Transcripts For BLOOMBERG Bloomberg Surveillance 20180212 :

surveillance." what a week we had on the markets last week. this is the tension as we get onto monday. this is what i'm looking at in terms of stocks. they are gaining some 1.6%. we are also seeing futures in the u.s. pointing to a higher open. things can reverse quite quickly and change quite quickly. downan see the vix index some 10% and euro-dollar, 1.2276. if there is an infection beyond equities and the vix, it would be in credit markets. also coming up, we talk markets and last week's correction with morgan stanley. later on, we talked to eric nielsen, chief economist at unicredit. plus, we talk ecb and brexit. let's get straight to the bloomberg first word news. is readye u.s. says it to engage in nuclear talks with north korea. vice president mike pence dubbed the new strategy maximum pressure and engagement at the same time. the comments signal a shift in policy after they agreed to pursue a dialogue with pyongyang at the winter olympics. budget director mick mulvaney has warned the u.s. will post a bigger budget deficit this year. he says cutting the spending shortfall over time is possible based on sustained economic growth. the white house is expected to release its 2019 spending proposals today, which mulvaney says includes a plan to cut deficits over 10 years. a preview of the document didn't state how those cuts will be made. the israeli plane that crashed on saturday was likely hit by a syrian missile. the f-16 was hit after israel struck an iranian control days in syria. it is the first time israel has lost a combat plane to enemy fire since 1992. ray dalia has quadrupled his short bets against e.u. companies. bridgewater capital has at least $13 billion in short. the hedge fund's biggest bearish position is against the oil giant total. angela merkel says she's determined to serve another full term as german chancellor, rebuffing party politics. merkel urged spd members to back the coalition deal in next month's vote, which would allow her to form a government after months of deadlock. south africa's ruling congress meets today to finalize the transition of power from jacob zuma. the leader has told supporters the party must resolve its problems, including accusations of corruption. he is expected to succeed him in the presidency as well. london city airport says all flights are canceled on monday after the discovery of an unexploded world war ii bomb in the river thames. the navy has established a zone around the device which was found during planned development work. the airport has advised passengers not to go to the airport. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. we are getting some breaking news out of airbus, issuing a statement on the engines of the a320 neo. airbus now saying that 30% of the a320 neo's have faulty endings -- engines. the most important aircraft for airbus, we were told, was the a320. it has been forced to suspend some deliveries. indigo, the indian low-cost airline, yesterday disclosed that pilots have had to turn back, and that was an alarming new problem. somean see airbus down 0.9%. investors are getting a reprieve. global stocks recovering from sinceworst weekly rout 2011. the stoxx 600 is up this morning. the blowup in volatility has sparked a shift in the futures market. futures spiked to a record net long last week and traders are eagerly awaiting u.s. inflation data. with treasury yields on the rise, can the gains hold? what is to come, we are joined by andrew sheets, chief cross asset strategist at morgan stanley, and peter dixon. also joining us is dani burger, who has been following this closely. happy monday. danny, thank you for coming in. a sign that investors are preparing for a new reality? this is a little bit healthy, that we are seeing a move away from this. it is shocking when you look at how drastic this is. most of that is driven from a reduction in short positions, but there was so much money behind those short positions. that is a trade that had been minting money for the past few years. volatility has been so breathtakingly low. take offtors needed to those positions. also as we get more inflation data rolling in, there certainly are signs that perhaps the facade of stability has cracks in it. outcine: have we figured exactly who are the winners and losers in the correction? dani: certainly people who are holding the vix btp's are a loser in this situation. i spoke to a hedge fund based in denver. we talked to so many investors who were hurt, so it was a nice change of pace. one of thecoat on short volatility etf's. a $17.5 million gain from a $200,000 bet. if anything, that shows that warning signs have been out there. whether investors were willing to listen was a different story. francine: andrew, what will this week bring? the end people called of the volatility on wednesday? i think it is important to step back and say that the move we've had so far is similar to a number of the sharp drawdowns we've had in this bull market. volatility beginning relatively early on in that correction process while markets remain volatile, i think we are still on track for that. the end of last week, you had some of these lagging asset classes catch up. in credit indices, you are back closer to the one-year wide's. another of these asset classes have repriced. that puts us in a healthier place to find a base. francine: credit hasn't really repriced, has it? peter: obviously credit is going to depend on the macro environment and what happens with regard to central-bank policy. we are in a situation where central banks are not providing the support they once did. i think we start to see a number notarkets, one of them expecting a major crack, but continued widening. francine: are you expecting a repriced in credits? andrew: it depends on the instrument. the cash market, corporate bonds themselves, have repriced relatively little. again, i think some normalization of that would make sense. maybe the indices have made the majority of their moves. the cash market absolutely should respond to some of this higher volatility, this greater late cycle return. francine: let me bring you over to my chart. this is basically a very simple s&p 500. s&p with 200ly the and 100-day moving averages. if you look at some of the fundamentals, you were saying that this volatility is also pent-up. is it difficult looking at moving averages to see what comes next? sometimesng averages becomes a self-fulfilling prophecy. them,t tend to look at but looking at momentum is important. when we look at credit markets, seeing what areas have been hurt, the etf credit market, talk about some bearishness. short interest has skyrocketed. derivatives trading looks bearish right now. , had thestate street most outflows last week on record. certainly there are some nerves around risk assets. francine: do you look at moving averages at all? i think it is one of those funny things that statistically, they mean very little. francine: because of the psyche? andrew: exactly. all of us are looking for any sort of anchor that will help. if we look at how futures and the s&p traded, they traded off significantly between monday night and tuesday morning. they retested that low late last week. comfortnk there's some taken from traders in the u.s. that the s&p has completed that retest. peter: i tend to agree. the moving averages, they tell us about momentum. technicians use these. they scrutinize them very closely. at the moment, they are telling us the market corrected. that was a necessary correction. francine: very few people got the timing right. peter: it is virtually impossible to get the timing right. we can't predict the timing. we don't know why it happened. we saw that spike in volatility. we've been here before. this is 2015 in replay. francine: people should really watch "surveillance" more often. andrew sheets, peter dixon, and dani burger. plenty coming up, including a shift in policy. america says it is ready to engage with north korea. we are live in seoul. plus, oil bounces back, but concerns cast a cloud. will it undermine opec's efforts? we will get reaction from the middle east. this is bloomberg. ♪ francine: markets, economics, finance, politics. i'm francine lacqua. the u.s. says it is ready to talk to north korea about its nuclear program. comments by mike pence signal a shift in policy. for more, we are joined by peter , our seoul bureau chief. there's been quite a shift in policy. is it a real shift or just optics? that remains to be seen. it sounds real, mainly because the u.s. has no choice other than to alter their shift. they were left in a sticky situation with south korea, which got an invite to have a summit with north korea, and south korea was in a bind because they didn't know what to do. if they did have the summit, that would put the u.s., their alliance, in an awkward situation. it sounds like the u.s. is trying to bridge that pretty brilliant move by north korea by trying to put a wedge between the u.s. and south korea, and obviously u.s. does not want that to happen, and they came up with this policy shift. francine: what is next for south korea? did north korea's charm offensive have an impact on this? peter: could you repeat that? francine: what happens to south korea? north korea sent the sister of the leader to do the charm offensive. did that work? francine: yes, very well. if you ask anybody on the street, they would say her visit to south korea, which was the first time a kim dynasty bloodline stepped on south korean soil, it was historic. overshadowed the opening ceremony. movements, an analyst describing her looks, the plein air, the way she carried herself, the way she smiled, pretty much took up the newscast. , the charm offensive, was a grand slam. francine: peter pae, bloomberg's seoul bureau chief joining us this morning. how should investors be playing geopolitical risk? still with us, andrew sheets and peter dixon. thank you for sticking around. we can either talk about geopolitical risk, what it means for the markets, but we can also talk about the travails, the trump administration, the white house, infrastructure. what will dictate the markets? is it the spending, or can geopolitics be at the forefront? andrew: i think that question of spending has gone to the forefront. there's been some more aggressive moves on trade. been quite notable is throughout the month of january, you had this steady rise in the implied real interest rate. i think that was consistent either with expectations of tighter policy, but also more by honoring -- more borrowing. it seemed like spending proposals were continuing to increase. the new budget no longer aims to eliminate the deficit in 10 years. this is something that is going to be with us in the background of markets. francine: do you agree with that, peter? peter: to a broad degree. the fiscal stance has been very much to the four. now we have something concrete to work on, which is good. going back to your original question, do we worry about geopolitics? probably not. the way the markets have been going over the last few months, the worries have been purely based on fundamentals, sentiment, expectations, that kind of thing. geopolitics will continue to play a background role throughout much of this year, unless the unexpected happens. francine: the unexpected would look like a threat of nuclear war? peter: you could have something like that. i'm thinking more in terms of some kind of saber rattling over china. we know of their expansion into the south china sea. is that going to cause any concern with regard to trade talks? francine: what is a haven right now, andrew? yen shouldhink the have some of those properties. we like the currency. we think it will be negatively correlated to risk. i think europe is going to be a pretty attractive place to be. the political situation looks relatively good by the standards of the last five years. the economy is strong. the central bank is going to have an easier time. the currency and the stock market are cheap. i think europe is going to be a pretty attractive place. francine: are you not worried that euro creeping up is a real concern for ecb? andrew: it is a concern. draghi has been vocal about that. european equities have three other big tailwinds coming behind them. the banks are becoming profitable again. the energy sector and commodity sector is benefiting from a rise. europe has a lot of exposure in e.m. the stronger euro is a headwind, but we think those other tailwinds will outweigh it. francine: peter? peter: with regards to europe as a haven, many of the problems which have afflicted europe are not to the forefront now. but they are still there. europeseeing signs that is trying to be more serious with regards to building a proper union. andrew,ly agree with given the alternatives out there. i think what makes the u.s. deficit and budget situation so hard to analyze is there's just so little precedent. the u.s. is probably going to run a deficit of 5% of gdp. you haven't had anything close to that since the late 1960's. we struggle with how to quantify something. francine: senior u.k. ministers are preparing to deliver a series of speeches. the schedule begins on wednesday with boris johnson appealing to both sides of the debate. theresa may is expected to offer new security relationships when she gives a conference in munich. my concern is that we were surprised about the customs union and the fact that they would abandon it. i spoke to iain duncan smith and he said that was always the case. are the markets -- who do you listen to? do you listen to theresa may or a hardliner such as iain duncan smith? theresa may is caught between a rock and a hard place. sense that the altra leavers offer something different. they are not offering a policy. what we are looking for is some clear evidence, clear signals of what they actually want from the agreement. that is exactly what the european government are asking for. francine: what does it mean for the bank of england? do they need to build ammunition so they can react, or is it too dangerous to go for a hike? peter: if we look at the impact of brexit on the economy, it has taken some of the edge off. brexit is going to be a slow burn. it will be under performance for a period of years. i think the bank can justifiably say, we don't need quite the same degree of monetary easing as 2009. rate hikes are certainly on the agenda. andrew, do you by any u.k. assets? something we look at like the u.k. equity market, which is trading at the largest of any global equities, there. we are a little more cautious on the pound. there is a lot of uncertainty there. i think that is a key point. there's still a lot of unanswered questions here. francine: ok, thank you both. andrew sheets from morgan stanley and peter dixon from commerzbank. coming up, we talk oil. oil bounces back. is shale production in the u.s. holding back further gains? if you look at some of the me, we do haveth a chart for this, but it is one of the funds that was oversold last week. basically showing the worst is over for now. however, it still trades more than twice the price of the ishares treasury bond etf. there may be a little pent-up demand. that leaves ample room for the ratio to return back to its five-year mean. we will discuss that next. this is bloomberg. ♪ markets, economics, finance, and politics. i'm francine lacqua. let's get straight to the bloomberg first word news. nejra: the u.s. says it is ready to engage in nuclear talks with north korea. mike pence dubbed the new strategy maximum pressure and engagement at the same time. the comments came after pence and south korean president moon jae-in agreed to pursue a dialogue with pyongyang during conversations at the winter olympics. budget director mick mulvaney has warned that the u.s. will post a bigger budget deficit. he says cutting the spending shortfall over time is possible based on sustained economic growth. the white house is expected to release its spending proposals today, which mullaney says will include a plan to cut deficits. didn'tew of the document state how those cuts would be made. angela merkel says she's determined to serve on other full-term as chancellor, rebuffing party critics. merkel urged spd members to back the coalition deal in next month's vote. ruling african national congress meets to finalize the transition of power from president jacob zuma. the leader has told supporters the party must resolve its problems, including accusations of corruption. he is expected to succeed him in the presidency as well. london city airport has been closed after the discovery of an unexploded world war ii bomb in the river thames. the navy has established a 200-meter exclusion zone. carriers have canceled flights. london city airport advised all passengers due to travel on monday not to go to the airport. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm nejra cehic. this is bloomberg. rebounding from its biggest weekly decline in two years. gains are still being limited. bets onnds scaled-back rising wti prices by the most since august. our middle east energy reporter joins us from dubai. if you look at the factors driving the latest volatility, is it shale? last week, the rout took a lot of the oil stocks with it. >> good morning. it does seem to be shale. shale came in pretty strong. there was a lot of length in the oil market. we're still seeing investors taking record long bets on oil prices, betting those prices are going to go up in the future. they've kind of dialed back a little bit. it seems there is some nervousness that the increasing amounts of shale coming in will bring down the prices, and we are seeing some doubts about the strength of demand in the market as well. what is the view on the drop in price and rise in u.s. production? in good days, i'm being told saudi arabia and russia demand is rising. on bad days, people say the shale producers are back. brave face putting a on it in the middle east. the price is up towards the 70's that we saw last month. they are saying we shouldn't take it at the price of any certain day to say that it is too high. we had a chance to speak with the uae ministry. they are saying they are not concerned yet about shale coming into the market, but it does look like this is opec's worst nightmare starting to come true. we have seen prices for a long time now above that $50 level where a lot of people say shale is in the money. if we do see some additional signs of weakening demand or even demand that is not as high as opec needs it to be, that could put even more pressure on opec to try to save their strategy here. francine: let me just show our viewers one of my favorite oil charts. it compares oil rigs to wti. the white line is u.s. shale. as soon as the price of oil goes up, they turn on the taps. can we say that volatility is going to be back when we look at the price of oil? >> it looks like it is going to be a bumpy ride. brave face ont a things. they were saying we hope it is going to be a more stable year. last year we saw swings of about $25. some analysts say we should expect that again. if this past month is anything to judge by, we've been up close to 70 and down close to 50 already. thank you so much. anthony dipaola, bloomberg's energy reporter in dubai. breaking news, a little bit of m&a. tvc will withdraw its -- to combine mdg. this is yet another media m&a possible consolidation. tvc gaining some 4.5%. tdc will withdraw its recommendation. it has said it was approached by a potential bidder. we will talk about that and qualcomm and fox shortly. let's get back to oil and inflation. still with us, andrew sheets and peter dixon. very quick question on this m&a. are we going to see a lot more m&a deals this year? andrew: i think so. you have a lot of the elements there. u.s. companies received a large windfall. or somefew mention m&a sort of shareholder return. low on the are quite 10 or 15-year range. m&acine: are you looking at or not so much, peter? peter: it is something to keep an eye on. it is a barometer of corporate sentiment. i increasingly get the sense that many companies are thinking , is this going to add value? in terms of what it does for our business, i think customers are being a lot more choosy. francine: what do you do with oil? it doesn't have that much impact on inflation, or does it? peter: over the past couple years, it has been one of the key drivers. a price of around 60 this year is reasonable. said, the problem is that once the shale guys open the taps, that price can go all over the place. which is volatility going to impact inflation. probably arers much more interested in the core rates. they are edging up a little bit. investor, that drives a lot of our portfolio recommendations. francine: andrew? andrew: the energy sector is an attractive place to look. energy stocks are trading back where they were in june when oil was significantly lower. it has significantly focused on cost, probably more so than other sectors. we spent all this time talking about valuations. i think this is the sector that is not particularly expensive. it has sold off sharply in the last two weeks. francine: do you worry that there is chronic underinvestment and the oil price shoots up? i think that is the reason we are positive on the sector. the sector has been cutting back on capex. companies are focused on shareholder return. force, butpowerful there are limits on it. of bigely, that lack picture investment in the sector will drive oil prices higher. peter, do you agree? peter: to an extent. there's a lot more capacity in the market to ramp up supply if necessary. i think to a large extent the demand has already factored into the price. if it were the case that demand were to spike up because growth outperformed expectations, opec has the capacity to ramp up if it wants to. i think there's enough supply out there. i don't think the price will necessarily spike as a result. francine: peter dixon, andrew sheets, stay with us. up next, south african president jacob zuma's fate is set to be sealed today. we are live in cape town next. this is bloomberg. ♪ francine: you are watching "bloomberg surveillance." south african president jacob zuma's fate is set to be sealed today when the ruling african national congress meets to finalize the transition to a new administration. zuma has defied pressure to resign since his deputy replaced him as party leader. our south african economy reporter joins us. what can we expect from today's meeting? is it definitely more pressure , and canzuma to resign the anc force him to do so? >> there is more pressure on president jacob zuma to resign as head of state. the deputy president did say at a rally yesterday commemorating the release of nelson mandela from prison, he clearly stated that today's meeting will finalize what has been two weeks of talks between him and president jacob zuma stepping down before he is scheduled to, which would be next year. francine: is there an indication that jacob zuma is willing to step down? >> it seems as though there's been talks over the past couple weeks. perhaps setting out terms and conditions they would like. there will be a stalemate is quite unclear. basestill has a support within the anc. the party itself is divided. we will have to follow closely how that meeting pans out. overine: i spoke to serial in davos a couple weeks ago and he was clear that he didn't want to push jacob zuma out. is that right? do investors want the president gone or do they want a more orderly transition? >> it seems as though with the the newing strength, anc president in december, it is a clear indication that investors have a lot of confidence in him. investors may have anticipated this. anc members themselves have been saying it is time for president jacob zuma to resign so there can be a new government that is spearheaded by ramapo some, who has promised to tackle corruption, to hopefully change the economy directory. francine: thank you so much. -- south record in african economy reporter in cape town. andrew sheets and peter dixon are still with us. peter, i don't know whether you like emerging markets, or you look at emerging markets as a segue from a possible temper tantrum from the u.s. years that said for the economic potential these markets offer is fantastic. if you can invest in them, stay there. short-term, with a huge amount of volatility, with concerns about what the fed is going to do, with concerns about what the dollar will do, you have to be wary about stepping into emerging markets. francine: andrew? andrew: on the equity side, we see better value in some of the developed markets. a market like europe offers that are outright deep value. we think e.m. has had a great run, but with the fed tightening policy, with quite a bit of tech it is a, we think market set up to be a little more challenged. that has been one of the core views of our e.m. strategy team. it looks good relative to other types of yield generating assets. francine: if you look at the fed, does a weaker dollar mean it could high-class? sorry, hike more. andrew: it is something we need to watch. the good news, the good development is that the market is now at least in line with three hikes this year. that will make his job easier. there is an enormous amount of stimulus coming into the u.s. economy. you have a large unfunded tax cut. you have a very weak dollar. this is all new developments relative to the forecast. these things do need to be watched. proxyields are one good to reflect how the markets are thinking about that. peter: the other thing we are looking at is significant capital outflow. tot may well be a response the rising interest rates in the u.s. allied to the concerns about the dollar. i get a sense that investors have cold feet with regards to e.m. that is not to say this will continue throughout the year. think ithe moment, i is a tied against which you don't want to swim. francine: andrew sheets, peter dixon, stay with us. we talk more about the budget breakdown. president trump is to seek billions of dollars in new spending for his infrastructure plan. will his proposal gain traction in congress? this is bloomberg. ♪ francine: markets, economics, finance, and politics. let's get straight to the bloomberg business flash. here's nejra cehic. nejra: comcast is considering making another bid for much of 21st century fox. that is according to a person familiar with the matter. comcast has offered $60 billion for the assets, a 39% stake in sky, and a lineup of pay-tv channels. that is a higher bid than disney's offer. haslays says the u.k. brought charges against its operating unit in a case linked to 2008 fundraising. the sfo says the charges relate to qatar holding in the form of a $3 billion loan for the purpose of directly or indirectly acquiring shares in barclays. they intend to defend themselves against the charges. heineken says profitability this year will fall below its median target. the world's second biggest brewer says its operating profit margin will expand this year as sales gain. volume growth was led by asia-pacific. airbus and emirates have signed a contract for an additional 20 new a3 80's. elsewhere, the aircraft is still suffering troubles. some deliveries of the neo-jet have been suspended following another issue. airbus says 30% of the planes in question have faulty engines. trumpne: president campaigned on a trillion dollar fix for crumbling roads, bridges, and airports. the plan he's rolling out today commits the federal government to spending $200 billion. the proposal comes on the heels of the $1.5 trillion tax cut as well as a $300 billion spending measure that will add to the deficit. this will compete with lawmakers' attention with the battle royale over immigration and other issues. , and howattention bullish should they be? andrew sheets and peter dixon are still with me. what is the real danger of the u.s. economy overheating? peter: in my view, quite limited. we are running with relatively little spare capacity. the economy is not exactly going through the ceiling as it may be was 20 years ago. rateconomy is growing at a slightly above trend. in any case, even if we were to inflation, it is time for the fed to step in. francine: do you worry about overheating? andrew: i do. are likehink the risks they were in 2000, but i think unfurled every sale to boost an economy that was otherwise strong. proposal, aarge tax very weak dollar, and you are proposing and infrastructure plan. when the next recession comes, what is there left in the toolkit to offset that? you've already done a tax cut. the fed might be under greater pressure. that is a real challenge. francine: is it time for the fed to scale it back? like peter was saying, they've telegraphed it and markets may be needed. andrew: that is going to be going on in the background. at the same time the u.s. government is spending more money, the fed is reducing its balance sheet. you arethe type of war seeing play out in the rates market. this is behind some of the curve steepening. this was directly behind this rise in real interest rates. this big supply and demand shift. francine: thank you for joining us. andrew sheets, peter dixon. "bloomberg surveillance" continues in the next hour with tom keene. he joins me out of new york. we will be speaking to luca. the high-speed train operator accepted a takeover bid. multis be joined by the finance minister. this is bloomberg. ♪ francine: the markets bounce. global equities rise. u.s. futures go higher as the trading week begins. policy shift. the trump administration says it is willing to engage in nuclear talks with north korea. the president unveils his infrastructure proposal. headsweeks before italy to the polls, we speak to the former chairman of ferrari. good morning. this is "bloomberg surveillance ." tom keene is in new york. quite a lot of anticipation on what kind of market we will get as well. weekend aftereded what we saw last week and a week ago. certainly yields higher is the number one story. francine: yields higher and that has some implications. it just depends on whether this rout continues and infects other asset markets. let's get straight to the bloomberg first word news. here's taylor riggs. president trump budget director warns that interest rates may spike. mick mulvaney says that lower deficits are possible over time because of sustained growth from tax cuts. he called deficits a very dangerous idea, but "it is the world we live in." president trump will ask for billions to build a border wall and fight opiate abuse. it is likely to get little traction in a republican congress that has its own spending priorities. germany's chancellor is defying critics in her own party. she says she's determined to serve another full-term. .erkel is facing a backlash some say she sold out to the democrats to extend her 12 years in office. london city airport has been closed after the discovery of an unexploded world war ii bomb in the river thames. carriers including british airways and city jet were forced to cancel flights. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. tom: thanks so much. let's give you the market adjustment. where are we right now? the answer is pretty darn good. dow futures up almost 300 points. spread comes in fractionally. euro doesn't do much. oil near 59. the fix coming in nicely. 26.22. really, the dow at 24,000 on friday shows how remarkably resilient equities have been. we are away from the correction level. 3% sort of as a benchmark. we are now 18 basis points away from that. you wonder about a 3% 10-year yield, though we are nowhere near that. francine: i think gundlach had a call on that. there was the bill gross call that we need to maybe revisit. this is what i'm looking at. investors seem to be getting a reprieve. euro-dollar, 1.2262. investors seeing a reprieve. if you look at equities, they are rising in europe. treasuries falling. i'm also looking at dollar. if you look at oil, it is just barely above 60. not in equities. let's look at the bond bull market. a bloomberg barclays u.s. total return series. this brings your cash flow into the index. here's the lehman low over here. then bonds. another steep move in 2012. little bond pullback. here's the third pullback. this is all we see now. the message here is full faith and credit is 7% down from the top. aggregated bond portfolio is only 2% or 3% down. bond price is doing a little better than the gloom of the 10-year or 30-year. francine: this is my chart looking at the s&p 500. a lot of traders are still figuring out what happened last week. if you look at the s&p, every time there's been a correction, that goes until 2016. things have definitely been almost too cool. no downwardso argue movement. then you see that correction. with all my coughing, i want to show this. this is what is going on in america. for those of you on radio london, the "new york post," get your kid a flu shot now. we tragically had children die in the city from the flu. everybody's got it. i just wanted to show that. i don't know what london is like , but this year is different in america. francine: they talk about the australian flu. but who has the flu, pays for the vaccine shot? in london, a lot of nhs, they give flu shots for free. this is a huge cost to the national insurance system. there you go. imagine that. let's get back to the market. u.s. futures pointing higher. japanese markets are shut today due to a holiday. treasury yields continue to climb amid concern that the fed may accelerate its rate hiking schedule. there's quite a lot going on. joining us now with his perspective is eric nielsen. thank you so much for joining us. you do make us smarter on fed policy. ,hen you look at the volatility what is the the start infecting the credit markets? it is always a risk, but the credit market -- [indiscernible] there,e bit of concern but not too much. francine: what does it mean for fed policy? does the fed look at the market and think we need to keep a closer eye on it? that volatility started on the day that jay powell took over. erik: bad luck for him. on prison data, the path is already in place. we are not hesitant. this is just a minor correction. bill dudley called it small potatoes. got aght last week we little bit of a disconnect between what the fed told us and the markets pricing down the curve. today it is changing again of course. we should not be worried about weekly moves. thing, as a technical we think and hope it is, i think the fed is on track for their three hikes. tom: one of the great ideas from people like you, is the idea that yields moving up is a good thing. bring up the chart, anthony. this is the 30-year bond. most bond portfolios are not out at 30 years. in price on7% now the 30-year bond from that moving average. explain to me why this is a good thing. on myeve i have a loss 30-year bond. erik: not a good thing at all. your point is right. we are in a state in my opinion when normalization is underway. fundamentally at a crossroads where yields are moving higher. our view is that it was delayed by the phillips curve. we think that with a tight labor market and the fiscal stimulus in america, you will get higher wages and you will get a higher yield. tom: are we going to get higher inflation adjusted yields, higher real yields? erik: yes, slowly, and you should. unless something strange is going on, what the fed is trying -- i think one of the previous governors said you move the punch bowl a little bit. that means you have to bring a little bit higher real yields into the game. they may be a bit behind the curve. if they are, then it could be a bit more volatile. francine: how sharp would the correction be? erik: in yields? you could easily get 3% on the 10-year. they need to get over 3%. there is no way that it stays down here. francine: what about blondes? -- bunds? could you see a sharp repricing? sharp, because the correlations are not perfect anymore. process ofady in the reducing the balance sheet of the fed. francine: thank you so much. erik is staying with us. in the next hour, we speak with kathleen fisher. we will talk to her about the market reaction and credit. this is bloomberg. ♪ taylor: this is "bloomberg surveillance." i'm taylor riggs. breaking, blackstone group has held initial discussions about bidding for assets in a sale overseen by the chinese government. this is according to people with knowledge of the matter. the assets include the waldorf as well as strategic hotels and resorts. in the u k, barclays operating unit faces a new criminal charge over its capital fundraising at the height of the financial crisis. the serious fraud office accuses barclays of unlawful financial assistance. it has to do with the loan the bank got from qatar. former executives had already been charged. barclays says it will defend itself. a private equity firm and a dutch pension fund are making a bid for akzonobel's specialty chemicals unit. the ft says the fund would be a minority: investor alongside apollo global management. the unit could be valued at more than $12 billion. a new deal will ensure that heir press -- airbus keeps producing its a380. the deal has a list value of $16 billion. last month airbus said the program could be terminated if there wasn't a new sale soon. that is your bloomberg business flash. tom: thanks so much. with the zeitgeist over the weekend of all the distractions of the white house, there was no other topic in american economics. that is the budget deficits of the united states of america. it is good to get a view from a distance with francine lacqua. erik nielsen of unicredit group, i would love your thoughts on the chronic nature of deficits. is america becoming like europe in that we are getting chronic in our fiscal irresponsibility? erik: far from it. you past us a long time ago, tom. the american economy is basically at the height of its cycle. it is full employment, more or less. you've had the second or third longest recovery. here comes the deficit. in europe, we don't even do this in a recession. policy a highly unusual from economics point of view. tom: talk about the deficit as compared to nominal gdp. let's look at a chart of the surplus or even the here. here's world war ii. this is just the nominal amount of debt. there's no fancy math involved. evene looking at 1, 2, at 1000ars down here billion dollars. i go again to the destabilization of this. what does it signal for america? signals that it policymaking is unusual, to put it politely. yields have toy, move higher. you have a lot to finance for a long time to come, and it will stay with us when the economy starts to slow down. this is quite troublesome, i think it is fair to say. it is not good for the overall economy. how difficult can it get? erik: it can get very difficult. stopu get a downturn, you the balance sheet reduction, think about japan. trust in theu system and people trust the money, then you can get away with almost murder, but you cannot walk on water. francine: this could be related or unrelated. the chinese may be buying less treasuries. we are hearing possibly because of trade concerns. how much can the u.s. actually afford this? erik: they can't afford it forever. i didn't mean just in terms of trust in the government, but also in the dollar as the reserve currency. saying iage, you are can get better returns somewhere else by buying things in the developing world. or invest domestically. tom: we're going to show this in both hours. a lot of weeding -- reading over the weekend on this. here's the great robert samuelson. why should we worry about escalating debt? the answer in a word, prudence. we don't know how much federal debt is too much. once investors and speculators and erik nielsen lose confidence, the consequences can be devastating. the prudent thing to do is never get close to the line. we aren't being prudent. are we anywhere near a quadratic move where we get yields back on a real basis to where they were in the jfk and lbj 1960's? erik: i think that is a long way away. the direction is coming. they are still very low. for me, it is a question of normalization. until that comes, this irresponsibility, i think you are on your way. it is still a long way out. tom: erik nielsen with us. this is a theme we're going to touch upon. it really brings me back to the idea of deficit, something paul krugman talked about, when there was weak gdp, they perhaps got it wrong. coming up on bloomberg markets, a conversation with the former deputy white house chief of staff. that is timely, to say the least. this is bloomberg. ♪ good morning. this is "bloomberg surveillance ." let's talk about emerging markets and investors taking it on the chin last week. they will be vigilant about what comes next. in his latest note, our guest host points to that local a bigcy p.m. funds saw inflow, suggesting support for this asset class. let's get back to erik nielsen. what do you do with emerging markets? erik: you by the local currency. debt.nt to scale back you want to buy equities and stay away from maybe the most fragile companies. it is a very big and diverse asset class. generally speaking, the world looks very good outside the united states in economic terms. francine: if you look at the equity performance for a lot of emerging markets, it is led by chipmakers, things used in artificial intelligence. erik: that is not going to go away. picker,a single stock but i wouldn't be worried about that sector. it is a booming area. whether that is happening in berlin or silicon valley doesn't bother me a whole lot. francine: erik nielsen of unicredit stays with us. up next, we speak about elections. we also talk with luca, the italo chairman, former chairman of ferrari. we will ask him about ipo's and buyouts. later on, we talk ecb and euro strength with the finance minister of malta. this is your data check. may bethe concerns spreading to the credit market. nothing's happening yet. markets in general seem to have a little bit of a reprieve from the rout in stocks. we did see the worst volatility spike since 2016. the dollar falling, treasuries falling as well. there's concern that president trump's budget proposal will drop his party's goal to balance the budget in 10 years. this is bloomberg. ♪ . tom: good morning, everyone. stable, much more attractive number. i'm going to look at creatures, up 28 -- futures come up 28 right now. here is taylor riggs. taylor: the trump administration is signaling a policy change on north korea. vice president pence says the u.s. is ready to engage in talks on kim jong-un to clear weapon program. according to "the washington post," pence and south korea president agreed to pursue dialogue with the north during talks of the winter olympics. pence says the us will keep putting pressure on north korea. president trump may struggle with a promise to send $1 trillion to fix the country's crumbling infrastructure. the plan he rolls out today commits the federal government to spend only about $200 billion. that funding would be used to spur local governments in the private sector to come up with the rest of the money. democrats call that bait and switch. areussia, investigators trying to figure out why a passenger jet crashed not long after taking off from moscow. all 71 people on board were killed. the plane belonged to search off airlines and was on a flight to the city of borst. british prime minister theresa may is starting a director in the conservative party civil war over brexit. senior u.k. ministers will deliver a series of speeches setting out a vision of life outside the european union. conservatives are split between those who want to retain close ties to the eu and hardliners who want a clean break. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. south of italye in the mediterranean sea is the smallest and southernmost eu member state and that is multi-. the u.k. and eu officials work to the second round number of the talks with the finance minister has been quoted as blink the u.k. will first. an economic front, the european commission has raised the country's growth forecast for the next two years. joining us now, the finance minister of malta. still with us also is erik nielsen from unicredit. minister, thank you for joining -- hereon bloomberg.com on bloomberg surveillance. -- wereorried yet go >> you worried yet go >> we knew there would be more uncertainty. we thought the e.u. will have a thelem because there are countries try to agree on a position that did not materialize. what a strange now is on the u.k., some dissidents or disagreement from the one country. it does not help. francine: minister, i don't know whether you worried about -- we were just talking with erik nielsen about the italian elections. certain economies may be juggling for position. where does it leave malta? >> malta is in a position of strength in the sense doing well both on the economy side that has been growing over the last two years and now in order to continue on its growth, it is input from the e.u. itself, in other words, inflow of the labor force. and also on the public finance, which through some reforms we've managed to cut the deficit and now turned it into a surplus, so that helps. but on the other hand, we are more observant. in a way, we're like the germans in a sense we don't go for big visions, which we can't deliver. we're quite pragmatic on greece and other issues. it is like that. we're concerned with more hazards right now. the fact countries have to be on a level playing field before they start talking about risksharing. francine: malta has gotten a lot of bad press lately, for the death of the famous journalist looking into affairs of the government. what is your response? are investors concerned about the rule a lot in malta? how can you reassure them? >> malta has at a very good record in terms of regulation and its framework. so when you get bad news or you face, is this the malta i know? we need to address them and that is what we're doing. for example, on governance issue, we're just saying, it is not on the press. they have every right to say what they like. i don't think there's any inflating -- infighting between two strong parties, which opened up that made tabloid statements being made. although, i must say there were some developments, unfortunately, which did not help. but we are addressing. we have an internal evaluation being done. we have a plan. we are doing risk assessment. it will be announced soon. and especially, any weaknesses, especially of coordination between say the police, the fiu, and he mfsa message on bank. we are setting up a record naming committee now to start working seriously. thatnt to correct impression. of course, if his bills over into question of taxation, that is another issue. spills over into question of taxation, that is another issue. taxeen competitiveness and avoidance or tax evasion, which we don't condone. cooperated. we did not veto anything. we passed through directives. tom: minister, wonderful to speak to you today. molten mmericans, is the impression of a novel. it has nothing to do with the reality. what do you need from europe and what do you need from germany to keep malta malta? foreignersissue is want to move to malta. how are you going to keep malta malta? >> malta is a question of strategic location, not a question of war or anything of the sort. that is history. it is close to the with africa and middle east. it is the southernmost european country where english language is an official language. therefore, for business, it is quite important. why is white -- that is dashawn it also has its own mother tone. they feel quite at home in malta. christian, it has a somatic language. people from north africa and the airborne world -- arab world feel at home. francine: minister, there is a finance minister vote about who will be the vice president of the ecb. two candidates, spain and ireland. who will you vote for? >> that is the european politics of it. the epp worked very hard for the socialist to keep that place. and for our group, which is the labour party. he did quite a good job. so it is probably the socialist will look kindly to his nomination. francine: so you favorite -- ok, fabulous. i hope you come back soon. joining edward scicluna us. tom: thank you. let me look at the data. it is a better tone to the equity markets. a chart.o trot out where are we given a recovery mode. features of 30. dow futures up 290 points. yields are higher this morning. let's wonder over to bonus monday round post up today screens. -- monday round. two days grants. this is bloomberg. ♪ is "bloomberg surveillance." rome and to italy, the italian high-speed train operator expected to sweeten a takeover. the new year 2 billion euro takes the place of an ipo. it serves more than a dozen italian cities. lester cared more than 13 million passengers. we're pleased to be joined by it'll oh --ezemolo, italo chairman. much for joining us. first of all, are you relieved he did not have to go to an ipo? markets have been pretty volatile. i think we're having a little bit of audio issues. only talk about ferrari, but this kind of new bid and whether this is the right buy to be in the markets. you look at a lot of market disciplines. ipo, trying to figure out if it is an international listing. if you're going to the elections, you wonder if there's too much volatility on the markets there today. election, itrd the is industrial north versus a different south than even the middle part of the country as well. what i have noticed, francine, just in the last week or even number of days, mr. berlusconi with a little more visibility. is mr. berlusconi attached to old line industrial northern italy? collationwell, his could be. if i'm 100% honest, there's a can million faction. -- can million faction. there is three parties that within the trying to oversee by berlusconi. he still has a ban because of cases in the past, so he cannot actually be in politics. but what berlusconi could end up with is being the puppeteer. he is doing a rather bizarre those who beh qualified as much more right-wing than marine le pen. it's get back to erik nielsen of unicredit. he knows a thing about the entire politics but also the economy. if we focus on the election, without saying what is right or wrong, if there is a kind of flat tax, which we are hearing noise of -- i think 22% or even 13% -- how do they find it? >> that is not clear. it is a proposal of berlusconi's group to do a civil flat tax, and that has a lot of appeal for a lot of people. i think it is a political promise which will be difficult to implement in the short-term, at least. it is incredibly difficult to calculate what flat tax you need in order to get, for example, a neutral fiscal revenue number. but even if you got that number, you would go through a couple of years of losing some revenues because of the change, of the confusion. i would be that worried about it in the short-term if they were to go down that line, but it's only one part to many proposed. to take need a little g care of all of that debt. you're the great little g optimist of europe. does italy have enough growth rate to put away the fiscal pain in the fiscal realities? is the question we get most from investors, tom. here's the bottom line. if you have the present fiscal stance in italy and you have just 1% annual growth on average over a long run, you can have interest rates move up by several percentage points without debt to gdp start to increase. , averagese maturity maturity, of the italian debt is the same as the eurozone average, from a seven years, it would take many years, even at a rapid increase in yields before the average yield of the home attorney structure moves up -- home maturity structure moves up. in any normal calculation come is show this is really not an issue. but it is what people want to talk about it. francine: thank you so much. erik nielsen stays with us. coming up on bloomberg markets, we also speak with the u.k. secretary of state for wales. that's the conversation about brexit. look for the interview at 4:30 p.m. in london. this is "bloomberg." ♪ taylor: this is "bloomberg surveillance." comcast may make another bid for much of 21st century fox two months after fox agree to a deal with disney. recording to a person family with the matter, comcast originally offered $60 billion which was higher than disney's successful bid. disney agreed to by fox new production house a line up of stakev channels and 39% in skype. four years ago, blackstone group sold the wall of her story hotel to china for record price. now the firm may get the chance to on the landmark again. according to person familiar with the matter, blackstone as had talks about bidding for the waldorf another assets. the sale is being overseen by china's government. while prices are rising today after their worst week in two years. that is good news for engineering time it who says a number of projects were delayed when oil prices collapsed. bloomberg spoke to the ceo. 60, 70, very disciplined management. i believe this will really accelerate the project going forward. tom: thank you. for all of your worldwide torrential and permanent rains in new york over the last few days, all of it leading to, well, a breath of spring, a dose of spring weather. that would be a springlike last you were everyone looked for a strong dollar. we all got that wrong. it is aboutght now the certitude of the ecb. erik nielsen with us with unicredit as we look at mr. draghi's central bank. the ecbsuggest, expect unexpected. it is just too pat right now. the analysis of what the ecb is going to do. what is the unexpected for mr. draghi? >> i think the unexpected will the 2harp and sudden into e program in december. it was pretty clear from the conversation originally that they were going to go to september and then phase it out. but the good numbers and some of the noise entering the december minutes suggest maybe they will be harsher and ended faster. but given the environment and the silliness, if you will, i still think there will be a surprise. tom: in the u.s., there is the idea that maybe growth will ebb away from the optimism a lot of people feel right now. i don't want to be gloomy, but just ebb away. does european growth have a resilience and integrity to it or is it the same worry about, you know, here and there and pretty soon it is not as buoyant as you would have expected? >> it is a lot more robust in europe. first of all caps remember, in america, yet savings ratios in the private sector, which 70% of the u.s. gdp. 2.5%.s ratio of just they have been coming down as they fuel and finance to factor the reduction in it rough financially private consumption. in europe, we're pretty stably -- study savings rating at about 12%. the consumption is being financed by increase in real income. the household sector is a lot healthier in the corporate sector in europe did not take all of the debt you show in america for the last, say, four years or about. the corporates are not as vulnerable. we're in pretty good shape. francine: what worries you about europe? >> politics. francine: is it enough to derail the euro project? >> know, not in the short term short-term.n the we still don't have the coalition agreement in germany. we have to see what happens in italy. in the medium-term, i worry about who comes next because the political fabric is changing significantly now to a pro-european stance. but if the opposition becomes quite hostile, that we know over history, there is a risk that they gain power. in the medium-term, politics is still the worry. america runs well ahead of europe in craziness. francine: do you worry about germany? they can't really get a strong coalition together, overshadowed by the fact you have an amazing economy. what happens if there is a down term in the economy and no real clinical stability? >> i'm not worried about germany, really. 3.9%w the deal with waiting for use increasing -- fees increasing the bonuses. germany is moving nice along this cycle. the other side is, if you take ifd out and then all of the parties, voters, have 50% or closingfavor of european integration. there's not a question in europe about being pro-european and integrating. is a question of how the bricks fall or in the next election in the next sense, and how you lived with this more fragmented -- francine: is her correlation between how tough europe is on brexit and how integrated europe can get? i don't think, so. what i sense in berlin is a limit more concerned that before we end up with a hard brexit because of the brits, but they don't want it. the germans to want to penalize anybody. they don't want a weak britain on the outskirts of because i understand strong labor is good for you. the other side of it is, brexit is not high on the agenda. look at the coalition agreement. this is all about france and european -- brexit is backside shop. tom: as mr. macron but successful and really the historic's showing of the french flag world wide, taking the first days of jobless, no question about it. he was the talk of the first two days of davos. economic,eloped a new political france, or is it just sort of a moment for a young guy? >> i think there's a very good chance that he has indeed turned france into a new type of country that could last easily for several decades. the french decided ultimately that they wanted more liberal economy, which is what he promised, liberalization of the labor market and pension reforms. he is done quite a lot. but then he is more time on his hands because he is the president. he's doing very good job on the pr site. tom: erik nielsen, thank you so much. coming up on the markets, on your need to participate in the markets. kathleen fisher, a b bernstein. this is "bloomberg." ♪ retail. under pressure like never before. and its 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. amid calmerrning markets, the yields grind ever higher. fear.x indicates let's it is at recovery lows. the bond bear market calm. from sea to shining sea, washington considers your local pothole, your rested bridge. ucture.ider trump-frast we consider oil at $59 a barrel. good morning, this is "bloomberg surveillance." live from new york, i'm tom keene. live from london, francine lacqua. francine, what a relief. we're not like totally vix-cen tric this morning. francine: but we could be in a couple of hours. i am kidding. looking at market stresses. look out for that this week in the credit space if anything ugly happens, it may infect the asset class. overall, looking at stocks bouncing back. dollar falling. it seems to be like a quite turn a market this monday morning. tom: relative quiet, to say the least. here is taylor riggs. taylor: president trump's budget director warns interest rates me spike because the u.s. will post a higher deficit this year. still, mick mulvaney says lord deficits are possible over time because of sustained growth from tax cuts. he called deficits very dangerous idea "it is the world we live in." for $1nt trump will ask billion in new spending to build a border wall and fight opioid abuse. the white house comes out with its budget proposal today, but it is likely to get little traction and republican congress that has its own spending priorities. germany's chancellor merkel's defying critics in her own party. she says she's determined to serve another full-term. she is facing a backlash against asterisk coalition agreement. some say she sold out to democrats in order to extend her 12 years in office. london city airport has been closed after the discovery of an unexploded world war ii bomb. the bomb was found in the river thames during development work at the airport. terriers, including british airways and city jet, were forced to cancel flights. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i and taylor riggs this is bloomberg. tom: taylor, thank you. we want to get through this data quick. features up 30. got futures up 288. , not big figures, but we are getting there. the dow, we forget where we ended up on friday. i'm sorry, folks, not bad. bond should be green, up two basis points. higher yield this morning. francine: i'm looking at six. stocks in europe overall are climbing. s&p futures also rising. if you look at the dollar decline, is supported with metal higher. very good. let me look at lehman lows. and george bory. i decided to look at the bond market. total return index. here's the lehman low, and equity kind of thing, i guess. here's a terrible bond pullback. bond pullback.e we need to put things in perspective. francine? francine: this is my perspective. this is s&p 500 chart back to 2004. ,very time there's a red circle that market pullback was around 5% if not more. you can see it is from june of 2016 that we have not had such a pullback. the week that was last week, well, we know when that happened. but nothing from last week until or since june of 2016. tom: very, very smart chart. what we need is some perspective. we are thrilled, as i've said, what a set of guests we have had over the last 10 days. we have try to match people up to drive an intelligent conversation forward. kathleen fisher with ab bernstein, head of their wealth investment strategies, dispensing of aspirin. george bory is at wells fargo were he still has his job. what a week. what was your thought, kathy, over the weekend as everybody try to disengage for 12 hours? >> in all honesty, i was impressed at how calm our clients were. the reason for that, i think we and most strategists have been saying through the fall and certainly into january that the market had been too good and too calm. ,f you look at risk-adjusted they were among the best ever because returns were so strong and volatility was so low. it was off the charts in terms of a sharpe ratio. it was too good to be true. it could outlast. therefore, people did not expect it to. tom: this morning, your world is in the crosshairs. should i look at full facing credit down 5%, 7% in price or do i look at a blended index down less, 2% or 3% with corporate's doing better? >> the bond market is clearly under pressure. that has been a leading edge of the down trade. people are very worried about a big risk off trade. -- theopinion, this is a last 10 years, people have been adding duration to their portfolios in all sorts of fashions. even in equities. and right now, with the prospect of tighter monetary policy, yields just starting to creep higher, you are at risk. bond prices are at risk as bond yields move up, and that is what investors are trying to hedge right now. littlets give you cushion against that, but it does that make you immune to those risks. francine: is there a way of hedging? do you think there is going to credit, andcomes to if you do think it is coming, how can you be the first one to spot it? -- is that for meac oh sorry. for bond markets, i think the quick and easy answer is you look at variable rate securities. things like loans are leverage loans do very well in this kind of environment because they are repricing with interest rates as fred and yields come up. -- front and yields come up. if you look your to date, they have been one of the better performing assets. i think they will do well. companies are well-positioned to continue to perform, to continue to pay their debt service. but the floating rate structure alone or alone find can be very beneficial in this kind of market. kathy, sorry. i said katie. any thoughts on that? do kathy, you see a turn in thet market? >> we were talking about the fact this whole crisis started in large-cap u.s. equities. as the week when on, credit markets began a little more ruffled. i think the real issue that equity investors are grappling with is the fact clearly, rates are rising now. they have been looking at rates rising for a long time. now it seems they are. said, havingeorge verbal rate instruments, having floating rate bonds is for a helpful at a time like this. tom: within this is the theory -- i believe there's a foundational theory to what we're doing with our money. kathy, let me start with you, on the official frontier, which is a loopy line. it is either 60/40 -- whatever it is, am i going to get killed on the efficient frontier if i own bonds? >> time matters a lot. it matters what your time horizon is. if you're looking to have bonds diversify over time, you know there are periods where -- as you showed on your chart, bonds can go down, but they go down small amounts. the issue is, what are you holding bonds? on the efficient frontier, and is usually because bonds are giving you that balanced against the volatility of stocks. if you have a shorter time horizon, return matters a great deal, then you're better off having something with more return potential. committeee, and your meetings with asset allocation, they're spouting theory about efficient frontier, what do you advise as it allocators when price is down? what do you do with the efficient frontier? >> if you're looking at bonds specifically, you want to be able to compound at a higher rate and you want your cash flows coming back to you as fast as possible. so those variable-rate structures are very friendly. it also right now, we're seen a dramatic repricing across different parts of credit markets. very short dated, 1, 2, 3 year high yield bonds at say 4% to even 6% per is very attractive. tom: the idea of buying garbage -- i'm exaggerating but allowed to -- you bite in short maturity to grab that big coupon. francine: i don't know what you're talking about, but the garbage or no garbage, the one break.- give me a george, what we do not find this kind of market? >> i would be very careful about super long-duration. that is free have the most price in such a pretty. bond yields are moving higher. you can make an argument that maybe we will stabilize here. the government is borrowing a lot of money. there's a lot of at word pressure -- upward pressure on yields. although the move seven relatively small, those price impacts can be significant. the long end of the curve's, whether your union investor or government bond investor, you should think about hedging some of that risk. tom: single point x were kathy fisher says, all clear. isn't it the average 2019 or even lower than that? no, i think we're going to have a higher fixed for the next for seeable future. i think it's incredibly low period of vix is behind us. there are many reasons to expect more volatility. some more normal, maybe a little above normal. tom: this is fabulous. kathleen fisher with ab bernstein and george bory of wells fargo. coming up on bloomberg daybreak: europe conversation of laureate of yale, robert shiller. stay with us. this is "bloomberg." ♪ taylor: this is "bloomberg surveillance." in the u k, barclays operating unit faces criminal charges over its controversial capital fundraising at the height of the financial crisis. this area accuses barclays of unlawful financial assistance that has to do with the $3 billion loan the bank got from cointreau008 step former executives in the bank holding company had already been charged. barclays says it will defend itself. pension fundy firm making a joint bid for specialty chemicals unit. that is according to the financial times. mt says the pension fund p[gg be a minority: besser alongside apollo global management. the akzo unit can be valued at more than $12 billion. the new deal will ensure airbus gets producing its a380 superjumbo for at least the next decade. emirates signed a contract for another 20 of the double-decker planes. $16deal has a list value of billion. last month airbus have the a380 program could be terminated if there was not a new sale soon. that is your bloomberg business flash. tom: taylor, thank you. it was to be polite and even fulfill we can for washington. there are any number of spins on sunday. from fox news sunday, here is mick mulvaney. storiesnk all of the about replacing general kelly irma's living fed by people who are unhappy that lost access to the president under general kelly's leadership as chief of staff. i'm assured early pleased with the job the chief has been doing. everybody in the west wing is. on fox newslvaney sunday. kevin cirilli joins us. kevin, i don't know where to begin on the monday after what we saw this weekend. but what we really saw was a quiet president. he was not all that visible. why is that happening? kevin: we also heard from president trump on twitter, kind of still weighing in on this hunter mercy that many folks on capitol hill are wondering why he was engaged in this controversy. i think from director mulvaney over the weekend, you heard what the white house is really suggesting and i think there is a frustration of former aides to president trump who have been shut out of the president's inner circle are getting some type of political retribution on this. the question becomes, look, this is the president wants to focus on infrastructure. the congress is set to begin debate on immigration. there are really important issues being debated outside of this. and why the white house is continuing to trip up on this, it is kind of baffling. tom: i will go with that and also your expert, the distance between 1600 pennsylvania avenue and capitol hill, i believe we have a republican in the white house and republican senate and republican house, and yet how far apart are they on this monday in february? kevin: with regard to the rob porter issue, very far apart. quite, you know, whatever adjective you want to use, questionable, to put it mildly, why the white house response and this has been so tone deaf, again, putting it mildly. there is frustration on that front, particularly when this is the day there set to launch infrastructure plan that deficit hawks are going to be grabbing the calculator for because the math right now does not add up. francine: kevin, talk about south korea. how is that being taken or even north korea? we have the olympics. we heard for the first time the north -- welcome the leader to knowhis sister overture with the vice president of the united states. think vice president pence or the weekend remaining seated during north korea's march into the opening games was widely praised as a show of statesmanship, of leadership on behalf of of the vice president. we should note otto warmbier's parents accompanied the vice president as well, another strong showing of the united states for its support of the family. they were a guest at the state of the union address. the last time this happened from a historical perspective was an early 1990's. the clinton administration when north korea, quite friendly, received money for playing along with south korea. we don't know what their motivation is at this point to be attending these games, but i can tell you that folks in the intelligence community and the national security community on both sides of the aisle feel that talks between north and south korea is a positive. if there's a lot of skepticism for the motivation. -- but there is a lot of skepticism for the motivation. francine: how much does the trump administration focus on a possible win with korea to distract from domestic issues? >> first and foremost, president trump's approval rating in south korea are incredibly low. there's a mistrust of the united states and south korea. the second point i would make, because of that mistrust, the south korean government is facing pressure to really work with china on the issue of north korea. and so with regard to the chinese, whether or not they're going to be able to continue to place the intense, more intense economic pressure on dictator kim jong, that is really the angle the united states would like to see. from a broader standpoint, the overall skepticism of north korea, particularly during these winter games at a time when historically speaking, their missile test increased during the spring or just around the corner from that, you know, time will tell. tom: kevin cirilli, thank you so much. we're going to come back with kathleen fisher of a beat andstein -- ab bernstein george bory of wells fargo. they will talk about what you do or what you don't do with your money. coming up, the former deputy white house chief of staff for president obama, jim messina. this is "bloomberg." ♪ futures up 30. kathleen fisher with this, francine lacqua in london, tom keene here in new york. from wells with us fargo. let's look at the carnage of fixed income. on the short-term basis, bring up the chart, apple and swiss francs debt down to dollars, make it three dollars. oh, it is terrible. to make three quarters of her percent yield and swiss francs. is from a peak of the summer and a half ago, this puppy is down 10%. it for corporate bonds? to a small coupon? is is a better place to be? >> the redeeming value of corporate scum that little extra spread you get over treasuries, which can be beneficial, certainly, if it is held in a much bigger portfolio. of the important component to that is being able to either utilize the long-duration or hedge it because as you point out, the price sensitivity is huge. you have a 30 year bond with three-quarter of a percent coupon? the rates go up a little bit, you are down 10%. that is not what a typical retail investor is really in it for. maybe a pension fund manager or insurance company, but that price sensitivity is exactly what the market is trying to run away from right now. tom: now the only question of the morning to kathleen fisher is, dividend growth a substitute for the humanity he just described? a really interesting question because i think one of the things you're going to see as the markets get jittery are people who are going to dividend paying stocks to replace the yields they were not getting on bonds will start to rotate out and go to bonds giving the coupons they need. rising rates are going to create many sort of unintended consequences like that. i think we're starting to see a bit of that already. tom: in utilities as well. do you acquire traditional electric utility shares your on pullback? are you brave enough to do that? brilliant not a strategy because people will be looking for bonds instead of utilities as rates start to move up. tom: this is exactly why we love having these two on, the balance between a fixed-income world and an equity world, particularly after an eight, year, nine your bull market as well. kathleen fisher from ab bernstein and george bory from wells fargo. bloombergon surveillance radio, timely conversation, the republicans deliver big budget deficits. jeered bernstein and the 8:00 hour. 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 we're already paying for internet? shouldn't it all just be one thing? that's 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. it's a new kind of network designed to save you money. call, visit, or go to xfnitymobile.com. francine: good morning. this is "bloomberg surveillance." is what i'm looking at, quite a lot of action in the markets but definitely -- compared to the volatility we saw last week. european stocks seeing a gain. i want to show you you as futures. that is probably be inflection point we will watch in the markets. for the moment, they are advancing. dollar and treasury falling. there is a little concerned that donald trump's budget proposal will drop to balance the parties budget in 10 years. a little bit of impact on treasuries. let's get straight to the first word news with taylor riggs. taylor: south africa's ruling african national congress meet later today to finalize a transition of power from president jacob zuma. anc leader has told supporters the party must resolve its problems, including accusations of corruption against jacob zuma. the trump administration is signaling a policy change on north korea. vice president mike pence says the was is ready to engage in talks on kim jong-un's bigger weapons program according to "the washington post." pence and south korea president agree to pursue dialogue during the talks at the winter olympics. pence says the u.s. will keep putting pressure on north korea. president trump may struggle with that promise to spend $120 to fix the country's crumbling infrastructure. the plan he rolls out today commits the federal government to spend only $200 billion. the funding would be used to spur local governments and the private sector to come up with the rest of the money. democrats call that bait and switch. in russia, investigators are trying to figure out why a passenger jet crashed not long after taking off from moscow. all 71 people on board were killed. the play blood to the regional carrier and was on a flight to the city of worst. industry minister theresa may is starting to drive this week to in the preservative party civil war over brexit. senior u.k. ministers will deliver a series of speeches setting out a vision of life outside the european union. conservatives are split between those who want to retain close ties to the eu and hardliners who want a clean break. global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. francine: thank you so much. tumblinga barrel after 9.6% last week. oil rebounded from the biggest weekly decline in two weeks while surging -- let's go to stephen short. the is on the phone with us. thank you so much for joining us. talk me through what kind of range you see for the price of oil. ago,ast two or three weeks saying opec has cleared the market from this agreement between saudi and russia was enough to actually curtail some of the proposed oil. but now it seems that shale is at the forefront. >> the crude oil bulls in this market for the last three years have tried to downplay or ignore directed north american production. 2016 tom november november 2017, the last month from which we had the monthly data, we have the absolute fact that u.s. production has outpaced the decline, opec production, by 7%. there's actually more oil being put on the market by the u.s. than there is being taken up by opec. essentially, we do have are in the midst of the correction will stop last week for the year-to-date high is just around the mid-60's, looking now at the new rage. the paired of has changed over the last three years. we were essentially looking at a market that was found between the mid-50's and the high-end to the mid-40's on the low end. i will venture we have moved $10 higher now going through to the new year. that is to say the high the market is looking around to be in the xts. below in the market, well, if the previous resistance was in the mid 50's, then today support would be in the mid 50's. we're looking at a market likely mid 60's mid-50's to in the new year. francine: how is that driven by dollars? the weaker dollar drove oil advance january, but it rebounded a touch. >> absolutely. the dollar is extremely important. a very strong correlation between an inverse relationship between the dollar given that the dollar is the world's invoicing currency. we've had a lot of issues over the past few weeks with the secretary treasury advocating a weaker dollar policy. this is the same policy that was pursued 15 years ago. and it was a policy that undoubtedly lead to the spike in oil prices. that is to say if you are producer, you do not want to be paid in a currency that is being kept artificially low by government fiats. if you give the dollar low, you stiffen the resolve of opec and in the united states to keep production off of the market because you need to earn that income. but if you do have a stronger dollar that does ease the pain. the federal reserve, secretary treasury, will be just as important to the direction of oil prices as opec and producers here in north america. , you writen schork the definitive microanalysis of hydrocarbons. i congratulate you for getting nick foles of the philadelphia eagles and your report this morning. only you would do that. your definitive on-demand dynamics. when you hear the media talk about increasing demand, when you hear fundamental oil guys talking about increasing global and u.s. demand for hydrocarbons, how do you respond? >> there -- thank you. there is absolutely room for the upside. what we have experienced in the gasoline.s demand for this is what is going to drive oil prices, is an elastic up through 65 up through $90 a barrel. so that is to say that there is certainly room for oil prices to move higher without having a significant impact on demand. once we get above $95 a barrel, now we're talking about gasoline prices in the in other states pushing $3.30, and that is when demand biggest a follow-up. tom: let's summarize that. we need a gallon of gas to get to work to do business, etc., and that pushes oil up to the headline making $70, $80, $90 a barrel am a stephen schork, what is pushing against the reality of that point trump-like demand? >> what is pushing around is actually the producer does not want to see -- or if they are intelligent enough -- they do not what is the oil prices much higher than we recently have been, let's say the mid-60's. for the first time ever, the oil producer now has to compete. there are substitutes now in the market. there are electric vehicles. hybrids. and so forth. when we begin to push oil prices the on where we have recently been, your now lowering the entry barrier for those substitute fuels into the market, and that has increased a man. once you allow that to happen, you're not going to go back. the genie is out of the bottle. whether producer now has to do is try to limit how much that substitute impacts the market. so the higher we go, you're actually hastening the demise of the hydrocarbon economy. francine: stephen, are you worried about are not worried about, but is a chronic underinvestment in the oil landscape? if there is, could you see the spike up to the $110 to $150 in the next couple of years? >> i don't think that is absolutely possible right now. to your point, an excellent point, that with the pullback in oil prices over the last three years, we're seeing a significant pullback in capex, but that said, we've had a few nice rally since last year. producers are in much better position. we can say this with a high degree of confidence because the amount of hedging, the amount of the ability where oil producers have's lowered -- have slowed. and there's a very strong relationship, 95% confidence, ,hat the rise in oil prices when you juxtapose that to the form of plaque in oil rig counts, just means that oil rigs are going to continue to rise well into the second half of this year. tom: got to leave it there, stephen schork, from the home of the philadelphia eagles. a frenchjust looked up oil company to tell, 5.34%. some of the big oil yields are attractive. are you overweight oil? are you range from where you really don't care whether it is european oil with a big dividend or american oil? where is the mood on that? >> we're not making a big bet on oil stocks. each company is very different, as you know. therefore, what each company is doing, in light of a lot of change, it is really important. clearly, reserves and the ground are no longer with as much as they used to be. companies are dealing with that. a company by comedy situation. we are not jump again thinking there's a massive opportunity, but rather, how is each company dealing with a different environment for oil than we have seen before. francine: when you look at the saudi aramco ipo, another are still questions on whether they will be listed internationally or not, if it will happen this year, but is that a game changer for investors? >> i don't think so. there's a lot of politics, obviously, there, and the reason that is happening. oh willnk the valuation matter a great deal, but it will dynamics of each company of what a district in its own space. that is what matters when you are a stock picker. tom: i'm looking at the totale bond. you get paid less than 1% from totale for 10 years and a prices going from 98 to $95. wow. sporting, to say the least. we have a great equity chart to be your stock market in perspective. we do that in a bit with kathleen fisher of ab bernstein and george bory of wells fargo. the forget your morning briefing on radio. -- don't forget your morning briefing on radio. radio london. this is "bloomberg." ♪ bloombergt's get the business flash. four years ago, blackstone group --d one of the story a history hotel for a record price. if m make it a chance to own it again. according to people familiar with the matter, blackstone has had talks about bidding for the waldorf and other assets. the sale is being overseen by china's government. oil prices are rising today after the worst week in two years. that is good news for seamen. the engineering darren says the number of projects -- said number of projects collapsed. 60, 70, very disciplined management of opec and associated oil countries, i believe, this will react celebrate a project going forward. taylor: and comcast may make another bid for much of 20 for century fox. two months after fox agreed to a deal with disney. according to person from a with the matter, comcast originally offered $60 billion, which was higher than disney's successful bid. disney agreed to buy fox movie into production house, a line of paid tv channels, and a 39% stake in skype. that is your bloomberg business flash. francine: thank you. let's stick with the last tour. for more on the potential bidding war for fox's assets, we're joined by executive at her for bloomberg's global deals team. thank you for coming on. first of all, why did fox agree to a sale of assets to disney, although, we understand comcast may have offered higher price. >> that is the question everyone is asking. in this situation, i think the murdoch, they examined both the us from disney and comcast, and they can to the conclusion that regulatory wise, it would be easier to get the disney deal through. also i think they like the structure that left murdock with some shares. grant tinker you decide to merge but there is a huge breakup fee. that i back out and get cold feet for whatever reason. how much does fox have to pay in this? >> if fox backs out, they would have to pay $1.5 billion. a pretty hefty sum. if there's a regulatory issue him a regulators blocked their deal, i think it is something like 2.5 billion dollars. a big price tag of this deal falls apart. that said, if you believe the reports from people familiar that comcast offered $60 billion versus $52 billion, that is a bigger bridge to gap and that would make up for the break of these. i think the idea that comcast it come back, some are really watching it closely because the money is there if they want to pay it. francine: what is next? comcast offered a lot more, but where does that leave, for keppel, the job for james murdoch? >> i think at this moment, the big question is, thinking about things and doing it, it is a big difference. i think comcast is deliberating this. there are attractive assets that fox sold to disney, including skye, which comcast was very keen to get. lookit comes down to, they closely. if they go ahead with the bid, how big will it be? what kind of termination fee will they offer? will it be enough to get fox and murdock back to the table? is the structure? i would suggest the shareholders really don't have any voice, do they? >> i think the murdoch family has been the driver here and it will come down to them and chemistry between the leaders said disney and comcast. it is not just about money or financial structure and data. i think it comes down to personality, chemistries. i think murdoch made the preference clear when they went to disney. obviously, money talks. much, aaronou so kirchfeld, as we look at one of the media deals. the one that caught my mind washulu and the challenge of making money. let me take about tv . if you're at your desk at ab bernstein or will's fargo, the good work of kathleen fisher and also george bory. even better, you can come over and grab this secant dazzle at your meeting. this is "bloomberg." ♪ look for noah's ark sunday morning. that is how much the rain was in new york. we have clear skies. it literally looked outside my window like london in about 1830. it was that gloomy. is a beautiful new york. we say good morning in london and new york. worldwide, all of you. with us, george bory of wells fargo and kathy fisher of ab bernstein. two people i would suggest council perspective. single best chart which at least says, where are we? we're not going to do the silly parlor game of guessing. ,omg madame we go right on the 10% correction. down we go,mg, right on the 10% correction. this is the 1929 decline as well on a percent basis. kathy, what do you make of this? every client asking you about this. what do you do editing percent correction level? >> tempers in correction is a very normal correction. it is not extreme. very% correction as a normal correction. it is that extreme. this is no big deal. we needed a correction from the very lofty levels of market had gone to in january, in particular. we could not tell what would happen if it was the air going out of a balloon or a steep decline. we had a steep decline. when you think about it, there are a lot of new things in the market. for example, we read a lot about etf and etm. be levered once, ones. we did not have as many of those in this great financial crisis. we do not have as much assets in those. these can happen quickly when people unwind those traits. we should expect more of these short, sharp pullbacks from time to time. tom: we have different people on "surveillance" talking about short-term. how do people at wells fargo or at ab bernstein, how do they shut out the trading noise? it is there. it is part of the game. of wallrt of the pulse street. yo's have to be saying, this is my time when, right? >> remember, if you are investing for the next 30 years, this is a tiny blip along that journey. if you're going to use money to buy a house a year from now, it matters a lot and you should not be in equities. the time horizon of your assets should dictate how much of the short-term noise you pay any attention to whatsoever. francine: george, let me ask you this question. if the wind turns in a credit space, where will it start? >> where you see the most amount to debsure, there is edges. one is simply the long end of the curve. we of seen a material increase and volatility. i like to call the long end of adult swim only. you buy long bonds for specific reason, one of which is the yield and the other is duration. pension funds, insurance companies will buy those bonds because they are being put in very specific portfolios. the other end of the spectrum, at the front end of the curve, starting to show a fair bit of volatility. two-year yields are up pretty expectationsas fed continue to work their way into the market. within a little dislocation of the very front end of the curve. it is that sort of barbell that will tell you, there is a major change going on in the bond market as interest rate expectations start to adjust. some of that is now looking pretty fully priced, so the front end is looking relatively attractive. whereas at the long end of the curve, you've had the price moves by the actual yield changes are still relatively modest by historical standards. we was it just people continue to move down the curve, trying focus toward the front and an really maximize your yield with the shortest duration possible. francine: what about the german bonds? we have quite a lot of guests in europe saying if there's a violent repressing, that is a game changer. >> that is a good point. the ecb does hold the magic he's right now. tothe extent the ecb decides dial back its own purchase program further as the year unfolds, that's really put spoons right in the crosshairs. material increase in bund yields would have some dramatic price implications. as mentioned before, they're two different types of investors. institutional investor on one hand who can weather price volatility, then the retail investor who is really not in it for price volatility. they want coupon, income, but are not really expecting the price swings. with yields's so low, you're getting very big price swings. i think that is particularly true in europe and puts the european retail investor kind of right in the crosshairs of this bond volatility. tom: thank you so much. we will continue this on george borydio with and kathleen fisher. same discussion about where we are in these cross asset markets. stay with us all day from london, from new york, this is "bloomberg." ♪ alix: stabilization. markets find their footing and charge higher. inflation fears. 48 hours from the latest reading on inflation and traders fear the inflation they were looking for. and -- david: surely there is a risk that interest rates will spike. --x: mick mulvaney wants david: welcome to the bloomberg daybreak. monday.ppy they go wonder what this week's hold for us. -- david: wonder what this week holds for us. alix: there is a lot of discrepancy if we have actually hit the bottom. david: where are we going? scores, about the 2.5 hours until the open. at the futures moving their way up. --y

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