Transcripts For BLOOMBERG Bloomberg Surveillance 20180117 :

euro-dollar, 1.20 two. a lot of the conversations today will focus on the dollar. i'm looking at gold for a second day, down a touch. coming up on "bloomberg surveillance," we talked doing business in italy and natural gas. later on, we also speak with margaret from the world economic forum. she joins us to talk global risks. plus, janet henry talks trump's first year with us. she the global chief economist there. let's get to the bloomberg first word news. here's nejra cehic. nejra: the u.s. secretary of state offered a sobering assessment about the possibility of war with north korea. madeillerson said advances the situation very tenuous. he was speaking in vancouver, where top diplomats gathered to explore new ways to enforce sanctions. >> north koreans know our channels are open, and they know where to find us. but a sustained cessation of threatening behavior is necessary indicator of whether the regime is truly ready to pursue a peaceful diplomatic resolution to the security threat it has created. in the u.s., gop leaders in the house are testing whether rank-and-file republicans will support a stopgap funding measure to keep the government open that would delay some obamacare taxes and provide money for children's health care. paul ryan and his team are trying to push through a plan to finance operations without having to count on support from democrats. says theump's doctor commander-in-chief is fit for duty. ronnie jackson at tha examine hm last week. he says a cognitive function screening for signs of dementia or alzheimer's was normal, and the president takes cholesterol medication, aspirin, a hair last drug, as well as being borderline obese. steve bannon has been subpoenaed to meet with special counsel robert mueller or before a grand jury. according to a person familiar with the matter, then in plans to sit down with mueller later this month. the former top advisor for donald trump doesn't plan to invoke executive privilege. china's banking regulator has vowed to take action on those who created large conglomerates. it signals that last year's government crackdown is poised to continue. the chairman of the regulatory commission said such operations have become major obstacles to efforts to deepen financial reform and safeguard banking stability. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. cehic.ra this is bloomberg. francine: thank you so much. let's kick it off with the markets. what began as a record-breaking session for u.s. stocks ended in retreat yesterday on concerns over a shutdown in washington. the dow jones breached 26,000 for the first time ever. bloomberg's dollar index has rebounded this morning after coming within 0.02% of a three-year low. the dollar rose against all of the g10 currencies. has it ? strategistnow, chief , gilbert from bloomberg gadfly, and paul dobson from our mliv team. thank you for joining us. moves, how surprising were they? let me bring up my chart. this is a euro-dollar chart. the yellow line is the 1.2 wendy mark -- 1.20 mark. >> the dollar is the focus of investors. it has been helping to pump up emerging markets, helping to stay the rally in the stock markets as well. if you look at the euro, after 1.20, it picked up momentum again. today, it is down a little bit. the euro is down a little bit, but we've had some dovish comments from the ecb. onve had a little wobble whether germany is going to form a government. abovero still holding 1.22. the question is whether it is going to hold. francine: when you look at your investment strategy, how much do you look at foreign-exchange? at some point, euro strength is going to hurt earnings, or will it? >> you have to look at the currency market. earnings momentum in the u.s. is really strong. that is driven by taxes. earnings momentum in europe has been weakening a little bit. you have to look at currencies. francine: at what point do you worry about the euro becoming too strong? >> it fills me with confidence. i'm not too worried at this juncture yet. the ecb will be tapering, which is due to stronger growth. it is a good reason. francine: we will come back to the ecb dynamics. mark, what is losing -- moving currencies? is it growth, differentials, or something else? this seems to be the shutdown concerns in d.c. >> all of the above. the key reason is that economy is doing better. we've seen better growth. we've seen some move toward inflation. what is interesting is the u.s. yield differential with the german yields, you would suggest , would reverse at some point, you would see some flows from europe back into u.s. treasuries . but it is mostly the economic backdrop. francine: paul, you work on the mliv team. mliv and follow what is happening. have there been any schisms or big market moves that have been unexplained? if you are looking at the right differential. that is not a big feature for currency markets at this moment. it is all to do with long-term outlook for the region and what the ecb is going to do. we don't expect the ecb is going to change course until at least september. we are on a preset path for another couple months. because everybody knows that is going to come to an end, and then we start thinking about monetary policy, that is giving the currency the momentum. francine: talking about the breakeven in the u.s., this is another chart that i really like, a symbol u.s. 10-year breakeven rate. do you believe inflation is coming in the u.s.? >> inflation is coming. you can see wages on the rise. wages of young people is on the rise. wages on the lower end are on the rise. it is only logical with a 4% unemployment rate you will see some inflation pick up. francine: this is the big concern for 2017. it never came. mark: at some point, you start to see this, and the jobs market is the type that you have to think that employers have to start bidding for workers by increasing wages. it is inevitable. the textbooks have looked broken for several years. there's a limit to how long you give that doubt. but the evidence is starting to build. the momentum is growing significantly in inflation. core inflation is starting to start. figures show inflation rising. at some point, you do see the economic fundamentals come through into prices. francine: let me bring you over to another chart. this is the generic 10-year yield. saying, ifdlach was it starts hurting equities above tw -- do you look at metrics like this? or on the more immediate term, do you just worry that if there's a shot down, it will have a negative impact in the u.s.? >> i'm not worried at 2.6%. i think at 2.6%, it breaks the downtrend in bond yields. that is the reason to look at that number. until you reach 3%, i'm not worried about equity markets. it is growth-driven, inflation-driven. you are getting inflation. corporates get pricing power back. it is a late cycle story. mark: on a long-term basis, 3%, that is a phenomenally low interest rate anywhere in the world. it is not a sign of panic in the markets. it is a normalization, which is what the fed has been trying to a save. francine: thank you very much. paul dobson, mark gilbert from bloomberg gadfly, stay with us. sunday coming up. when will draghi deliver? we will discuss expectations for tapering. we also have an exclusive conversation with the ceo of the italian gas giant. this is bloomberg. ♪ francine: economics, finance, politics. this is "bloomberg surveillance ," and that is a rather snowy brandenburg gate in berlin. let's get straight to the bloomberg business flash. nejra: melrose has made a 7.4 billion pound bid for gkn, seeking to win over the maker of aerospace and automotive components. the firm offer values gkn at 430.1 pence a share in cash and stock, up from the previous proposal of 405. the move comes after millrose met this week with gkn shareholders. burberry holiday sales fell short of estimates as the ceo toan implementing his plan give the trenchcoat maker a facelift. retail revenue rose 2% on a comparative basis for the quarter ended december 31. only half the analysts -- the company benefited from an influx of tourists. nestle has agreed to sell its u.s. unit to ferrero in the first substantial step away from the candy industry by the company that invented milk chocolate. the sale of the unit is the first major divestment by the swiss food giant ceo mark schneider took the helm last year. nestle plans to focus on healthier and faster growing categories as the food industry grapples with a drop in demand for sugary products. francine: thank you so much. let's talk europe and the bundestag president has said analyst expectations that ecb interest rates won't rise are reasonable. in an interview with the german newspaper, he indicated the forecasts are in with the central bank's forward guidance. asked whether the qe1 end, he said he would consider that appropriate. and mark gilbert from bloomberg gadfly are still with us. if you look at the major central banks around the world, the ecb is maybe the one that should spring the surprises. roelof: it is one of the most important ones. it was the central bank which was really driving qe. it is a major move if they start to taper. francine: what would be the trigger? inflation. we are seeing signs of inflation. the september end to qe, i think, is going to happen. i don't see any reason they would extend again afterwards. likely that you will get an end, and they've got six meetings between now and then to slowly encourage the markets that there is not going to be any bond buying. francine: what happens? there's -- they stop the asset purchase in september, and they don't go for a hike straight away. mark: there's no reason not to. you want normalization. the older central banks want policy normalization. the markets are leading them that way. we seen the u.s. two-year yield at 2%. you are seeing the normalization in markets. it stands to reason that monetary policy will follow. expectations are in line with current thinking. wayhe economy develops the it is looking like it does, and inflation starts to get to that 2% level, there's no reason the ecb couldn't tweak interest rates. francine: you agree? roelof: fully agree. francine: this is a german five-year breakeven rate. thanks to dan tellis. this is the kind of level. is the biggest concern for the markets in europe that there's a strong repricing of german bunds, and what does that mean for asset classes? roelof: the biggest worry for markets, we know how we got here, but we don't know how we will end it. there won't be a lot of buying anymore and there will be more supply coming. this is probably the first year that there's more supply. i'm not worried about the bond market itself. there are plenty of buyers looking for high-quality paper. what you have to look at is if spreads start to widen as well. moment, andt at the you said they have to communicate this, but at the moment, the market is not pricing what you are talking about. mark: i think the market is starting to anticipate that september will be the end of qe. vitamin is in line to take over for mario draghi. he seems to be tempering his comments. he's a little more dovish. it will be about mario draghi, and if draghi uses the next press conferences to start steering the market toward weaning it off emergency life support -- we don't want a repeat of the taper tantrum we saw when the fed started, but we seem to be over that hump now. we are on a path towards the end of bond buying. the market is taking it well. francine: what are you buying? roelof: the economic outlook is great. growth is ok. the rates are still low. only reason that we are nervous is that moves have been pretty violent going into this year. it is only logical that you see some consolation. this is the market environment where you want to belong risk assets. mark: politics could be a problem. there's still brexit hanging over everything. don'texit negotiations seem to be going particularly well. francine: thank you so much. roelof and bloomberg's mark gilbert, stay with us. coming up, burberry is under pressure after holiday sales missed estimates. this is bloomberg. ♪ francine: good morning. i'm francine lacqua here in london. let's get to one of our top stories. burberry holiday sales fell short of estimates as the ceo began implementing his plan to give the trenchcoat maker a facelift. retail revenue rose 2%, half the rate analysts estimated. shares lower this morning. i was looking at some of the trading volumes with guy johnson. compared toe 700% the last 20 days. robert williams joins us now from paris. i've been going through some of the notes. part of it is the fact that mainland china, but also the u.k., decelerated. they don't have a creative director. what are people worried about at burberry? robert: today, they are looking at a pretty tough comparison. last year, sales really jumped due to the lower price of sterling. burberry has a lot of stores in the u.k. this year, it was a little less attractive to spend money and bounds in comparison to last year. the news is also coming from the fact that investors are worried about how expensive their plan might be. burberry is planning to renovate some stores and at the moment they don't have a creative director. is this highly unusual? some of the other companies are looking for a new creative director. do they just find someone, the right person hopefully, but also just give it to the markets? robert: it can take quite a bit of time to find a creative director, specifically in the current climate where the use of noncompete agreements is widespread. burberry might identify a candidate, and it can take a really long time to negotiate. robert, thank you so much. robert williams in paris covering all things luxury. we will talk about some of the designers that could replace christopher bailey. financials in focus as u.s. bank earnings season gets into full swing. bank of america and goldman sachs report later today. this is bloomberg. i'm looking at some of the market swings. come back and talk about roelo : and mark's view about how the markets will adjust and some of the canary in the coal mines that we must watch out for. this is bloomberg. ♪ francine: economics, finance, and politics. this is "bloomberg surveillance ." let's get straight to the bloomberg first word news. nejra: the u.s. secretary of state has operated a sobering assessment about the possibility of war with north korea. rex tillerson said advances meant the situation was very tenuous. he was speaking in vancouver, where top diplomats gathered to explore new ways to enforce sanctions. >> north koreans know our channels are open, and they know where to find us. but a sustained cessation of north korea's threatening behavior is necessary -- is a necessary indicator of whether the regime is ready to pursue a peaceful diplomatic resolution to the security threat it has created. nejra: in the u.s., gop leaders are testing whether rank-and-file republicans will support a stopgap funding measure to keep the government open that would delay some obamacare taxes and provide money for a children's health insurance program. the plan indicates that paul ryan and his team are trying to push through a plan to finance operations through february without having to count on support from democrats. donald trump's dr. says the commander in chief is fit for duty and should remain so throughout his term. ronnie jackson examine him last week amid criticism that the commander-in-chief may be unfit for office. he says a cognitive function screening for dementia or alzheimer's was normal and the president takes cholesterol medication, aspirin, a hair loss drug, as well as being borderline obese. steve bannon has been subpoenaed to meet with special counsel robert mueller or appear before a grand jury. according to a person familiar with the matter, then in plans to sit down with mueller later this month. the former top advisor to donald trump doesn't plan to invoke executive privilege. china's banking regulator has vowed to take action against those who built large financial conglomerates. it signals that last year's government crackdown on such entities is poised to continue. the chairman of the regulatory commission said such operations have become major obstacles to efforts to deepen financial reform and safeguard stability. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic and this is bloomberg. francine: thank you so much. let's talk financials. u.s. bank earnings season continues with citigroup beating estimates despite a bigger than expected right off. goldman sachs and bank of america report a little later this morning. joining us now for more on what we can expect is our reporter. mark gilbert from bloomberg gadfly and roelof are still with us. thank you for coming on. we still have citigroup. these are different banks, but the overarching view is they are taking a hit on tax, but not too bad. >> profits are coming in about in line. -- there's sot much that it is really hard to sort out the fourth quarter balance sheet because it is so dominated by taxes. citigroup taking a much bigger hit than most banks. $22 billion that it had to write down because of the tax changes from the congress. essentially what we're going to look for is goldman sachs. bloomberg had a report that their commodities trading , one of their5% worst quarters. that is something people want to keep an eye on. besides taxes, because that is the elephant in the room, how is trading revenue going to come in? francine: how does bank of america compared to goldman sachs? >> goldman sachs is really concentrated on their commodities. this is a big portion of their revenue. when you look at equities ,rading, a lot of these banks the south african retailer who had stocks fall because of -- jpmorganssues confirmed that their loss in their derivatives was tied to that. citigroup wouldn't confirm it, but they did have a loss tied to a single -- jpmorgan client, which sounds like steinhoff, but they wouldn't confirm. another thing i think will be interesting is whether they talk about bitcoin. it is in the headlines. they are looking into possibly supporting that. analystse surprised if don't bring it up on the call. francine: the last earnings quarter was the first time we heard jpmorgan mentioned bitcoin. does that translate into your world? we were talking about a better growth story, treasuries. this should make it a little easier for financials. is it a good time to invest? roelof: if you have rates going up, then normally financials do really well. if you have the m&a cycle picking up, that is also good. if you have more volatility, then trading picks up. francine: what does it mean for european banks? there's always this difference. it is interesting to see the tax cuts having an initial negative impact. european stocks -- mark: european banks need a cheaper yield curve. they need the long end to start rising faster than the short end. at the end of last year, u.s. banks were eating the lunch of the european banks. they've been stealing market share. european banks have been retrenching from the market. francine: because of regulation? mark: partly because of regulation. partly because they fought hard against every attempt to regulate them. they don't know what the playing field will look like. they didn't boost capital at the same time as their u.s. counterparts, so they have less ability to commit. this could be the year when they come back stronger. francine: there was one question that you would like to ask some orthe ceo's, is it bitcoin the inflation expectations in the u.s.? >> i'm definitely more interested in that part. it is interesting to hear them talk about what they think markets are going to look like, and think of that view versus a normal market strategist. on the citigroup call, the ceo said, trading revenue is going to pick up. we see a lot of volatility returning to the markets. this is really important to them. they have a lot at stake to be saying this. they have expectations to meet. i'm curious to hear what their markets view is. francine: are you invested in european financials? is there amid a potential? difficult to talk about how we are positioned in our own sector. just looking at it from a strategy point of view, i would concur that you need a steeper yield curve. from that point of view, we are looking at financials. francine: are banks lending? we sometimes forget that banks -- thanks our lending, and a lot of european banks are lending, but there's not enough demand. we forget that they have an initial purpose of basically passing monetary policy. mark: as long as the outlook continues to be supportive for the corporate sector, you will see the demand start to come through, and the banks will be able to lend. the idea of m&a in the banking sector is interesting. there's been not a lot of consolidation in european banking. regulators are more on board than they have been, i think. the ecb seems to be on board with greater consolidation. maybe the m&a pickup comes through as well. francine: thank you so much. , and you to dani, roelof mark gilbert from gadfly. up next, we talk gas, renewables, and the future of the energy market with marco. this is bloomberg. ♪ francine: this is "bloomberg surveillance." i'm francine lacqua. originally part of the italian gas giant, slam has become a european leader. it has a market cap of nearly 14 billion euros and manages a transportation network more than 32,000 kilometers long. snam published its global gas report in which it argued that gas is better placed today than it was 10 years ago thanks to the growing lng trade, and renewable technology suggests gas will be part of the long-term future. marco has been the company's chief executive since 2016. he was previously from eni trading and shipping. marco joins us on set for an exclusive conversation. thank you for the report. i look forward to doing the weekend reading. if you look at geopolitical concerns and tensions, russia, libya, does that change your outlook? marco: gas pricing is very different from oil pricing. gas pricing is a regional issue. gas prices in america are capped by the cost of shale gas. drivences in asia are mainly by demand in china. the prices in europe are somewhere between. this is our daily -- francine: going back to geography. we should get it. we have a map. robert: these are all the pipelines -- marco: these are all the pipelines coming to europe from around europe. europe has access to the world's cheapest gas resources. because there's an issue transporting that gas, the prices are higher than the cost. francine: a lot of these pipelines, a lot of the centerpoint is russia. a lot of you know the maps of the world, but a lot of it is coming from russia. we had the debacle on gazprom. sanctions in russia must impact the price of gas, or at least gas security. marco: i would say we didn't have a debacle. continuousears of flows of gas from russia. russian gas is among the most abundant and cheapest. francine: 10 years ago, they turned off the tap. marco: this is an issue between the ukraine and russia. i'm more concerned about technical security than i am about geopolitical. it is about who produces gas. we've seen in libya, there's been constant supply of gas. the issue for europe is, as the u.k. becomes an importer and the flows shift, we need more interconnections in europe. francine: one of the other things we are trying to figure out is, as things get electrified more, the future of transportation, does that put any more pressure on some of your pipelines? as we use a lot more electricity, what does that mean for gas? marco: a lot of electricity is produced from gas. that is a growth driver. if we take a global view, the iea and other forecasters, we assume gas will increase the penetration until 2014. gas has a significant role to play in transport. all modern ships are dual fuel and can run on natural gas. also, trucks and cars can run on natural gas. the effort to ban petrol and diesel is a huge opportunity. francine: do you expect, in 10 years, when will this transformation take place, in 10, 15 years? can we say that gas demand will increase by a certain percentage? marco: this year, gas demand has increased about 6%. when it comes to transport, we already have a big penetration. in italy, we have one million cars running on natural gas. the future will be electric, natural gas, and some hybrids. ,n terms of electrifying heating in homes, it will take a long time. francine: are you expecting consolidation in your industry, and do you want to be part of that? marco: we are europe's largest company in our sector. we think there's more value to be created by developing projects. there's not a lot of synergies in our sector. it is hard to justify a premium. francine: are there any countries where you want to expand? marco: we are looking to greece. greece is privatizing its own network. we expanded into austria. we expanded into france. we are in the u.k. through a connector. francine: greece, i'm fascinated by this. there's a public option and you kind of decide -- is there potential increase because growth is coming up? map,: if you look at this apart from russia, the future of gas will come from the southeast. today it is from the caspian sea and azerbaijan. there's a lot of gas in israel, in egypt. we know the world's largest gas field is between qatar and iran. europe has the luxury of being very close to cheap gas. what we have to do is get the infrastructure in place. francine: i don't get to do this very often, so i'm quite excited at having a map. nothing like a good prop. iran, iraq, syria, turkey, this must be affecting geopolitics. how difficult isnothing like a . it to get the permission to do pipelines or get the gas from this part of the world into our region? marco: we are advanced in a project called the southern corridor. bp and other companies are developing. i would say it is 80% done. by 2020, we will have gas from the caspian sea into italy. francine: do you travel on a weekly basis? marco: we travel often. francine: when you look at the gas prices, over the next three to six months, what will they do? marco: i think the issue has to do with storage. if we have more storage, we can level off the peaks in the winter. youcountries like the u.k., need to rely on lng, and lng, you are competing with china and asia. all the demand is in the northern hemisphere. korea, japan, india, china, pakistan, europe, it is all winter at the same time. if you have storage, you can take lng storage and produce it in the winter. francine: how much does it cost to do a storage facility big enough? marco: all these boxes are storage facilities. the u.k. has recently reduced its storage. you are simply pumping the gas back where it was. impacte: does brexit your pipelines? marco: not physically, but there will be issues around which becomes more liquid. there will be an issue with energy in general with ireland and possible impact of taxation. any distortion will be bad for the u.k. and europe. francine: at the moment, the u.k. doesn't have storage. do you think storage needs to be built? marco: storage needs to be built. storage needs government support. we have strategic petroleum reserves in many countries, but with the exception of italy, very few countries have strategic gas reserves. gas is more fragile than oil. we need strategic gas reserves. francine: let me show you your share price. we are currently at 4.094. do you think there's an italian discount? does it sometimes hurt being italian because investors think, i'm not sure about that? marco: we look at multiples. i think we are at the highest in our sector. i wouldn't say there's an italian discount. trade in atends to countercyclical way. italy, we look at spreads more them specific stocks. the market is optimistic and i'm optimistic on italy. francine: when you look at the u.s., they do things differently. do they have technology for moving gas around that is different from here? marco: in america, they have a very fragmented market. it works because there's a lot of deregulation. in europe, we are halfway there. we started with a lot of national monopolies. the third directive created some integration. we are not yet to the integration we need to achieve. europe is working very hard. we are helping europe to create an energy union. there's still some bottlenecks on this map. francine: can i keep the map? there we go. thank you for joining us for an exclusive conversation. from energy to the property market and london's real estate market, one man is keen on getting more involved. the billionaire chairman of the real estate developer sees plenty of opportunity. he's also looking for growth closer to home. he spoke exclusively to bloomberg's yousef gamal el-din. >> london is interesting. is the right time to acquire land now? we already have one project. london as ag at future long-term market. tindall as an interesting market. it has softened quite a lot. in my view, you enter market when it is soft. you buy the assets at the peak. >> so brexit hasn't turned you off at all? >> on the contrary. big opportunity. >> in terms of the domestic market in dubai, i was speaking to -- and he was very vocal about the dubai government doing are to address what he says clear signs of oversupply. would you agree with either the oversupply story or that the dubai government needs to do more in the market? >> i think we have one of the most amazing visionary leaders in dubai. he has moved the city from a small village to where it is today. i think dubai has huge potential. tournament -- tourism is growing. retail is growing. some sectors are not growing like before, but that is a mature market. tourism5 million growing to 20 million, and the government has a vision, so i'm very positive. >> in terms of the success story, sharing it perhaps more with intentional -- with potential investors, would you be willing to sell a bit of your stake? >> yes. i don't mind to sell a bit on the right price. >> i spend quite a bit of time with analysts, tracking your company. one of the concerns i heard was that there might be changes in the dividend payout over the long-term because of what they saw as reduced cash flow. that youeassure them don't foresee any major changes in your dividend policy? 2017 was a good year for the markets. >> i don't see any change in our dividend policy. we have made it clear several times. i don't see major changes in our dividend policy. >> are you looking to do any additional projects that are built around the trump brand in dubai or elsewhere? >> we enjoy good relations with the trump organization. they have helped us build and operate one of the best golf courses in the region. they are helping us with a second golf course. unfortunately, president trump announced last year in january that they would not take any more projects outside the usa. >> so that means if they were to change their policy, you would be open to a new project? >> we are a business organization. if there's a benefit for us and a benefit for them, we can always look at those deals. francine: that was the chairman on the company's plans for london, but also for dubai. quite a lot going on today. i'm looking at euro-dollar. we're also looking at yen. stocks easing back. what i'm looking at is the dollar rising. gold slipping for a second day. chinese shares bucking the trend. they seem to declining to a fresh record. yen and pound falling against the dollar. treasuries, i will bring it up shortly with tom keene, declining over talks to avert a government shutdown this friday. burberry, this is my chart. thank you to guy johnson who told me what i should be looking at. this is a volume chart. this is something i quite like. it gives you a good sense of what analysts are doing. the stock price is down some 8%. robert williams was saying it is because sales lagged, but investors are concerned about how much their plan will cost. they haven't found a replacement for christopher bailey. that is maybe hurting investor confidence. "bloomberg surveillance" continues in the next hour. tom keene joining us. this is bloomberg. ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's 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. francine: trouble on the hill. stocks retreat from record highs over government shutdown concerns. dollar rebound. the dollar bounces after falling back from a year low. and spending the selloff. one quarterw worth of its value. good morning. this is "bloomberg surveillance inwith francine and tom london for the week. tom, looking at burberry. then we talk politics. we look at d.c. and then we look at this point. tom: i was looking at burberry few days agot a amateur opinion, nothing happening. francine: we will have much more on burberry and much more on the foreign exchanges. let's get straight to the bloomberg first word news with taylor riggs. taylor: u.s. secretary of state the threaton warned of war with north korea is growing. he was in vancouver with diplomats from 20 countries. they are exploring new ways to impose new sanctions. he said this meant the situation was "very tenuous." former white house strategist steve bennett faces two subpoenas in the russia investigation. he has been subpoenaed by special counsel robert mueller. meanwhile, the house intelligence committee has issued its own subpoena. bannon appeared before the panel yesterday after the white house asserted he was barred from answering any of the committee's questions. mitch mcconnell says immigration can wait and it is more important for congress to reach a deal that would avert a government shutdown. he says there is no reason to hold the government funding b ill hostage. house republicans are working on a bill that would fund the government, but not deal with daca. in london heathrow airport has made proposals intohouse republn a bill that would fund the cutting $3.4 billion from the expansion plan. heathrow also proposed the safe opening of new terminals. the idea is to favor the changes without a significant hike in user charges. global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. i'm taylor riggs. this is bloomberg. thanks so much. now to start for airline gossip with francine and tom. heathrow is a really nice airport. they finally have gotten it after executive changes. francine: it depends on the terminal, but we just go for the shopping, right? they have all the luxury stores. i wonder if burberry sales are good at heathrow or not. it is pretty convenient. we will see if they build another runway. tom: i would just like to get terminal one at jfk straightened out. that is not where british airways is, but the great lawrence summers has been really good on this, about infrastructure and you start with the airports in new york and a few others around the nation. francine: right, but it takes years to build. tom: yes, but finally get it started, like they are getting laguardia straightened out. it is a quiet day, except for bombs. the spread comes in nicely, 51 basis points. futures are a little elevated after the riations and weakness with a yesterday. next screen, pleaes. 11.35, showing a little of the angst yesterday. n.e line should be gree francine: european stocks, falling many of their peers lower. i think a lot of it had to do with the earnings season. they are worried about washington dc, but also earnings. the u.s. dollar rising, texas oil is steady and gold lifting for a second day. tom: here i have got the airline flight. we will blame my cough on the airlines, i guess. how about the bloomberg? francine is in a hermetically sealed cube here. ll.ncine: i am building a wa flat,t has gone flat, flat during the last 10 years. it is a very interesting chart about what is happening in america and industrial production is not happening. francine: two things, tom. data from the eurozone in line with expectations. i am looking at burberry today. holiday sales fell short of estimates. we have a new co in charge and he is implementing a plan to change. if you look at the daily moving average, the blue circle, i will push it out. tom: this is a graphic -- francine: it is. i haveumes are of 7% never seen this screen before. dashboard.a francine: thank you for leaving tom keene with that. the dollar index rebound will a two year .02% of low. let's bring in john hardy. good morning to you. how do you explain this move? and is this a new trend? very early tois call this a new trend. you are seeing the dollar jumped from hyperextended levels. maintain thatver benchmark around 2.5%. thyou need the entire yield curve. francine: what will it take for the entire yield curve to move. we will need to see a strong data coming out. if you look at the stock of u.s. debt, most of it is inside of five years. from the treasury, it makes sense for the treasury this year -- we bought longer-term bonds. going forward from here inspect fields to become higher in some point. linkedshort end, it is to expectations. what would it take to drive draghi higher? what would be the catalyst for that kind of euro strength. reporter: i think we have already capitalized reasonable euro strength. going to seasons are adjustments in the forward button and said the ecb starts to easy b hike rates. the 25 basis point expectations would lead to a stronger euro. matt: francine: just to make sure i got this right, do you no theyhe asset prices might set up deadline, declaring september will be the end if everything goes according to plan. i think there is consensus gelling around that. then the market shifts expectations for a rate rise. thank you so much, john hardy. a gentleman wen love to bring in, charles dumas. he's an expert on what people are doing with their money. he is the author of a number of books on china. you look at the bigger picture of true macroeconomic of the .nternational economy think the consensus has not yet caught up with how fast the growth will be. and of course, with germany that heavily undervalued you have got the trade surplus rising at a time when the eurozone is already suffering $450 billion. sweden and denmark have another $30 billion. there is massive influx. b has lost control of the rate. tom: how do they get back control? >> they can't get back control whatse it is not possible francine andng to i are quite focused on the ecb meeting, particularly on the political economic maneuvers as well. laterl continue this on today on bloomberg radio and "bloomberg surveillance." he has been extraordinarily successful on a percentile basis. we catch up with him on 2018, on an international basis. stay with us. taylor: this is "bloomberg i'm taylore," and riggs. melrose industries has made a bit of $10.2 billion for gkm, the british maker of aerospace and automotive department. they rejected the earlier offer. melrose is a british investment firm that turns around industrial companies. holiday a sales came up short -- holiday sales came up short at burberry. that is about half of the growth predicted by analysts. announcedr, the ceo plans to boost the image with flashier stores and a focus on handbags. onix is preparing an offer that values the company at $3.7 billion. iwd owns almost 3000 locations. it is the largest alternative and onex is the largest private equity firm. that is your bloomberg business flash. on to the ecb and analyst expectations for the rate hike. sayinge in an interview, -- this is a quote -- those expectations need to be in line with the current forward guidance with the ecb. interest rates will increase will be on the end of the asset purchases. ecb will decide policy next thursday. still with us, charles dumas. purchases innd september, do automatically raise interest rates, or do you wait? >> if i was the ecb, i would not be doing the stimulus they are doing already. francine: yes, but that is the old story. >> they should stop it sooner rather than later. are in a -- they difficult position. economystay easy, the will age it up even more, which means there will be tremendous inflows of cash, meaning the euro goes up. but if they tighten, the euro goes up anyway. they might as well do what is right for the economy, to tighten a little bit and get back to the more natural economic policy. francine: if they do tighten the rate unexpectedly and the market listen?ly starteing to what does this mean for german bonds. the economy is growing at 2.5%. there is an inflation rate %.proaching -- about 2 that is a fantastically cheap rate. you are liable to get a buildup of investment. in fact, there is a buildup of investment back in germany and on top of that, there is plenty of growth with jobs and wages. .ou got consumer spending tom: i want you to talk to all the traders on global wall street who are betting on strong euro. bring up the chart now. i showed this three weeks ago and it is now a larger that on euro. we are at almost five standard deviations, one your back on euro. charles, is always ends in tears . how do we get through a stable or weaker euro? >> we need a stronger euro. where does germany want the euro to be? 1.40, right? the about the spaniards and greeks? >> the spanish have done it well and muchlast two years better than quite a lot of people. the guys always looking for the and euro, the italians they have the ferraris to sell, but they also have the french. it would help to have the boost in exports. >> it would, but the structural reforms in france are unlikely to be massively deflationary. we are in the middle of a world trade boom and that is a good time to be doing structural reforms and to take it vantage of good conditions in the world. that is where the fortuitous things about this brexit going on in england. policy might be badly executed. tom: i want to come back and talk to you at jim o'neill's call. lord o'neill was saying we would get to a stronger sterling. coming up, charles dumas on ch ina. henry in our next hour with hsbc. stay with us. this is bloomberg. ♪ francine: good morning, everyone. "bloomberg surveillance" in london this week with tom and francine. china is in focus, reporting full year gdp tomorrow comic standing by -- tomorrow, expanding by 6.8%. still with us, charles dumas, one of the experts on all things chinese. how do i look at china? forget the gdp, as long as it is more than 6.5%, it is ok. do i look that deleveraging or changes at the top? >> chinese gdp numbers in real terms are not credible. so, we recalculate them. most of the year on year increase is year have been faster than the numbers given by the government. we think it is decelerating. patent,inside a broader which you are quite right, the growth rate is 6.5% and they are leading balance away from too much metal bashing, and towards the services and high tech. they are balancing away from too too littlend consumption. one feature is, for the last debt quarters, the ratio has been stable. francine: i spent two years asking, how do they deal with this holy and trinity? does this unholy trinity continue? well, i think it has diminished quite a bit. so, the desire for massive obviously, thes world trade boom is hugely helpful. the bottom line is, everybody has a little g, a rate of growth. china has a wonderful little g. it's the real deal little g. why is everybody so worried? >> the income level of china is still about 30% of the united states. tom: correct. >> japan with that same top downgraded response got to 70% before they ran out of steam. lotatch-up mode, there is a to decipher your intelligence. tom: let's come back. up, jerome schneider from pimco. this is bloomberg. ♪ tom: from queen victoria street in london, "bloomberg surveillance." tom keene with francine lacqua, lots to talk about. francine is wound up about burberry and i wound up about 2% yield above. right now in new york city with our first word news, here's taylor riggs. on capitol hill, house republican leaders are trying to come up with a stop gap spending plan that would prevent the government shutdown friday. the measure would delay obamacare taxes and provide money for children's health insurance program. any plans could not pass unless it has democrat votes in the senate. a former c.i.a. officer suspected of helping china identified u.s. spies has been arrested. he has been accused of unlawful retention of national defense investigation. as tolso a suspect whether imola led to the deaths of american spies in china. the commanders of two u.s. navy destroyers involved in deadly collations will face court-martial charges that may include net judge it -- negligent homicide. both accidents took place in the western pacific. other officers face charges that include dereliction of duty. mario draghiviewed for attending meetings of the group of 30. the eu says mario draghi has failed to demonstrate that taking part in the form of executives and policymakers serves the public interest. the ecb says it will respond in due course. global news 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, i'm taylor riggs. this is bloomberg. francine: yesterday we spoke with large in my meal -- lord jim o'neill. we talked about brexit. a dark cloudury in because of differences over brexit. tom asked him rightly so about his pound calls. this is after ing said the pound would go to 1.50 of the end of the year. i was surprised that lord o'neill says it could be possible. thoughooks to me now as the pound has broken out so i would not be surprised if we are heading back toward $1.50. tom: there it is, jim o'neill yesterday. it's not a formal forecast, but nevertheless the direction is where. you just assume with the flows that we have seen that it's just an ever stronger pound sterling? charles: not really, no. --you take a dollar $.50 $1.50 and we are moving up to the euro rate against the stirring against the current , i don't expect sterling to appreciate against the euro. i expect the euro to be fundamentally strong. tom: this underscores the complexities of looking at each currency pair. it's not just about the euro are sterling. cable, whichhave is the pairing that we look at the most. charles, if we go to that chart now, we put the level at 1.60, but we will push it out for regular listeners in london. when you talk about the pound, is there an optimum level for the british economy? charles: where we are against the euro is extremely competitive in an economy with a large deficit of meeting to rebalance the payments. in that sense the region is fine. if we think the euro is going to 1.30, then the pound on that basis we go to 1.45. my feeling is that would be a bit stressful on a global basis. if the euro is going to 1.30, the pound needs to retreat against the euro, which could easily happen. srancine: let's talk about davo and the threat of cyberattacks and the threat of deteriorating geopolitical aspects since the election of president donald trump. that's according to the world economic forum's global risk report. that comes ahead of the meeting. that is why tom keene here as we travel on sunday. we are joined by margareta. welcome much to the new studio. we are looking forward to davos and trying to figure out what the main themes are. do you think people will focus a lot on risks or will it be overly dominated by president trump? >> i hope it will focus on risks. we know that the program we have been building up even before we had confirmation that president trump would join us is focusing on the form perspective and the usual collaboration along stakeholder groups. that systemic changes really needed for food security and resource issues and a wide array of areas. francine: are people worried about cyberattacks more than geopolitics or vice versa? margareta: what we see is that everything is increasing slightly. cyberattacks went up very strongly. it's a stakeholder survey so it's stakeholders worried about cyberattacks, not surprising given the cyberattacks seen last year and the change in terms of impacts we have seen. tom: the world economic forum has a broad set of risks and many of them are away from economics and certainly away from the messaging of the president of the united states. you talk about intensified risks. will the present bring a certain intensity to davos? welcome himure, we there in them will be a lot of interest in what he has to say. tom: what does mr. schwab want to hear from president trump? seriously. i remember sarkozy of a decade ago maybe and the huge splash of the chinese last year. it was really quite something to see. the valley stopped for president xi. in what way will the valley stopped for president trump? margareta: it remains to be seen what he will be talking about. we're looking forward to engaging him in the work that we do and we are pleased that he wants to be part of the dialogue. it's a big change in its important and crucial to engage the u.s. and many of the issues we have been talking about. tom: i say this with great respect for the research capabilities of the world economic forum. you're looking at intensified risk. what do you mean by intensified? margareta: we ran a survey of our stakeholders in order to identify those risks. we see the stakeholder say that next year 50% of people is going to be intensifying risks. francine: i'm looking at the list and we have been talking quite a lot about potential and this is what tom was asking about with president trump. year or the possible inflection point where we see protectionism? we've not seen much in toys 17 so have we -- 2017 so have we gotten over the hurdle? margareta: it's hard to predict this kind of thing. with the economy getting better, see less that we will protectionism measures. we have one scenario type of exercise and they're still a danger that the multilateral trading system to break down the way we know it because there's a lot of risks on the horizon. francine: charles, we were talking about china and the role that china plays into the trade. what does it mean for the neighbors? we have seen the increase in trade for some of the southwestern part of asia with china, but also because of geopolitical concerns, korea. is it less likely we see something ugly happening between the u.s. and china for trade? charles: in the short run exactly for the reason margareta specified. the us economy has been grown pretty well and is above trend rate. they want to see whether the tax cut does what they are hoping it's going to do. we are optimistic about 2018. it will be when things turned down that you are looking at trouble. then you got a variety of issues. you've got the u.s.-china and the simple fact that the eurozone has this gigantic surface, which means that someone else has to run the deficit. that someone else's the united states. tom: francine brought this up yesterday and i forgot about it coul. there were tangible protest that davos. do you believe there will be a renewed or redux of those protests for five years ago? i think -- i don't think there is such a threat right now. tom: i think they're more concerned about germs. [laughter] tom: i've got my official organic lavender hand sanitizer. this is a must this year for me. francine got this -- lavender hand sanitizer. i recommend this for dr. schwab. francine: thank you so much, margareta, head of economic progress. charles sticks around and we will talk about fake news and everything in between. stay with bloomberg for our live coverage of the world economic forum on monday. we are live across all the bloomberg platforms throughout the week. i wish we could tell you some of the interviews coming up, but we are keeping it under wraps until friday. it's going to be fun. this is bloomberg. ♪ tom: from our studios in london, "bloomberg surveillance." francine lacqua and tom keene, thrilled you are with us. on fake news as well. there's a mystery to what the president will do with the suppose it fake news awards. we thought we would look a little bit of facebook, but look at the basic theme with this modern trend of truth in media worldwide. th from theett is london school of economics. wonderful to have you here. when we say fake news, how do you define that in the classroom? >> the first thing you say is don't use that word without ever qualifying it. for thes could mean president for example, it could mean news he disagrees with. other people to find it as misinformation. it can be commercial and you can make money out of the hoax. tom: is it just a populist protest? it's truthful news, but just news we don't want to hear about. the reason it's been so successful is that it's very popular. even if people don't think it's factual, they might sympathize with the emotion of the rhetoric. the fact that it's viral means it has got purchased. . francine: how does it change our societies? i guess the endgame of this fake news is almost endless. charlie: i think it's had a profound effect, especially on the media, because we realize this wasn't something that happened around the 2016 elections and now this is a pattern of communication. tweetingdent uses his as a strategic tool of policy if you like. beyond that come he's trying to reach out to the wider population. he could set agendas. tom: it's just anti-intellectualism. americans can go back to the 19th century and all that. in europe, they go back much further than that. it's just an anti-intellectual strain, isn't it? charlie: yes, but it has more reach thanks to ever before. thanks to social media, we can all join in. previously populist movements were much more controllable. now certainly when they speak, they can find an audience. people like the president can help animate that. francine: does it change economics? governor kuroda wants to change expectations. this fake news change the way that people perceive their wealth or their spending or could impact actual metrics? charles: the point charlie is making is that there is much less respect for established institutions, whether it's the press, the government, or anything else you care to mention. when you look at the fact that these guys are taking the economy both in the u.s. and the eurozone and in japan, they have essentially a zero inflation rate and they're are trying to make it 2% inflation rate. theworry for me is that president is doing this and it could cause a little bit of a bubble and it will have to come in with a crunch too much too late and they will own the next recession and we will be right back into the problem of experts being wrong. tom: within probabilistic economics, it's within the realm of reason they would overshoot. back to the news media, professor beckett, when i say fake news come up me it's just anti-intellectualism. mr. trump was elected by saying those fancy people at lse don't know what they're talking about. there's and american metaphor for that as well. francine: you also have fake news in other countries with dictatorships. i know we are talking about the context of the u.s.. charlie: and it plays out differently in different societies. fake news in terms of the u.k. was much less successful partly because any you can we are used to a more partisan media anyway. tom: is it a light fascism? you talk about in dictatorships, is it any different than mussolini before all the other boys of the 1930's and 1940's? is fake news molding the media towards a fascist tendency? charlie: i don't think you can see it as a left right thing because there's a lot of left-wing antiauthoritarian misinformation propagated going on. you can see for example jeremy corbyn in the u.k., he's a social media or his supporters did very enthusiastically and not always entirely evidence-based. i will think it is just a right-wing phenomenon. this is something for any kind of popular. tom: charles is wound up over here. charles: if you go back to the good old days, if you could call union,at, of the soviet they were serial fake news. you could say there was a small window of relative freedom from 1990 to sometime around now. now we are back into the sce ne where everyone is doing it as well. tom: yeah jeff flake talking about stalin tennessee. -- you have jeff flake talking about stalin tendencies. charlie: i think the real danger is that people end up not trusting anything and that's why it's so important that come up i say, companies like bloomberg which produce the data and information. tom: we are trying, i mean everybody but me. francine: the king of fake news. [laughter] charles and charlie will both be back and we will talk about facebook. in the meantime, if you have any comments or questions, load up tv . you can steal some of tom's charts. i think it's a lollipop chart on bitcoin. you can ask questions to charlie and charles next. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." i'm taylor riggs. let's get to the bloomberg business flash. billionaire developer who same -- hussein has had to exit has led to opportunities to build in london. he spoke to bloomberg in dubai. >> it has softened and it's the right time to acquire land and make projects. we arty have one project doing very well. we sold out almost more than 50%. we are looking at the future long-term markets. properties are building to golf courses in dubai for the trump organization. he said no for the deals with trump have been explored. billionaire mark cuban is bringing bitcoin to the national basketball association. he says fans can use bitcoin to buy tickets next season. said that point was in a bubble, but ended up investing in the cryptocurrency at the other the year. that is the bloomberg business flash. francine: facebook ceo mark zuckerberg announced changes to his flagship social network i shifting -- by shifting users newsfeeds back to post from friends and family. that's after accusations of russian manipulation of the social network during the 2016 election. charles and charlie are still with us. professor beckett is an author on the supermedia and a professor looking into fake news. charlie, when you look at the role of facebook, how will it change from what we saw two years ago to what it will become in five years? charlie: we are not sure and i'm not sure facebook is sure either. we have seen mark zuckerberg zigzag somewhat over the last for years. he told us that facebook was going to become the public square for the world. now he seems to be saying he wants to revert much more to family and friends. i think there's something quite deep and profound going on within facebook. of course, that has a huge impact on the news media business, whether publishers can get their content through facebook, but it also has a big impact on things like politics. tom: i look at this and what i centered on and i've done it with moses and others across bloomberg's video, video, video. to the time orce inclination to do video so what we're talking about with facebook is that we are all gung ho video, but no one wants to take the time to look at nvidia. -- at a video. charlie: that is one of the problems at some media organizations anyway. they have switched strategy to video because facebook was going to promote it. now they are saying there's a limit. if anyone charges in the same direction, you're distorting the market. i think every media organization has to think first about its own strengths and its own strategy and should not become dependent on a platform. tom: if they're not dependent on facebook, how do they get back the strength? how do they get back the traditional readership audience? charlie: that will be different for each organization, but you can see really interesting work being done by companies from "new york times" to "the guardian" with subscriptions and newsletters by using social media to engage with their users rather than promote content. charles: i have to say that speaking as someone who is not on facebook. francine: charles! charles: i'm in the skeptical camp. i think people just don't have enough time to do all this stuff. i do a little bit of twitter and a little bit of linkedin. so why do i need facebook as well? i've quite a few friends that i call them up on the phone. tom: thank you so much. we will see you out and facebook. we will continue. please stay with us worldwide. this is bloomberg. ♪ this morning, a quiet market with a higher u.s. two-year yield. back tote hikes to get the same yield of september 2008. john boehnerst of speaker ryan goes in search of senate votes to avoid a government shut down. ?o be avoided let's avoid any talk of immigration. for bitcoin, did the bubble just dust? onare right here, 9000, 999 the bitcoin. good morning. we are thrilled you are with us. has avoided this but it is now a collapse. francine: we are asking ourselves what the it quite just burst. if this is under concern of more regulation. last 18 months, it has become something else. tom: maybe if the government shuts down, they will pay everybody in bitcoin. let's get the first word news. taylor: on capitol hill, house republicans are trying to come up with a stopgap spending bill that would prevent a government shutdown on friday. lawmakers say this would delay obamacare taxes and provide money for children's health insurance plan. the u.s. secretary of state rex tillerson warns that the threat of war with north korea is growing. diplomats of 20 countries met to explore new ways to meet you to the nuclear weapon program. he said the situation was "very tenuous. " has been accused of unlawful retention of national defense of relation. there are reports that he is a suspect in a long-running investigation of whether a more input the deaths of american spies in china. in hongbeen living kong. heathrow airport has made a number of proposals aimed at cutting $3.4 billion from the cost of expansion plans. among them, a runway that could be built to three different lengths. the idea is to pay for the changes without a significant hike in user charges. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. tom: thank you. on equities,now currencies and bitcoin. green on the screen with futures up nicely this morning. the dow jones industrial average, ending on the downside. the curve flattening. .4 down to 51 point over . the vix way out over 10, showing some of the tension in a relatively quiet time. here is the big story. 3%, the two-year yield should be green. higher by two basis points this morning. bitcoin beginning this morning at 10,000. francine: this is my data board. the earnings season is in full swing. we didn't have a trading update on burglary which is disappointing. looking at the u.s. dollar rising, wti sitting. go toight now we washington but before that i do want to do a morning must-read. and this is delicate. james q whitman is at el wall he has written a huge essay, whether you agree or disagree, it is a must read. i think project syndicate for having the courage to publish this. the president is a knee-jerk authoritarian and a throwback to the old days of white supremacy in america. his statements and office park back to a time in history when hibbler found inspiration in u.s. immigration law. american should be dismayed to hear their president openly yearning for an immigration policy that would put nordic people at the front of the line once again." kevin cirilli is an authority on the pulse in washington and he is the chief washington correspondent. .hat is a brutal essay how will other republicans reaction to this, particularly to the immigration debate that no one wants to talk about? agreeco i'm not sure i with that essay, i want to be clear on that. i think that is too strong of a comparison to make. there is no question that the immigration debate does have the potential to shut down the government this friday while lawmakers pass some type of funding bill by friday in order to avert a government shutdown. and it looks like that all indicators are that they will pass a short-term midi deal by february 16 in order to kick the can down the road but daca is something that is holding all of this up. do i assume that the debate we have in january will be nothing more than the debate of november 6 of this year, setting up the framework of midterms and then on into 2020? kevin co that is good point. and what we are seeing now is margins. the other night, the incoming democratic governor of new jersey give a speech in which he really did make a democratic speech to lay out what exactly you will be hearing from democrats this midterm, talking about daca and dreamers. these have become rallying points now for the party. are any republicans going to cross over? are any going to cross over and support them? right now you haven't seen that. with the issue of daca, this is the big issue for them because most polls suggest that most do want stronger security along the border. the rhetoric is another thing in and of itself. francine: three days. the government shutdown on friday, wednesday, thursday, friday, what is the likelihood that we do get an agreement? and if we don't, will they pushed back by one week or two weeks? and what happens in the meantime? : trump and mike pence will be on capitol hill to honor dole. these types of arrangements are of meetings. types informal on capitol hill but i imagine they will discuss how to hammer of the details in the short-term deal. the likelihood that there will be a short-term deal for february 15 is strong now. but any type of longer deal when they have a torrent of other things to get to such as infrastructure -- they are bullish on the structure plan that they want to release but they have a lot of things on the to do list before hand. tom: the idea that speaker ryan has to get democrat votes -- is this comparable to the challenges that speaker boehner had i-4 he lost his job? time?this different this kevin co. such a great point. at the end of the day, speakers have a short shelf life in terms of how many years they actually hold the speakership. the difference between speaker ryan and speaker boehner is that ryan can make the case that he has a legislative way to get tax reform done. he is feeling emboldened. it flipside of that is that is washington and the house of representatives, a fickle institution. tom: i'm out of touch here in london. what kind of questions would you expect a special prosecutor to ask steve bannon? he was onterday capitol hill and he was testifying with the congressional investigation. all of this gets really intense and he will ask essentially, what did he know and when did he know it? the difference now is that because it looks like there is no alliance now between steve bannon and the president. francine: you have been doing reporting so can you talk about the steel tariff? bloomberg story comparing that and contrasting it to what george w. bush did in the day but are we really closer to that? if so, what is the argument that the trump administration would use? is this a national security threat? kevin: the backdrop to this is not so with the leverage on this and the issue of trade specifically with steel. the president has to walk a fine line here because he doesn't want to upset the steel industry and also doesn't want to upset those who oppose that. so on the issue of nasa, what i'm watching for today with the president and vice president on capitol hill is whether or not these talks start to arrive and whether the president will be asking for fast-track authority -- the authority he needs to pass a broader trade agreement and if he does do that then it is a signal that he wants to stay with nasa. but it really does look like the trade relationship now, the bilateral relationship is tense. francine: kevin cirilli, thank you. joining us now is janet. about inflation expectations and the treasury but what will determine the u.s. economy right now? monetary policy? janet: the global policy has started the year on a stronger footing than many imagined. at least we do have some kind of tax deal. we could go into the indications and the bad weather looks to not disrupt gdp in the way it tends to you. so monetary policy, rates have been raised but monetary conditions are fairly accommodative. this is quite supportive for growth. and while trade associations are ongoing regarding nasa and it is be the endr that to of the trade association -- those issues will overlay. 2017, as much as we talk about political risk and possible disruptions to the economy, they tended not to impact the market, and therefore the economy. tom: let's come back. janet henry is with us. kongorks at the china hong banking division at hsbc. coming up, a timely conversation with a gentleman from western ohio, james jordan. looking forward to that at 1:00 p.m. new york time. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." google is timing out the youtube rules to clean up the video site for advertisers. they will invoke director criteria on what sort of videos can earn money and they will introduce a vetting process for the videos they offer advertisers. bringing bitcoin to the national basketball association. they say fans can use bitcoin to buy tickets next season. last season he said bitcoin was in a bubble but he wound up investing in the currency later in the year. that is your bloomberg business flash. francine: thank you. reporting for the gdp tomorrow in china, showing that it although we did the figureswho said would be expansionary. is janet henry from hsbc where she is the chief economist. you are one of the former china experts. do you look at china as neutral or more positive? it is a positive for the economy. it may not be growing at the same rate that it was previously but because it is so big it is still contributing to global growth. in 2018, i think it could have a different impact. we could talk about headline gdp but china has clearly gone past peak construction. infrastructure heavy and construction heavy growth cycle that did float the growth in global economy and with the supply cutbacks on commodities, boosted commodity price inflation. in 2018 we see something driven equipmentchinery and and is likely to benefit from some of the producers of those equipments like germany and japan. you have to compare whatever their number is to the western world's number and the answers is that it is still a boom economy? janet: it certainly is. when china closes, the whole world feels it. we can go back to the beginning of 2016, the thinkest biggest turn was china. tom: is there a gdp statistic where their debt structure gets gummed up? janet: we have had various reports from everyone estimating the gdp to debt ratio where you are more likely to have a crisis. but we have had a emerging market crisis is what it was less. .here is never a magic number it is all to do with future growth and interest rate expectations as to whether it is sustainable. so no, there is no magic number. francine: how do you foresee this before it happens if there was to be a financial crisis? janet: that is in that all our base case. it used to be a china hard landing. and it really is what hasn't happened. it does continue to be a focus on debt. when you think about the global welook as it comes through, see more growth coming from the private sector and the private sector has deleverage shallot over the last decade. the government has identified as having increased their leverage. what we see happening in the next few years is the deleveraging and regulatory tight ring in the area with more growth coming through in the private sector investment side. if we don't see that and we see --tinued growth with respect francine: when will the trading leverages be evened out a touch? janet: the trade imbalance between the u.s. and china is large. particular when you compare it trades witheral mexico and canada. it is hard to see it narrowing what isand it masks happening at the surface. at one point, china was running over 10% of gdp but now it is not even 2%. tom: let's come back with janet henry from hsbc. let me tell you about a conversation later -- david haro, his track record and the ability to capture the gains in the international equities is nothing short of extraordinary. for your international equity briefing at the 8:00 hour in new york. this is bloomberg. ♪ erg. ♪ tom: good morning. we are in london and with us is janet henry from hsbc. 1912 andead jeannie of you have looked at inequality and this is something you flaunt in undergraduate economics. a lot of complexities here. give us the distinction of your study of inequality wrapped around a global model? janet: all in 30 seconds. people say, why are you writing about this now because we have a synchronized global growth but we typically tend to get that before things go wrong and the reason i am writing about that now is because when you have week growth and high income inequality which is what we have had for the best part of a decade, that is when it becomes an issue. backcan labor give power within the productivity map and the social and political map, can labor regain the power they had 15 years ago? , not easily.ly not it is more socially acceptable if it can come from government is what we argue. we have all discussed the income polarization, to do with demographics and a flexible labor market and the impact of technology and when you know with the rise of ai and robotics, we are probably still only at the start of a 2-3 decade transformation of the global economy, that is the backdrop when polarization is likely to grow. and this is something that governments are likely to have to respond to if they are not going to face further extreme political outcomes. our governments looking at it? janet: governments are looking at it. and we have seen policies to try to address that. it was at the forefront of the g20 community last year. we did have the announcement of the industrial strategy, although it was questionable whether there would be significant resources to focus on those areas. and we have had policies and announced by china and the u.s. aims to make growth more inclusive but the immediate concern is stronger growth. if you have strong growth in income inequality, it is more tolerable. francine: to janet henry, thank you so much. coming up, brexit and oil. this is bloomberg. ♪ ♪ retail. under pressure like never before. and it's connected technology that's moving companies forward fast. e-commerce. real time inventory. virtual changing rooms. that's 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. tom: good morning. this is "bloomberg surveillance." we are watching the collapse of bitcoin -- there is no other way to put it. they won and day to and we have earnings coming up. bank of america at 6:45. goldman sachs at 7:30 this morning. we will go beneath the headline and this is a really interesting and different result for jpmorgan and wells fargo. bitcoin, bloomberg, a reporter, one of the few people who has been sane about this. is there panic in the bitcoin market? bring up the chart. this is an ugly chart. down we go. is there any sweat out there? >> there must be. there has to be. imagine investors who piled in in the third and fourth quarters last year who piled in because it was a movement and now they must be extremely nervous. you would go to cash -- do you do that with bitcoin? >> you try. i think increasingly you will have a lot of investors, retail and amateur investors who go in and can't get their money out. they are having trouble pulling money out of these exchanges which will feed. it, why?going right to if it is a legitimate future with markets and all the firms are talking about it and even done a re-can't on this but you are telling me this isn't a normal market where you can "get your money back or co- we are hearing anecdotally about stories of investors who hit the withdrawal button from various exchanges -- including those who have chosen to be regulated, and they cannot get their money back. tom: does that include matt miller in berlin. i saw a story years ago with matt miller going like this. francine: how many people in the market? there was a story out saying that 40 people own 40% of that? >> bloomberg news had a story out if you receive no that showed almost a cartel like approach to ownership. it was basically 100 investors or entities owned 40% of the market. and there has been concern about price manipulation inside bitcoin. it is a black box. it is difficult to see the contours and players inside this market. : you come on and you talk about that coin and we get a million tweets. if this is a bubble that is bursting? setit bitcoins code was years ago. and it is very hard to modify and change what it is. but all of the other cryptocurrencies up around it, perhaps they adjust? you explain why adults are screwing around with this market? janet henry doesn't even want to talk about this. why are they even screwing around with this market if it is ?" "cartel or co >> it is a business. there is a lot of money to be made there. plunges -- price >> we spoke with a futures exchange chairman earlier today skiing.as he's in the mountains skiing and he is and even around. it is overall very good for our business. this is exactly what traders do. tom: you should come with us to davos. we will buy all of the futures. in: i never have fondue davos. francine: i'm sure you do. this is the difference. they do so much. seriously, that was brilliant. francine: we will be back to talk with janet henry but let's get to the bloomberg first word news. "overallrump is in an excellent health and fit for duty according to the navy physician. all tests were normal. he would benefit from a diet lower in fat and a routine exercise regimen. steve bannon is facing two subpoenas into the russia investigation. according to persons familiar with the matter, he has been subpoenaed by robert mueller but the house intelligence committee has issued its own subpoena. he appeared before the panel yesterday but the white house asserted he was barred from answering many questions. the u.k. foreign secretary has a suggestion of a second brexit referendum. he said the most important thing is to deliver on the will of the british people. leadersents came after floated the idea of reversing the plan to leave. refuting mario draghi for attending meetings. they say he has failed to demonstrate that taking part of the forum serves the public interest. in -- says they will respond due course. global news, 24 hours a day. powered by our more than 2700 journalists and analysts, in more than 120 countries. i am taylor riggs. this is bloomberg. john hudak, out of vanderbilt, he has worked in washington, knowing their machinery at what they do. next year, presidential -- of he joins us now. how are democrats doing? are they getting towards some form of message to rebut trump? to haveey're struggling any kind of consistent message. they did have issues here and there that they're able to unite around but they don't have a unifying message which alarm some in the party but then they look back historically on years when simply running against george w. bush was enough of a message to win back the house and the senate. tom: howdy's adjust democrats need to respond to what we observe out of 1600 pennsylvania avenue? are they doing a good message of it? does there need to be a different strategy as we move to november 6? some i think having democrats here and there call of the president in some flamboyant ways is a way to get people fired up about voting in november but ultimately what democrats need to do is to have consistent the through the democratic caucus. to have a message they stick to, one that doesn't just point fingers at the president's health or mental health or between of the day but talking about the values and issues that matter to them and voters. tracy: what would be those values and issues? able -- theygued are able to rally around economic growth that doesn't just that affect people invested in the stock market but people who are struggling day to day. we have research from bakshi -- we haveday research from bob schapiro yesterday saying that -- have gone to four year college graduates and not the voters who donald trump to help and that is something that democrats can work on and message to to win voters back. francine: we have been trying to figure out -- we had tax reform and now and fear he people being subpoenaed. how much do we know about whether trump's base supporters are behind the president? john: the president space up orders are certainly behind him and in many ways that is all the president has left. a job approval rating between 35 percent-38%, there are not swing voters or independence backing you. is thewould assume president travels to davos in this hugely anticipated speech, not be speaking to his core constituency? who should he speak to? i think of president obama's speech in berlin years ago and here is the president going to a big deal but i get figure out what the theme or tone should be. what do you pressure we would here? john: this is supposed to be the environment in which he is in his natural state. where he is among colleagues. to be able to speak to business leaders and economists and other world leaders gives him the opportunity to show them what a trump doctrine -- not just on american economics but on global economics would be. and the president has an opportunity to make some mistakes and to come up towards them. the white house should be focused on the speech by saying this is a way for the president of the united states to project to the world who he truly is and what he cares about. tom: right, thank you so much. john hudak with us. janet henry continues with us from hsbc as well. for the morning briefing, coast to coast. terrific new sequence there with important conversations to get your day started. stay with us. this is bloomberg. ♪ this is bloomberg. ♪ francine: welcome back. we're getting earnings from tiffany's, the jeweler in the u.s. but also worldwide. have are% and we did very earlier. it is great to see how a lot of the jewelers and high-end luxuries fared during the holiday season. that is how they make 30%-40% of their revenue. likee moment, this seems the guidance doesn't incorporate tax change. i saw louis vuitton release the creative director for men's as a completeday failure -- but what do i know. gucci is up 40% or so. every single designer is unique in how they do. francine: of course. and tiffany has a lot to do with prices. let's talk about consumer goods out there, what this means for the u.s. economy. --on't know if janet henry and state of the consumer. and will be could do is handle inflation. we were waiting for 2017. and will we be here this year? janet: it is picking up more than just energy prices. for the first time in a long time we have revised up our inflation numbers he for energy. we haven't touched the underlying inflation, it is still up fairly weak. and on the consumer story, this is a polarization story. higher income growth of higher skilled workers who continue to grow more quickly than the lower skilled workers so there is more with energy. so it is being squeezed even more by the rise in energy prices than that of other earners so they have had to lower savings rates even more. francine: is there going to be a huge upswing with treasuries? if it does, what does that mean for the u.s. economy? janet: well, the view of our fixed-income strategist is that we are placed for a near-term peak of the treasury, a bit like last year. we see it peeking out by the end of the first quarter and then going back into their range of 2.2%-2.6%. the 10 year about rate, it is and what will happen to inflation in the next few months but it is how you see the economy over the longer term. so with a lasting productivity and improvement into the lake 1990's that raises the long-term mutual rate, there is no reason why you should see the 10 yield -- the 10 year yield break out of this range. americahave bank of earnings coming out in the last two seconds. all different streams of information. we will try to get that to the stream -- to the screen for you. right now. -- well -- i francine: it is difficult to know whether they would be out. we will keep a close eye on this. these things spring up on you. then't know if that is final result or if those are the highlights or notes that we are looking at. interesting,ca is comparing it to some of the other reports out. tom keene is right. we do have the report out. you have it there? we have to go through this with a wall of data. every bank is different on how they bring out the data and you can see with the consumer inking, revenue rose. this is the point from the government debate of 24 months ago to a better run consumer bank with a different feeling. like citigroup, i would suggest that bank of america had a lot 2007rk to do to move from two 2008 of two 2010. i see consumer banking revenue rising 10%. up.s and trading revenue we have to get more data on that. francine: net income coming up. the reason we are delayed in trying to put up a headline number is because they are ofing this includes a charge $9 billion for the tax act so it is a little bit similar to what we saw yesterday. and in the longer term and in the longer term as a shorter term they have to take a hit. tom: this is a terrific amount of noise. if you lookest that within bank accounting, one of the great mysteries is trying to figure out tax accounting and everyone is doing that. -- is with us who has years and years of expertise of looking at think earnings. every bank is a different story. isn't it? >> yes. we pay more attention to taxes these days with tax numbers but the bank of america tax numbers are not surprising. they had already told us they would take $3 billion in charges and that is what they did. we were worried they would have more charges then what they had told us in advance but the tax issue is big. and with bank of america, another number we look at is the net interest income, which has been going up and up in recent quarters. and are doing really well net interest margins are rising and that number is good this quarter. i was just looking at that before we started talking and $11.5 billion in the fourth quarter, that was higher than the third quarter which was a good number. more than $1 billion. so they are doing pretty well on that front. the tech stuff is one time and everyone is taking that so investors don't really care. so numbers look good. tom: brian moynihan leaves his comments with the responsible growth -- what is responsible growth? i did not study that at the cfa institute. >> responsible growth? i guess it is meaning the -- before the crisis, banks took huge risks. they are not the same anymore. they are not taking massive risks. trading has played down most of the numbers. the prop trading was banned, mostly and responsible growth mom and popto the stores and consumers and corporations and without the predator lending that was the subprime before the crisis. so i think that is what he is referring to. banking without the huge massive risk that could blow up blowup in the government's arms. francine: this is one of the most important figures. wereng estimates, we estimating a figure of 1.6. they came out with 1.7. how do they compare to rivals? the f icd? >> fixed-income stuff is done for many of the rivals. this is better than expected but very close. volatility lacking and fixed-income markets has brought down everyone's figures. so it isn't surprising. they are still doing well. some banks to better than others . goldman sachs will be later today and that will probably be worse because they are more reliant on institutional investors. --e banks like citigroup they have the corporate side so they could get fixed-income revenue from corporate clients who try to hedge risks with commodity prices or other things that are related to their businesses. actuallys why they can push in some of the clients coming in from these. tom: you are acclaimed for articles byzine these people -- merchant banks. you go deeper on executive than anyone else -- what does brian moynihan have to do with the underperforming bank of america to join the out performers at a jpmorgan? >> bank of america has been slower. it is trying to cut costs. that has been the big story. really fires on all cylinders. investment bank that does trading and lending to corporations. on theargo is more consumer and corporate side. they have been a big mortgage bank. bank of america has been trying to do all of those but not as strong as either of those. -- maybe thatwhy is what they mean by being responsible with responsible growth. if theye slow way and keep cutting costs, that has been one of the biggest problems. be costing from ratio has not been as good as the rivals. if they keep doing that, squeezing costs out, they will get closer to their rivals. francine: thank you so much. a bloomberg senior writer joining us. .gain, bloomberg senior results this was the number everyone was looking for -- $2.9 billion because of the tax bill but everything else seems in line with expectations or a little bit higher. tom: we have to do this delicately or janet henry will walk off the set. bitcoin. i will frame this over to economic and a moment. bitcoin. i will frame this over to economic and a moment. we have a low of 10,007. this will be huge. a $9,000 handle on that coin and that would be a collapse. bitcoin is something we haven't seen -- quiet in the market. with noconomics is done volatility or less volatility across all markets. do you perceive that that would change this year for central bankers? will central bankers have to deal with more volatility? janet: possibly. but they could also be the source of volatility. and we are coming out of a world over the last few years when central banks have been determined to meet inflation targets and have been slavishly following them. policy loose for longer but what we saw last year with central banks and particularly the fed continuing to tighten shooting ofrgoing inflation and's jesting there -- financial stability, it coin may be -- bitcoin may be one of them. central banks have to take a more nuanced approach which will make them less transparent. thatine: is ucb the one the market may be misreading because they could get out of asset purchases? been forecasting they would be out by september. but i think the markets have not been listening to what the ecb has been telling us. and now they are overexcited. the ecb next week or be in the position of having to peddle. -- having to backpedal. saying, we want you to stop pricing and more qe. ending in commit to september this early because a lot can happen between now and september but i do think eventually we will have that message. tom: thank you so much. janet henry, thank you so much. from hsbc. goldman sachs earnings are out at 7:30. stay with us on all of our platforms. this is bloomberg. ♪ s. this is bloomberg. ♪ alix: bank of america reporting minutes ago, a $3 billion hit from the gop tax bill. goldman sachs and a half hour. and the yield curve flattens today. not so fast, ecb throwing cold water on the euro rally, saying fundamentals to not measure up. david: welcome to "bloomberg daybreak." i'm david westin with alix steel. alix: bank of america, s&p futures up by 10 points. a bizarre day yesterday, 2800 on the s&p, sold off in the close, moving higher now again. we will save the bank earnings support that kind of rally. euro-dollar, down 4/10 of a percent, will they or won't they worry about the exchange rate? and all across the curve, flattening that we are seeing, yields up to basis points in the 10 year. crude down 4/1

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