we need the bodies to get nominal gdp and revenue going . We need population growth to do things. Do we have a dearth of population growth . John we do, labor force Participation Rates are key. I have a graph where 17 of the u. S. Labor force is foreignborn. Immigrationgh visa, that 17 contributes a lot to our economy. Tom are they lowering wages in america like the president suggests . High, these visas are technical skill workers, they give us production possibilities by being here and offering us a broader range of opportunities. Tom we will continue with this discussion and carlos peterson, thank you. Lets get to the first word news. President trump has dissolved the Election Commission decided to investigate his claims of widespread voter fraud in 2016. The white house says states refused to cooperate. Hillary clinton received almost 3 million more votes in the has dissolved the Election Commission decided to investigate his claims of widespread voter fraudelection s he would have won the popular vote if not for millions of people who voted illegally. Fraud case isbank likely to make relations between the u. S. And turkey worst, turkish banker has been found guilty of helping iran and made u. S. Sanctions and outpaces years in prison. The turkish president said the case showed the u. S. Was trying to harm his countrys interest. Sold is, thieves have venice, thieves have stole jewels by mixing in with the crowd on an exhibition. Global news 24 hours a day, powered by more than 2700 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you. If you are a washington junkie, our interview of the j day, joshua green dropped devils bargain last year with an export very influence on the discourse of our interesting and troubled washington. He joins us after the tumult of early 2018. You have a great chapter, where is my steve . Where is the president s steve this morning . Probably in a bunker hiding from the president s wrath. Tom this is a quote from your book, it is a visceral book, it is incredibly visceral. Bring up the quote. The exhilarating and galvanizing power of being the bad guy, publicly despised by those who you profess to oppose. Is steve bannon does he have the high ground of the discourse . I do not know if there is high ground in the discourse. That we see between steve bannon and donald trump is that for all steve bannon rails against the media, he is quite fond of reporters and book authors. And unburdened himself to Michael Wolff in this new book in a way that a political operator with more sense would never do, precisely the reasons we see unfold today cleared it has and raged today. It has made a president angry who does not like his former chief strategist, who he was closer to that anybody, probably the architect of his campaign victory, in a book on record trashing his daughter, his son, soninlaw, and basically making donald trump out to be a fool. Weekend does this President Trump with his base . It is a great question and we do not know the answer yet. Donald trump often makes up with people he is feuding with. And there are two issues coming down the pike, trade and immigration, particularly the resolution of the daca people who are endangered of being deported, those are the issues about,trumps base cares more than tax reform and all caps will have to act on these things. If you strikes a deal with democrats that does not satisfy the base, he risks losing support from the core 35 of americans who still support donald trump. We will not know for a couple of weeks if it has an effect on his support. Francine does this feud help moderate republicans . I think it helps moderate republicans very much. Partly because it shows the cost of teaming up with somebody as extreme as steve bannon. And also because there was word last night in the Washington Post that Steve Bannons major benefactor, the marshall family, was cutting him off, that could have ripple effects which could hurt breitbart news, the website he runs, that has caused so much trouble for moderate republicans. It will weaken the far right nationalist wing of the party. Tom our conversation linking in these different fibers and the account integrity of Michael Wolffs work. Everything goes back to the russia investigation. Where does steve bannon stand different from the president on the importance of a combined russia investigation . Inthe most damaging quotes the excerpts from the book we saw yesterday where steve bannon came on the record and called the june 9 meeting with paul manafort, jared kushner, and all trump junior with russian operatives treasonous. Ways,s damaging in two because do have a senior donald trump official at one point the most important official calling the meeting treasonous, gives credence to the charges from liberals to the investigations into the russia matter. Indirectly cuts against Donald Trumps own claim of no collusion. Steve bannon is saying, yes there is. Tom i have to ask the journalistic question of the morning with your decades of work in journalism, do you doubt the work of Michael Wolff . A lot of people will go after him. Do you doubt the integrity of his book . I cannot vouch for the integrity of his book because the site steve bannon i do not know the sources here besides steve bannon, i do not know the sources. He has been accused of quoting people have not been happy, whether it is because he wrote a negative profile, i cannot say but that is one of the subplot that will go on. Did these people really say the things he claims they did . Or was some of it made up. Francine when will we hear from steve bannon . Hise chose to broadcast on sirius xm radio show last night and did not comment in great length about the controversy. He said i stand with donald trump, i think he is a great man. That bygering continuing to show a commitment to donald trump and by not attacking him, he may be able to salvage some of his influence going forward. January, you will working on number two on devils bargain. We come back with john silvia, unimportant chart for global wall street on the american label labor economy. Bill gross tomorrow. They celebrate 25 years of Bloomberg Radio, thrilled with that statement. Your morning briefing, bloomberg daybreak worldwide on Bloomberg Radio. Stay with us from london and new york, this is bloomberg. G. Lets get to the Bloomberg Business flash. Economic activity in the euro areas that a plasma at the fastest pace in almost seven years. Packers benefited from rising domestic demand and near record growth in export orders. Omentum grew fastest in ireland and france. Boeing is seeking to throw a brazilian maker. A deal would include safeguards for brazils Defense Ministry and the brazilian government has ,he ability to block the sale last month it signaled opposition to a boeing takeover. At t plans to be the first mobile. In the u. S. To offer fifthgeneration service to phone customers. That would put them against verizon and tmobile in a battle to upgrade networks. At t will introduce the commercial five g service in more than a dozen cities later this year. Coverage,ter storm team surveillance, complete storm coverage and john silvia is looking at me like i do not know what i am talking about has he lived the blizzard of 1978. How deep was the snow . John 1622 inches. Tom a storm for real men. John silvia was at northeastern and this is a noreaster, it is serious for a lot of boston and long island. It was great to talk to you yesterday about the problem, the infrastructure of energy in the northeast of america. Is it like our wornout bridges and roads . Not exactly like that. Not that natural gas is not able to get. Needs to go, it is the amount of it. But decent analogy tom where is the pipeline into new england, 40 miles east of albany, adirondacks, connecticut . There are several. The pipelines are too narrow and there are not enough. You have a bunch of highways but not enough bridges. Tom you know the calculus of tb and thickens and how he will why didn pickens he go away why did the debate change . It has not changed because beneath natural gas is still there and we need natural gas as transition fuel, we will need it for the next 4050 years for home heating and power generation. The new will take time to time toes will take take over in a central way. Francine we have been talking time to take over in a central way. About what it means for the insurers and reinsurers, and the Flight Cancellations and for the carriers and what it means for the retailers. When you look at how long it is meant to last, why is this january, and when will we get back to more normal conditions . This storm is only lasting about 24 hours or so. We are expecting snow in new york city tonight. It will be snowing until about 7 00 or 8 00 p. M. But the real story is the cold and the wind, expecting windchills in the subzero range from virginia up through new england. Like,e are looking at you this is part of january, it is winter. It is colder than the average winter. We are in the thick of it. Not like we have not seen these events before. 2015 andf 2014 2016 were not that cold. U. S. Freeze once in the harbor . Isn they did, but the wind impacting air travel which stops a lot of the shipments, not only of people but of goods and services in the northeast. It is the wind. Francine how difficult is it to figure of the damage that could come from the wind . We do not exactly know right now but anytime wind is over 40, 50 miles per hour, that presents risks for coastal flooding, parts of coastal new jersey to long island and the coast of new england are at risk because of wave heights. As far as smaller accidents and things on construction sites, that is a risk. And to air travel as john silvia mentioned. Tom very good, thank you. John silvia will continue with us, a killer chart coming up on labor force Participation Rate. Tv. Put this on your bucket list, you are bored at the terminal on your fourth cup of coffee, check out tv and look at my ugly face and more portly, you can more importantly, you can pick up any given segment by Francine Lacqua and steel that chart and look brilliant in your morning briefing at wells fargo with john silvia. We have continued storm coverage on bloomberg surveillance. A palm tree in new jersey, i do not get that, excuse me, ocean city, maryland, the deep south. It is snow. Boston, you will get hit. Be careful. This is bloomberg. Swing from the optimism of jobless claims, a chart i showed earlier. We migrate to something more gloomy. John silvia of wells fargo is with us, Labor Force Participation from the 1960s, the boom in women employment and other reasons. We peaked in 2000 like so many other things, then down we go. Not a good chart. In the 1970s and 1980s, women got educated and good jobs but then something happened in the last 1015 years, Labor Force Participation for men and women has declined. You look at that and say, i cannot get 3 gdp with that participation. Tom i will put out the chart on twitter, here is the variance we could see in the next 5, 6, 7 years. What is the key variable in your study of Labor Force Participation better or worse . John it is incentives and people have to get paid for productivity. Tom they have to raise wages to get people back in. John consistent with productivity numbers and we do not see that, which is the challenge with getting to the 3 . I would shy away from the top end of the participation. Talk to me about the phillips curve, will it be back . John the best evidence is flat, i do not think back in a traditional way. We have a Global Economy with a global labor force. People making other decisions with respect to what to do with their time and Labor Compensation in terms of compensation, not wages, is significantly different than it was 30, 40 years ago. People care about health care benefits. Francine do we need Something Else . A new phillips curve . And who is the right person to model that . John we do need a different model to look at ways numbers and their relationship, Labor Force Participation. And the and of limerick. And the unemployment. Tom the phillips curve is a different world of economics. This is the taylor rule, one of the coolest functions on the bloomberg with the actual regression number down here with all of the plugins. Which of those glorious numbers is the biggest john silvia mystery in 2018 . John the coefficient, the number in front of the inflation number. Tom bring it up again. John how responsive is that economy and economists are looking at the coefficients, we know what independent variables are. Tom we do not know the coefficient because of the technological overlay, so much new in america, the difference equation formulas of stanford do not work like they used to. John not at all. what dr. Taylor agree what dr. Taylor agree would dr. Taylor agree . John he would. Tom john silvia with us on Bloomberg Radio across the nation. It is a special day, the 25th anniversary of Bloomberg Radio. There are two many people to thank for the experiment over the years. The gentleman, he beats me every day about Bloomberg Radio, thank you, a ares al mayers. 2. 59. En 11 sterling has been quiet. Stay with us. This is bloomberg. Is this a phone . Or a little internet machine . It makes you wonder shouldnt we get our phones and internet from the same company . Thats why Xfinity Mobile comes with your internet. You get up to 5 lines of talk and text at no extra cost. So all you pay for is data. See how much you can save. Choose by the gig or unlimited. Xfinity mobile. A new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Global growth rally. The euro zone economy is on a roll, and commodities extend their record run. Plus, chipped in security. The biggest chip Software Companies are coming to grips with a big chip buzz that puts all phones and computers at risk of hacking, and the eastern United States braces were Hurricane Force winds and massive cold. Power prices are surging. Welcome to bloomberg daybreak. Im david westin with alix steel. The question is can we get home . Alix i live in brooklyn. You have to start walking 11 00. Round a global rally underway. S p futures up by four points, but the last two days have been the first time the s p has gained in the start of the year in 30 years, 2700 is now