There is a little bit of a downside on the stoxx 600. Eurodollar, little bit of an improvement there. Coming up on bloomberg surveillance, we talk european growth. To our man from jpmorgan. Then we talked to teri haynes. Of the get a preview state of the Union Address. A lets get to the bloomberg first world news. Nejra the house of representatives has committee has voted to get clearance to release a republican memo. It alleges bias. Say thetive republicans investigation to come in ties to the white house are under false pretenses. For the first time the 10 years or so i have been on the committee, there is a vote to politicize the declassification process of intelligence. That would could potentially copper my sources and methods. The u. S. Secretary has announced a list of oligarchs in russia with ties to vladimir putin. It includes 96 oligarchs. Willmed will not all not automatically face in the sanctions of inclusion may cause banks not to do business with them. There is fragility in the new mood of optimism after canada and mexico came forward in new nafta ideas. The u. S. Trade representative said hes hoping to make progress before the next round of negotiations. The three parties are due to meet again in mexico late next month. The leader of the u. K. Labor Opposition Party meeting yesterday. This includes five people from the business business lobbies. Hna has told creditors it has considerable debt. According to people with knowledge of the matter, this was brief last week. Hna representatives did not respond to a request for comment. The north african country says they benefited from the International Bond market. Its possible this year. Its possible to make it next year. We may trade in term of art that which is in term of our needs. We want to manage our debt by reducing the risks of Foreign Exchange and other risks. There are solutions to find in the treasury including the opportunity to cap the bond market. Nejra global news 24 hours a day powered by journalists and analysts, this is bloomberg. Francine it is President Trump first state of the union later where he will give his constitutionally mandated address to both houses of congress. Year andmidterms this the president s Approval Ratings at historic lows, much is at stake. He is expected to focus on infrastructure, the tax overhaul, trade, and immigration including his proposal for a wall on the next and border. Gets his pain for it . Focus on the markets. European equities are treating this morning taking their cue from the states. The s p fell the most in four naff months. Thats as investors get jittery of bond markets. Hour, ourw for the two guests. Thank you both. Its a momentous day. The first state of the Union Address. What do treasuries want . To hear they looking from the president or other other factors at play . There are other factors at play. Yieldries would try to normalize over the next 10 to 15 years. Retreat, that takes yields around the world to levels that are extremely low in historical terms. No board known they also board no relation to other markets. Agosury yields six months were below two. The bond market is pricing the current rate of growth of the economy and also pricing a move away from the old Monetary Policy. Was a movement to the three weeks ago. Theres nothing fundamentally different. We had a little bit of data but is of the market playing catchup . Its probably the markets playing catchup. Theres fewer economic data. We have a synchronized Global Recovery in the markets have that thislieve recovery will continue this year. Now the markets are pricing that in. We are probably heading for for rather than three rate hikes. The market should adjust. Francine how many red light rate hikes are you expecting . Is there a danger inflation does not catchup. Maybe they overshoot . Stephen on your first point on your first point, i dont expect any more than in the dot plot. I dont think those are fully discounted in the bond market. This is mostly just catching up with the indication on the given. Is inflation going to run away . It hasnt so far. The jobs picture in the states has been extremely its been better than many countries and the rest of the world the past five or six years. U. S. Growth has held up. Yet theres been no response in inflation. But we are starting to see kind back to the bond market is a move in inflation breakevens and swaps. Even they are not predicting a massive spike in inflation of the moment. Attention tocalled the fact that Wage Inflation has lied where they expected to be given the timeliness of the labor market. Just thatthis is treasury yields that you can see. There is the s p 12 month dividend yield and then the plane saving. The two. Nd contrast why are you expecting for Interest Rate hikes . Are you expecting inflation to be stronger than expected . Think its more that we the fiscal stimulus will add something to growth. The u. S. Will probably reach priests reach 3 this year. Deliver 25 basis points. Inflation is unlikely to take off but will probably see in Wage Inflation signs of a modest acceleration. Thats good enough for the fed to hold it against that. Francine let me bring you to another chart. This is the vix. Move . Ch does the vix what are you expecting in the state of the union . Can a trade on the back of the state of the Union Address . As a predictor of has beenf volatility extreme low. I think we are seeing the first signs that investors are getting on board with the rally. There is a statement from some Online Brokers yesterday that the number of trades online has spike sharply. I think its a reaction to the move in prices after the tax cuts. Youre starting to see more retail interest. Has gotten very firmly into the bullish count. One of the bizarre things about the rally in u. S. Stocks since is thatt the most it is the most disrespected in the love rally weve ever seen. Most of the time, Retail Investors have not really been on board with it. Theyre coming to the party now but it looks like that retail interest is wakening. A weaker there is dollar and we can get on to what Steve Mnuchin meant to say instead of what he said. Its another blanket of stimulus on the stem this we getting from the fed. Yes, it helps the stock market quite significantly. It translates overseas companies u. S. Earnings to hire dollar amounts. Its not a decisive factor. The decisive things are growing momentum around the world plus the fiscal stimulus. Where they are now where they may be by the of the year, we have a 3 run before the of the year. It will be by his to work matters below. It will not retard the an economic recovery in any way. Francine they give her a much. Stay with us. You can watch President Trumps state of the new address live right here on bloomberg tv tonight. Thats her p. M. New york time. 20 coming up. Ucb officials are said to see qe ending with a short paper. Mays brainstorm. On has quizzed u. K. Leaders her brexit options much of their annoyance. This is bloomberg. Economics, finance, politics. This is a bloomberg. Lets get to the Bloomberg Business flash. Advanced talkse in blackstone to sell a stake in its financial risk business. That accounted for more than half their revenue in 2018. In 2017. Reuters reported of the private equity firm is in talks to buy about 55 of the business. A customer for a spokesperson for black stone declined to comment. Has agreed to buy a competitor to bolster its cloudbased business. It says it generated sales of 6. 8 billion euros in the fourth quarter. Toldill mcdermott bloomberg the u. S. Tax overhaul has been a major boost for his business. President trumps tax plan is been extremely well received. With 15 otherner very Large Companies ceos that were all my customers. I was very honored to be there. They were all talking about their investment thesis. Hna is been telling creditors it may have a shortfall. According to people with knowledge of the matter, the madeng gap was was was known during a meeting last week. Hna did not respond to a request for comment. Sayseo of commercial bank costs will probably rise due to the saudi led boycott of the nation. Would suspect a 15 to 20 basis point increase in the overall funding costs arising from the impacts of the blockade. There will be demand. Comfortable, more its been seven or eight months since the blockade was imposed. We are seeing the economy is continuing to grow. That is mitigating risk concerns. Nejra that is the Bloomberg Business flash. Francine we are sticking to the assumption that the qe program will end in a short taper. Thats according to officials familiar. They see it winding down. Its a call backed by the most hawkish members of the governing council. They want to see a gradual showing after the last extension concludes. Now is paul gordon, bloombergs head of western European Central banks. About thethis tell us differences between governing Council Members . Aul it confirms of the differences arent existential but they are significant. We saw that in the market reaction. It pushed the german fiveyear bund yield back down below zero. Even the most hawkish policy makers say they want qe to stop. Its gone as far as it can go. But even so, we understand they see the need for a kind of buffer. When you do stop, which has to be after september, there will have to be some kind of a wind down. That will be around three months. Its possible it wont start after september, it could be later. Some policymakers are pushing for that. It depends a lot on the talks ahead. There is going to be a buffer of some kind it seems. Francine what is the next stop for the ecb . We tried in davos. Said they are not ready to talk about the tapering. Do they Start Talking in march or june . Paul theres a meeting in march and no one on april 26. Hawks are looking for serious discussions and a change in policy language at that time. Some members want to make it wait until june. They want to see proper signs of inflation is picking up. This all matches for another reason as well. When you get to the end where he we get to the point where you it the bond purchases, affects market purchases. Stronger signal would be not to stop those bond purchases until the end of the year. Francine thank you, paul. Europe, weestment in will talk with our guests. Of all, holder, do you worry about euro strength . I dont worry very much about it. The euro is undervalued. Fair value is probably between 125 and 130 to the u. S. Dollar. As the zero strength reflects a strong Global Economy, then for european exporters, the Strong Demand from a book from abroad matters more than the slight loss in competitive this of price. Things may be a little more subdued than otherwise which gives the ecb time to lean back and think carefully what they want to do. Francine is there a danger the ecb moves too quickly . Bring you to my chart. Its a simple eurodollar chart. Ger says fair values 125. We are currently at one 28. If we think about the Exchange Rate overall, Political Risk has an price stop. Thats one of the reasons why it has rallied. I think its more broad than that. I think the dollar is modestly overvalued against most major currencies. Dollarre about the needing to weaken than then the strength of other currencies. Useour point, i think the the ecb will be extremely careful not to jeopardize the recovery of the eurozone economy that they have fought so hard to bring about. At the moment, the signs are pretty good. Manufacturing and Consumer Confidence are both high. I think the the ecb, having fought so hard to bring this think very hard about doing anything to throw it off track. I think there can indication will be very careful. They will lead the market to an understanding of what they intend to do. Make that slightly difficult. Its made up by central members but also representatives of other areas and they will simply respond to the conditions in their own economies. The ecb needs to send interestrate thats appropriate for all european economies and that is in is a difficult thing to do. Francine is it time for a german to be a head of these of the ecb . I dont think the nationality of the chap at the top would make such a huge difference. Francine chapter women chap or woman. Holger or woman, a good point. Leader is about crisis. Doing whatever it takes. Now we are back to normal Monetary Policy. Course . We adjust the ecb with its many members will always be a slowly moving body where the chap or the woman at the top doesnt necessarily make the decisive difference. Stephen i think the most important thing is the ability of the ecb leader to communicate their intentions to the market. Mr. Draghi has been a master of communication. One would hope that future can indication policy from the ecb will be as clear. Francine let me go on to brexit. Theresa may is turning to european leaders to talk about what britains relationship will look like. But its frustrating top officials. Michel barnier has been trying to talk for months of about what relationship u. K. Wants. Mays cabinet is still debating how close britain should stay to the block. Care or do people the level of pound, which i have a my charts, they just want to know the economy is ok. Stephen i think its fair to say that they are not going to look at negotiations deal by deal. The nature of negotiation is that it is a negotiation and you do not know what the endpoint will be. That positions will shake the final outcome is often a misleading stance to take. Said that sterling is the pressure valve that this is than playing out and thats true. Is another thing going on. Sterling against dollar has been rallying as a function of dollar weakness. Dollar rate is pretty much the same as it was at the beginning of the referendum. Against euro it is still much weaker than before the referendum. Theres a lot of different moving parts here. It means from the point of view of dollar earners, the tailwind to earnings is no longer there. Dollar weakness is a modest headwind. What the final outcome of negotiations are, its premature. Francine what do you think could be more disruptive to the markets, an ugly brexit or the italian elections . Internal potential risks, the italian election is the much bigger point. The risk is very small is this a tail risk from the radicals on the left and the right teaming up after the election and doing whatever they might want to do. Unlikely, but not impossible. Brexit, for the european economy, is not much of a risk. In the worstcase scenario it could be 0. 2 . We dont know what the negotiations will yield. All the signs from the uks headed towards a soft brexit. Thats what markets are pricing in. I think markets are right in that. The u. K. Will stay in a somewhat close relationship. Francine thank you. Our guests stay with us. Coming up, megamergers. A dr pepper merger was announced. Was it an acquisition out of necessity or just a good deal . This is bloomberg. We use our phones and computers the same way these days. So why do we pay to have a phone connected when were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. Reporter global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. And this is bloomberg. Anna thank you. Lets talk amid a. Yesterday saw a huge deal in the beverage space. Keurig announced it will take control of dr pepper. At the World Economic forum, we spoke names to banking from jpmorgan deutsche bank. Companies continue to use cheap funds for acquisitions. The value of mergers announced so far is the highest since 2000. As always, thank you for coming on. M a seems to be buoyant. It is cheap financing out there. Is a combination of both. You have cheap financing. You saw this last week in davos. All the ceos were talking about Donald Trumps tax plan, what that means for companies. But you are also seeing some of keurig european names is an american company, but is a europeanea entity. Keurie owned g, but they sold it. A lot of these deals, you see where one happens. What does that mean for the other . What do they do now . Francine does it make sense if you are in retail, if you are in beverages . We saw huge deals with the beer makers they couple years ago. Does it make sense for Certain Industries and not others . Absolutely. And some of these when they come in, they have a reputation for cutting costs, which is what we sow with unilever last year. This year the amount of optimism with theeeing an confidence to do these deals is interesting. We have to how they play out because that will take time, to see if they were actually good deals. We dont know. Francine tuesday of this make sense and a lot of times, i hear that it depends on culture. Going on what is there . You probably saw him with President Trump in davos. He seems to be walking the talk. We need to see how they integrate the company, whether this will be lucrative in a few quarters and a few years, and judge him on that. It definitely seems like the appetite is more than it has been in previous years. Francine i want to go back to ruth shortly, but is this the spirit worldwide . When you have a lot of m a is it because the companies are desperate, or they are confident about the future . It is probably because they are feeling more confident. This might be the best time to do strong deals. We have strong economic growth, we have confidence, we have animal spirits appearing again. We have low financing costs, and the prospect that they will rise in the future. To in a way, if you want finan