Transcripts For BLOOMBERG Bloomberg Surveillance 20180223

We see little bit of a lack of direction when it comes to stop. The stoxx 600 is pretty much flat, moving sideways. There has been quite a lot of movement in the u. S. 10 year yields. This week we have been looking for the 3 mark. We have not gotten there yet. Investors are trying to figure out exactly the Monetary Policy. And you have a little bit of movement in the euro sck. In the meantime, you can see the andmberg dollar index coming up, we talk brexit and trade. Later, david bloom from hsbc gives us his forecast. E talk gun0 p. M. , w control. Now, lets get straight to the bloomberg first word news with nejra cehic. Nejra theresa may held an eight hour brexit session in an attempt to win anonymous backing for her divorce plan. She went to give european rules in many areas, while breaking away partially or fully with others. The European Commission preempted the meeting by saying what it has heard of her plan will not work. Former Trump Campaign chairman Paul Manafort and onetime associate have been indicted on new charges that include failure to report correctly to the tax authorities. There is a 32 count indictment to raise the legal state against manafort and robert gates. Manafort said he was innocent of the allegations and is confident he will be acquitted. Gates has hired tom green, a longterm criminal defense lawyer. Both men pled not guilty to the original charges. Latvias central bank chief freed on bail this week, says he regrets not reporting the hint of the bribe in the past. He reiterated that he has never accepted a bribe or been offered one explicitly. An exclusive interview, guy johnson estimate he would consider stepping aside. Once you step down, you step down. It would not step down on an interim basis. I think the judicial process in lot via i think the shortest i know is seven to 10 years. Nejra Steve Mnuchin said the administrations policy will raise wages about triggering inflation. He brushed aside signs that investors are concerned about rising prices, saying wages can grow without inflation being problematic. It is a merge that the ceo of plans toys the company maintain the british Operations Long into the future. In a turnaround from a staunch brexit critic, tom enders made the guarantee. That is according to an official who declined to be named. In a nod to the companys 15,000 u. K. Employees, airbus will continue to see the country as a competitive place to invest, he says. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. I am nejra cehic and this is bloomberg. Francine now, lets kick it off with the markets, the dollar extending a weekly advance. Higher treasury yields bolstered the u. S. Currency. Joining us now is the global macro strategist. Volatility, you are saying, its fine. L what are your thoughts today. Will he get 3 on treasuries . 997 was the year francine 1997 to now. The broader point is, at the beginning of the year we saw equities going up and bond yields were going up nevertheless and everything was going in that direction. That has paused for now and the volatility might have some specific origins, but it does not matter. The bigger theme is the super goldilocks scenario we had before is over now, but the economy is very robust and it keeps growing. The probably means that short correction we have seen will not turn into a major equity bear market and therefore, everything starts unraveling. We have a correction that will last for a while, but it is a correction nonetheless. Happens tohat credit . We were concerned it would affect the credit market and that has not happened. Peter it has happened to a small degree, particularly when you look at the higheryielding spreads. They have widened to some degree. But overall, it is important to keep perspective here, to not get thrown overboard. And overall funding costs for corporates premuch all credit levels still are very low and that is the most important thing. They have corrected the upside. Francine let me bring you to my chart, this is the 10 year yield. This is a matter of when they touch 3 . What happens after the treasury yields go to 3 . Do they go back down . Peter our year and forecast is 3. 3 . I want to make the point, i think, there is nothing magical about 3 . These big handles, they create a lot of tension. It is quite opportune to talk about them, but at the end of or day, whether it is 2. 97 3. 3 , it does not change the bigger picture. Having said that, typically what we see with bigger markets is, once you come to these presumed magic levels, we have a correction and then we have the trend. A report to an have weeks ago that suggest we are entering a more pronounced consolidation phase in markets. One of the reasons is because of the yield increase, it was too much in too short a period of time. Francine on the markets, what are you nervous about . The treasury secretary has been speaking to bloomberg, brushing aside any signs that investors are worrying about prices. Peter for me, i am not worried about inflation at all. To the contrary, i am worried about too little inflation. We have seen an increase in inflation exit patients with the market. We have seated increase with what i consider one of the most important things, when we are talking about the increase in real Interest Rates. Real Interest Rates can of course, increase. But the more inflation excitations increase, the more we see an increase in the real funding costs. One of the things that has happened now is the increase in Inflation Expectations has stalled. If nominal rates keep rising without the inflation component, we get a real increase of funding costs. If that continues, it will eventually hurt the economy. We are still far away from that. Francine does the dollar kind of cancel that, though . Peter well, to some degree, it does. Only for the u. S. Weak, itllar is implies the other currencies are strong against it. The fx market is not a zerosum game. For the u. S. , yes, of course. But for those in europe, it is a different story. If i could make the final point on what i said earlier about inflation, the new inflation proponent is of course, the Central Banks are saying, inflation is coming and we have got to preempt because otherwise, if it is too high, we have hike even faster and they want to prevent that. If they are wrong and inflation does not rise, then they havfe e hiked Interest Rates notactors that have materialized. Francine Peter Schaffrik from rbc. Up next, upheaval at anbang. The insurance company, the founder accused of fraud. This is bloomberg. Francine this is bloomberg surveillance, economics, finance and politics. I am Francine Lacqua in london. Here is nejra cehic. Of fundhe royal bank has swung to the first fullyear profit in a decade, but a probe is casting a shadow on any celebration. The londonbased lender, which is still majorityowned by the u. K. Taxpayer, reported four 4. 28 billion pounds below analyst aske estimates. Speaking to bloomberg yesterday, the finance director of hsbc and the ceo of barclays weighed in on their upcoming plans are returning cash to shareholders. Hopefully, they will take comfort from the fact that we do see an increase as planned during 2018. It is a significant amount. We will also be talking about,s we generate excess capital the bank can start to look at five actual stuff that is down the road, but it is on the table. Respectolicy with to have them manage our capital has not changed in any way, shape or form. So, no real change in policy there. It is a technical decision during the first half of this year. Aberdeen willfe appertain seek to focus on Asset Management. They will receive 2. 3 billion pounds in cash and a stake of almost 20 in phoenix as part of the deal. This frees up cash for the scottish firm, which will retain the u. K. Firm. Ceost spoke to bloomberg this morning. Without the ownership of the property, it is a capital heavy business. This is a more capitallite mo d del. I think it is good news for the people of standard life, customers and of course, our shareholders. We felt this was a better route for our people. Nejra and the flagship platform snaps. Tech companies s sank 6 yesterday, wiping out 1. 3 billion in market value after a tweet from kylie jenner, who says it she does not open the app anymore. Analysts also cited recent User Engagement trends over the apps redesign. Francine chinas government has taken control of anbang, prosecuting the founder of fraud. Expansionsive goal of came to symbolize the overreach of chinas debt line. Tom mackenzie now has the latest from beijing. Good morning. How significant is this move by the chinese regulators . Tom this is a major step for the Chinese Government as they seek to grapple with the risks which could undermine the foundation in china. They have taken over this company. It was a private company. It was the secondlargest insurer in china with assets of more than 300 billion u. S. They will be in charge for three months and they have tightened the business. The former chairman has been forced out of his post and will be prosecuted. The Chinese Government is in charge of the company with more than 300 billion worth of assets, including insurance and finance companies in europe and asia, and the waldorfastoria in new york. There are toxic financial dealings at the heart of anbang. They hope these will not cause a Systemic Risk for the chinese financial situation. Francine i remember when they were purchasing the waldorfastoria in new york. Where does this leave the wider crackdown of financial risk in china . Thoseell, certainly for who thought the financial crackdown did not have teeth, it probably hasnt silenced them for the time being. The expectation is that this will continue and continue to be enforced. You are seeing that not only hna, and alsout the hilton group, and they had been trying to sell assets in hong kong and new york. They are hoping to dispose hna of 16 billion worth of assets. And then there is the wonder group. Movie production houses. They bought out football clubs. They are also in the process of restructuring their business. Are underlomerates pressure and the political leaders seem to think they have the Economic Foundation to tackle these companies without too much of a dent. Partys leading into this congress we are having on march 5. This Major Political event happens once a year and this does have potential political ramifications as well. They would not like me saying this, but anbang has deep political connections with Chinas Communist Party elite. Theyre are looking for assets for sale that they could pick up in the weeks and months ahead as they restructure this company. Francine thank you, tom mackenzie. Lets keep the conversation on china. Still with us, Peter Schaffrik. The concern is the economy, and of 6 , hownas goal they crackdown on the delevera ging authorities in general seem to have a pretty good handle on you know, their economy remaining stable. Peter i am no expert on this company, but something clear on the macro level is we have high debt levels in the private sector, your colleague just mentioned it. The question is, how is that debt level being managed. There are various ways you could do it. One is with contagion, and that is what we see with our old financial crisis. If Something Like this was to unfold, it would be damaging for the economy. It seems unlikely. Secondly, the way they are going about it seems to be stepbystep. That is probably not the biggest concern. The second concern is, if you doesdeleveraging, what that do to growth in the first place . That could cause a slowdown. We will have to see. The first step we have to monitor is whether there is the otherin some of companies out there and i am not very concerned about it. Francine overall, you are confident on china . What is the biggest negative that could arise that we are unaware of at the moment . Is it a trade war . Thingsthere are many that could happen. I do not put much likelihood on a fullscale trade war at this stage. I think we have mentioned this before and i think we talked about this on a previous show. But there are clear indicators with the chinese, and asian economies in general, there are imbalances that correct themselves during economic turmoil. The question is, how is the process being managed . Because you can manage it in a good way and you could manage it in a bad way. That, i think, is the question. Francine i just wonder if you find out too late, if you can peter there is always the question of what is going on in china anyway, but what we observed for the time being is that the process seems to be managed in a relatively timely fashion, which always is the preferable option. Francine of next, italian election risk. We talk about the positioning ahead of sundays vote. This is bloomberg. Francine good morning, everyone. This is bloomberg surveillance and i am Francine Lacqua in london. Hedging italian risk. Investors could have become complacent about the tail risk involved with the italian election. The bank said the best way to do it is to bet on the widening spread between french and italian 10 year bonds. But how should investors be positioning themselves . Still with us, Peter Schaffrik. Thank you for sticking around. First of all, how disruptive can this election be for the market . You can always paint a disruptive picture. I do not think that is very likely. My case that i have made to investors is this election is almost certainly going to be a nowin or lose camp. Either you get something that is very bad with a small probability or you get something much more akin to what we currently have, which is a stand still and i think that is the best case. And within that is the carry environment in market terms. Francine what is the biggest danger . There is no real Political Party that is suggesting italy get out of the euro, right . They seem to have walked away from that. Is it a lack of reforms . Or is it a huge ballooning public deficit because of those tax cuts being implemented . Above, of of the course. the worstcase scenario is if you have somebody in power that is outright hostile for the European Union i do not think it is entirely true. Tend to be much more hostile than some of the others. And so, i mean, if you were in a scenario where these guys held the power, then the markets are going to be spooked. There is no doubt about it, but if you look at the other proposals in particular the flat tax and what it could do to public coffers, i do not think it is likely this will be implemented in the way it was proposed, but there is the risk to public coffers. Personally, and for us at rbc, i think the biggest risk is that you get basically nothing done. You get more of the same that we currently had and all you are left with, a cyclical upswing, which is good, but the next downturn will come eventually and you cannot put something in place that will protect you when that comes and the problems just sort of get pushed away. Francine what does that mean for the ecb . Do they keep on buying italian bonds . Peter thats not the ecbs mantra, of course. The ecb keeps buying, yes. To answer your question directly, they keep buying. When you look at the details, more recently what they are doing is buying a little more italy and they should be, according to the math which underlies their purchaes. That is not to protect the spreads from rising. [crosstalk] francine that is the side effect, but that means you are taking labeled risk. You cannot cyclical risk like you did in 2011 to 2012. Peter im not entirely convinced by that argument because if we came to a point where the market was convinced italy would leave the euro and i say that conservatively because they do not think that is likely, and then the spreads to blow out whether italy leaves or not. I think the ecbs protection is not Strong Enough against such an eventuality. About thisalk to me chart because this is the italiangerman bond yield spread. Does that seem right, or is that all ecb . Peter the good part of that is ecb, of course. There is much more than the purchases the ecb does. There is much more confidence in the economy and the banks action differently and all of the above. But if you come to a point where the market is convinced italy will not be a euro member in two years time, we will be back at where we were in 2010 to 2011. Francine what would that spread look like if there was a german at the head of the ecb . Peter it will initially be widening, but it will depend on what the economy looks like. Even with a german at the helm of the ecb, they will raise rates glacially in 2019 and 2020. That is what the market implies already and the spread is what it is. We will be back with Peter Schaffrik. Now it is time for our nejra u. K. Prime minister theresa may held a brexit session with her top ministers yesterday to win unanimous backing for her divorce plan. The proposals are divisive because they foresee keeping European Union rules in many areas while breaking away partially or fully in others. The European Commission preempted the meeting by saying that what it heard of the plan wont work. The ceo of airbus personally promised the u. K. Government the Company Plans to retain british operations into the future. In a turnaround from a staunch brexit critic, he made the guarantee in a letter to the business secretary. That is according to an official declined to be named. Hereof wrote that airbus will continue to see the country as a competitive place to invest. The u. K. Government was said to have claimed to withhold billions of pounds in brexit payment if the e. U. Tried to renege on a future commitment. That is according to three people familiar with the matter. Brexit secretary david davis sought to reassure the European Union the u. K. Wont try to undercut the bloc after the separation takes place. Theresa may came under more pressure this week with 62 lawmakers from her party demanding a clean break from the European Union. They want the Prime Minister to take a harder approach on britain making its own rules after the brexit. Meanwhile, Opposition Leader Jeremy Corbyn now says the labour party will campaign to keep the u. K. Inside a customs iton with the e. U. , saying is necessary for trade and to prevent a hard border with ireland. Bank of america became the latest bank to commit its longterm future to the u. K. As the country compares for brexit. The lender extended its lease by 10 years. The bank of America Merrill Lynch Financial center in london is owned by norways sovereign wealth fund. That is your weekly brexit bulletin. So much. Thank you the market is pricing in 84 probability of a bank of england rate hike in may. Boosted in part by boe chief economists optimistic outlook on wages. For some sterling balls, the to drivety is starting currency movement. Betting that the pound will strengthen based on rate rises in the coming months. Are they right to anticipate upward trajectory . Joining us is marcus ashworth, bloomberg gadfly columnist, and Peter Shaffer from rbc capital markets. Marcus, are we definitely going to get a rise . The bank of england cant afford to have a rate hike this year. I think they have serious risk of a policy error. The reality is that if the transition deal doesnt come through, theres no way they hike in may. Saying understand yesterday that the worst thing they can do is go to late. Pflueger has gone from being the biggest dove to the biggest hawk. Something has changed and it is not just the hike in november. It is this year as well. Heart of it is the strength of the labor market. The internal research on consumer credit, i think they believe now that the big boom is coming from income rather than debt. That has made them feel much more confident about the economy. They will be able to hike rate if brexit were to go wrong. They are almost making it worse and giving the government a harder job by being so aggressive on rate hikes. There arent really any great reasons now. Francine unless you say, i want that tool, i want a 25 or 50 basis point leeway of doing something in case we dont have a transition deal. Peter . I heard that argument so many times before. I sort of resisted. It seems illogical that if you want to hike rates, which has potentially damaging impacts on the economy, just to cut them later on it seems to be a circular argument. I wouldnt argue to strongly against markets. We believe they are going to hike in may. We changed our forecast recently. We do that with a bit of clinching our teeth. Argument, make the the last time they presented their views, they lowered their assessment of the rate of unemployment to some degree, which implies that theres less inflationary pressure, and certainly indicated that they want to go a bit faster. It is all a bit of in the air. Analyst and as somebody who looks at the markets, we have to take them at their word. Francine marcus, you wrote a piece saying brexit infighting should rein in sterling, but it hasnt. What exactly is pound . This is a very simple volatility chart. Ways own pound . Is it brexit or just because it is a small open economy . I think at the moment it is brexit. The key way of expecting brexit woes is sterling versus dollar. Sterling versus euro seems to be going nowhere. Gilts are focusing on the big buyback. Short sterling has tried to move a little bit, but didnt quite get there. I think sterling is worried much more about brexit than it is about the bank of englands changing views. That is already priced in. Everyone ive spoken to has said the same thing. They dont know the bank of england is going to be right and they probably are going to hike in may, but no one has given me a clear consensus they agree with the bank of england. They are a bit surprised. Francine peter, this is a simple chart, the cable chart. Where do you see that going . We do see Downside Risk for sterling. The only thing i disagree with i think the eurostart eurosterling Exchange Rate is a better barometer. Euro against the dollar looks strong, which is a reflection of the dollar being weak. Brexit,you see news on it is eurosterling that is really moving. Orwe get a breakthrough break on the brexit negotiations, i think this is going to be the thermometer to watch. Francine thank you so much. Marcus ashworth and Peter Shaffer from rbc capital markets. Up next, can the u. K. Prime minister find a brexit plan to please both brussels and her own fractured party . We bring you the latest on the brainstorming session yesterday. That is coming up next and this is bloomberg. Francine theresa may and her cabinet spent yesterday in the Prime Ministers country retreat hashing out the details of their Brexit Strategy. After a marathon session, it seems some progress was made toward reaching a unified position and breaking the deadlock. Britain will ask to keep the you regulations on a voluntary basis for key sectors. The European Commission has already shot down the proposal, saying it wont work. Can theresa may find a way to satisfy both brussels and her own party . Merrick,s now, david the chief executive, and robert hayward. Welcome to our weekly brexit program. Thank you for keeping us uptodate. What did we find out yesterday . It was a pretty swift rebuttal from the commission. It was more than swift. The commission put out that rebuttal before the meeting even took place. Theyve already rejected this thing that is being called the three baskets approach. That is a great piece of sophistry which means you stick with regulations in some areas, divergent others, and reject regulations in other ways so we can diverge in certain industries. The e. U. Said that is not compatible with the integrity of the Single Market. It is the beginning of a negotiation. This is the u. K. s position. They spent eight hours yesterday hashing this out. The cabinet does seem to be saying this is a strategy that can keep both sides of theresa mays cabinet happy for now. The party at large is another question. We already have this week the letter from the European Research group, and next week we will hear more details. Mrs. May due to make a big speech. For now there does seem to be a compromise. Francine the Commission Says no. Does theresa may and her cabinet go to germany . Do the individual countries have influence on the commission . That is definitely part of the british strategy. There are various countries in the European Union that have more dependency than others. Of course the british are laying out their store with the different countries. Ultimately the negotiator is michel barnier. The European Parliament also is going to have a say. An important thing to watch for next week is what happens with the labour party. Were going to have a speech on monday from mr. Corbyn. Set out aoing to position that is more proCustoms Union. That is a clear wedge between the labor and the government. Exploitl be looking to what they say is a majority in parliament for a different deal. Hayward, how much of your time is spent talking about this and trying to answer the simple question, are we there yet . Are we where we should be . Im enormously pleased that theyve come to an agreement yesterday. It was quite striking this morning. The markets have responded in terms of Foreign Exchange. To the fact that the cabinet appears to have agreed. In the lords, we are in the middle of the withdrawal bill. Ofdebated it for any number hours. We didnt finish until tuesday into wednesday. The issues will be debated. Negotiation, of not only in brussels, but also within the house of lords. Francine we will come back to your involvement with george soros. I dont know if we do have a consensus. If the e. U. Rejects it straightaway, theyre going to find another compromise. How difficult is that going to be . It will be really interesting to see the shape of this compromise. It sounds to me like the three baskets is like cake, half a cake, and eat either of the above options. The commission has been clear in setting out its red lines. What we are campaigning for is to make sure that people in the country know that there is another option for us if people want it. 2019, we end of march are full members of the you of the e. U. This discussion about what kind of brexit we may have, it is really important to cut through that and say, towards the end of this year, there will be a choice to take. The real options are a version of leaving, and a version of the deal that we already have, which is very bespoke already. Francine is there a second referendum . Four out of five guests tell me if theres a second poll now, it is not going to be a different result. Do you say otherwise . It is very close and hard to say what the result would be. I think it depends on whether people that voted leave think they are getting what they were promised last time. It is certainly not dissimilar to where the polls were when we had the referendum, but i think one of the things to look at is, there is a sixpoint margin between people that think brexit was a bad idea, or that brexit was a good idea. We want to let people know across the country that theres still a chance to stay in if people want it. A lot of people think either weve already left or it is impossible to go back or it is not democratic to do that. We still have these democratic stages of the process. We think that if people know theres a decision point, perhaps we will get more momentum. The crucial figure is that over two thirds of people under 45 voted to stay in. The future of this country wants to stay in. Francine are people board of brexit . The public is, unfortunately. I sat on this program before the referendum and said we would vote to leave even though i may remain are. The polls are still fairly close. The definition of insanity is asking the same question twice and expecting a different answer the second time. Britain doesnt like unnecessary elections. Francine you could also argue that if you do have a second referendum, that it undermines the Prime Minister. Then you dont have the full legitimacy. In the back of everyones mind, they are saying, if we give them a hard deal, then they wont leave. Mrs. May has ruled out a second vote. She has a very shaky hold on power. She has a minority government. If there were to be a general election, that would be up for grabs as well. Thinking about what the public would vote is interesting. We talk about three baskets and Customs Unions. That doesnt filter through to the general population. We have to look to the data. We have the gdp numbers revised down. We are seeing britain at the bottom of the table for Economic Growth around europe. When we see the Economic Impact starting to take effect, then you might see some shift in the polls. We looked at the migration numbers and the data. Fewer people coming from the European Union to take jobs and wages creeping higher. That is what many people wanted to happen. There are conflicting signals and we have to see what the impact is on peoples lives. Francine very quickly, do you ever get criticized, and what is your response to someone who says you are delegitimizing the power of bargaining by offering people an option out . Absolutely not. I think it strengthens the governments position. They can say, unless we get a good deal, we might be forced to leave. The exit from brexit, if you like. Although it is the same question, the people giving the answer will be very different. We had 3 million more people registered to vote last year. 2 million of those were under 35. It is a different set of people answering that question. It is a totally different question when people think, if i voted brexit because i wanted to boost the nhs, and the nhs is on its knees the cause workers are things areen those going to be important. It is not the same context at all. Francine thank you. Eloise, our bureau chief, david merritt. Up next, he broke the bank of england. Now can he stop brexit . We speak to best of britains chief executive about their cash investment from george soros. This is bloomberg. Francine billionaire investor george the rose hit headlines earlier this month when the telegraph reported he was backing a bid to overturn brexit. He donated half a Million Pounds to a campaign founded by activist and businesswoman gina miller. The group is advertising to promote the benefits of e. U. Membership. Will it be enough to change Public Opinion . Still with us, david merritt, bloombergs youn London Bureau todd, and robert hayward. Is it a bust . What do you think would be the trigger to put the heartstrings of the u. K. Citizens in the e. U. . We want tohe things do is communicate with people that are in the middle. They are not hardcore levers, but theres a lot of people in the middle of the country that werent quite sure either way. Those are people we want to connect with. Thatnt to let them know there is this democratic process. If we want to change our minds, that would be possible. They can make their voices heard. That information is one of the big messages we want to get out the door. Francine lord hayward, when the process started, we had people saying they felt awkward saying we should rethink not going into brexit because they felt it would be undemocratic. Do people now speak up more . There is a process in the house of lords. We are a revising chamber. We will ask the questions. Then it goes back to the comments afterwards. There will be a full and complete debate. It is probably more remain in the lords that in the commons. What are the red lines . It hasnt really been worked out by a group of people. Different people have different elements of what they consider to be most important. As the debates go on, we will see what are important. I think the key votes wont come until easter or close after. We hear about whether theres a majority in the parliament with the commons for staying in a Customs Union. What is your sense of that . You cant stay in a Single Market and a Customs Union if you are voting to leave. I think theres general acceptance of that. Jeremy corbyn said he wanted to stay in a Customs Union, but hes not used the word the Customs Union. Francine does that make your life more difficult, that it is still unclear where the party leader is on the e. U. . They havent come down firmly on their position and we would like to see them being open to all options. One thing i would highlight is that you could say it is surprising that weve nudged towards remain in the polls, even just slightly, given the main Political Parties are currently advocating brexit. The messages arent getting out there. We need to get those messages out. You talked about the money we got from mr. Soros. We matched that without crowdfunding. We are really proud of those tens and 20s given by members of the country. Francine thank you for a fantastic debate. This is bloomberg. I will be back with tom keene. Francine up, up and away. Set 10 year yields are to climb for an eighth straight week. Upheaval at anbang. The Chinese Government takes control of the company. The u. K. Prime minister wins over her cabinet, but brussels does not agree with her strategy. This is bloomberg surveillance and i am Francine Lacqua in london. Tom keene is in new york. It has been quite a week. We look at inflation, the fomc, and of course, treasury yields. Tom as you mentioned, we are looking at the weekly games. Really, one of the themes here with david bloom and others on surveillance this morning is Economic Growth. That seems to be something pushed aside, something we can review through surveillance today. Francine we certainly will, but first, here is taylor riggs. Gathered her most is senior colleagues to get backing for her negotiating position on trade talks. She got an agreement that the eu said it will not accept. Tells bloomberg that Trump Administration policies will raise wages without causing broader inflation. Longterm treasury yields have risen recently. In part, that is due to concerns that the bigger budget deficit will fuel inflation. And in florida, Authorities Say the only armed sheriff deputy at the school where 17 people were killed took cover and set of going after the attacker. The deputy has resigned after being suspended. And the sheriff says is office received two dozen calls about the suspect over the decade, but they did not forward up. Did not followup. Anbang has been seized whether Chinese Government, allowing china to protect thousands of citizens who fueled the meteoric rise. The company owns waldorfastoria. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Riggs and this is bloomberg. Check nowe do a data equities, bonds, currencies and commodities. I want to touch on the eu news. Dow futures up 115 now. Oil i note, really quite stable. As get through this quick and look through the eu numbers. The vix, 15. 50. Ld, 3. 18 . Yie francine i see a market that has not decided where it wants to go next. The bond yields are dropping and that sums it up. If you look at the european 600, they were down one hour ago and now they are up, gaining some 2 . My also see a little bit of Economic Data with Rising Consumer prices. It is not really raising currency because it is in line with what was expected. Weinberg will join us for a global view on inflation. Francine mentioned the bond market. I have not looked at this chart in a couple days. This is the price of the 30 year bond with some real stability over the last eight months. Down we go and this is just beyond elegant. On trendteach a course and the trend is for higher yields and lower prices. This week, as you said in your opening, we continue that trend as well. This is an elegant chart of lower bond prices. Youcine tom, i will match your terminal with my bloomberg screen. We will put both on social media. You can kind of see the curve collapsing and it is a very simple spread between the 30 and fiveyear treasury spread. We will talk a lot about treasuries today and we have one special guest as the u. S. Dollar hovers near the highest level since 2014. We continue to look at how the move is changing the landscape across asset classes. Joining us now is david bloom, the global head of currency strategy at hsbc. Thank you so much. David yes francine now, is the sale back on your end . What is going on with treasuries . David it is a big puzzle with the Foreign Exchange market why are yields going up across the United States . Why is it that the fed wants to raise rates and the dollar looks so soggy . What is going on . Whats that correlation broken down. Why do the countries that need capital, why do some of them do quite well when capital is rising. That is the big puzzle most people think exists in foreignexchange. Have you for an hour, so we can discuss whatever we want, but on the fed, does the dollar weakened from here and if it does, does that mean the fed needs to hike more because it is loosening financial conditions . You would need something cataclysmic for that to happen. You must remember, the u. S. Was a giant closed economy that does most of its business with itself financially, unlike the u. K. , which is a mediumsized open openmy, or some small economies like switzerland. The fed will not respond to the 2014r, but it did in because the dollar to go up 25 . The dollar will go down a little bit, but it is not a bear market for the dollar, no. Tom the focus of everyones weekend reading are the higher yields per field. When i look at hsbc economics, it is so open, honest and transparent. Are you and a steve on speaking terms . Hes got an outlier low rate call . Has he amended that . Yourave you had to mend Foreign Exchange calls because of the new higher yield paradigm . Those thate honest, are better are buried in my back garden because they are being sunk. , butyields have picked up where we looking for a pickup and yields during the First Quarter . Yes. Yes, our pay is 25 basis points outofcourt. But is there going to be global inflation . No, there is not. You will get smashed again. January andevery february the rates will go up. It does not transpire that way. We will not get a global spread. The swedish numbers were below expectations. A lot of numbers were below expectations. Retail sales are slowing down across the world and automatic stabilizers kick in. Higher bond yields. Stocks are crashing growth and as that happens, yields start moving down again. We have not moved away from it. But now that it is not going its ne way, it does buy me a cup of coffee. Francine this is the number one topic for weekend reading on global wall street. Is the yield moves for real and the ages bc study, whether it is right or wrong, sixmonth out it is a mystery about who we are and where we are going to be. Francine it then spread to the vix and then equities. It did not really touch currencies. Will you see the cataclysmic, or whatever you want to call it, the panic in the markets at some point and what would be the reason for that . David it actually started off with 10 year treasury yields rising and then the bloomberg index, and then the vix. It has moved a little bit with the foreignexchange, but the rules of foreignexchange have been that when yields go up, a currency does well. That got established in the lower inflation environment in that is why i brought up at the beginning of the show, yes, the number one topic is bond yields, but what does this mean for equities and the foreignexchange. Why is the dollar not rallying if yields are going up . What is going on here . Francine what is going on . Count the balancing forces we have political, cyclical and a structural forces. The Political Forces are stronger for the dollar. Secretarye treasury saying a weaker dollar is good for the United States, you get the u. S. Having a big fiscal thinking,d you are will they have a countercyclical fiscal policy. So, there were the negatives and the positives. The dollar is an upward force. The other night, the fed says, we are thinking the economy is a bit stronger. But it is not all over. There are forces in both directions. The fed was not going to raise rates. But that is not so. Tom david bloom with us from hsbc with some enthusiasm to get briefed on a friday morning. We continue that conversation. Speaking with you on friday, Carol Weinberg will join us. Us, paul weinberg. Watch on the global wall street. Taylor this is bloomberg surveillance and i am taylor riggs. The royal bank of scotland has posted the first fullyear profit in a decade, but not much celebrating is going on. Rbs still has not settled the u. S. Investigation into mortgage recoverings and until that deal is done, they cannot sell the British Government the majority stake. She has agreed to sell the Insurance Business, the prize, 4. 5 billion. It includes a 20 stake in phoenix standard life. Aberdeen wants to focus on life management. Jay powell is talking to Goldman Sachs about returning to the firm and that is according to the wall street journal. Powell said she is looking at a more global role if he comes back. That is your Bloomberg Business flash. Francine thank you, taylor. Taken control of anbang, prosecuting the chairman for fraud. Cemented the politically connected dealmaker whose aggressive Global Expansion came to symbolize the financial overreach of china as environment. Joining us is edna curran. Good morning. How significant is this move by the chinese regulators . Good morning. I think it is quite significant money levels. On the other hand, there was risks. Al and the wider economy. And opec ownership. There could be a red flag there for any regulator. The other hand contains the political economy side of it. It just drives home how much control they have on the chinese economy and how they do not plan to protect us from that. And of course, higher enterprise, if they do go on the foreign adventures they have to of theerve the needs nation. It is quite a significant move today. Francine what does this mean eq what does this tell us about the result of the chinese authorities to really crackdown. Yes, as somebody put it today, it is almost a symbolic downfall. As you pointed out, the assets are part of the Chinese Program abroad. I think these dow are sending the signal that there is plenty more to go. If you are working on enterprises, you cannot be working with your own jollies. I think the message for the world is, when you do business with china you are doing business with them on your own terms. Tom nobody is surprised by this. S has been hughley suspect this has been hugely suspect from day one. Compounded with the recent arrest as well. There will be the destruction of these companies and how will that process occur in china . How will they write it down . Do they take it into a government run shell . How would you approach this, using the banking process from the western world . Indications are, tom that they will take over by buying businesses for one year at least. The regulators, all of the regulators have got into this the fed and the hsbc, you name it, they will all have some part of the capital. I think a lot of this will play out on the global stage as well. You might see highprofile assets from new york and other parts of america. Edna, i feel like it is the morning after bernie made off when everybody said, who wanted this disaster . Who are the orators of these companies . Reporter there is a significant degree of opaqueness here and the lack of transparency. Without the encouragement by the state, we are seeing that fall from the government. I think part of it is because the government themselves are not confident in the financing behind these companies, what the ownership structures are and the like. And that is why they have crossed a red line. And we are seeing this squeeze on the company and the chairman from anbang. The conglomerates are also under scrutiny right now. Francine enda, thank you. Still with us, david bloom from hsbc. David, is there a read across from this story . The chinesey, authorities are really serious about cracking down on these things. And therefore, it means it will be a healthier and more stable economy and therefore, impacts the economy. If you go back six to nine months, people were worried about the chinese growth. And today, nobody is worried about it at all. That is a very positive environment. Most people think it is constructive to deal with a problem that exists. Is taking itsbi own way. This is a more volatile currency. There has been strength since the beginning of this year. Our forecast now is 620. We are now looking at dollar weakness and renminbi strength. I think china is moving along very nicely. We have seen 6 to 7 growth, which we would love to have such a thing in the u. K. Things have been reasonably well, which is a very good environment. Tom lets go back david bloom, too much to talk about. He is with hsbc. Coming up, an important conversation regarding policy in washington, all the emotion from florida abd gybs, florida and gun. Today. The 98 00 hour stay with us. This is bloomberg. Francine this is bloomberg surveillance and today we focus on currency with tom and francine in london. We talk about treasuries, we talk about the euroyen. We also have questions coming through from david bloom at hsbc. This viewer, thank you for watching and please continue watching us and sending in your questions is asking, is david part of the trump protectionism . David yes, part of it is. Francine which part . David i am saying, you mentioned a situation that would cause the dollar to fall. I might be correct in saying, you have a surplus in the United States and you are intervening by 3 of gdp, but why intervene to keep your currency weak . Thats not fair. Dont do it. So, then people back off and the dollar weakens. That is one part of the political side of the weakening dollar. Then you have the structural side with the current account theicit weakening dollar. Then you have the 10 year treasuries going up and that is stabilizing the dollar. It is a slippery slope for the dollar, but not a bear market. Tom there are correlations, david bloom, and then they break. Right now they are breaking violently and the dollaryen is compared to the Interest Rate market. The president s election in 2 016, a massive correlation of dollaryen. Move up inhere is a the 10 year yield and david bloom, down we go on the strong yen. How ugly is this for beginners, for mr. Kuroda . Both ofhis brings in our favorite subjects. The most important reading of the weekend is about the bond market, but also how it relates to the fx market. The correlation has broken down and we have been trading on it. New ande is Something Different going on, that is for sure. That is what i was pointing out, these correlations are breaking down. I think people are worried that the japanese will walk away from the policy of anchoring the 10 year bond at 0 . When we see anybody becoming an moving, in other words, away from the policy, Something Else is going on, that is for sure. Francine ok, but does it go back to the way it used to be, or does it break away . Think it breaks away. There is a specific time in the 10 year yield where japan has anchored it to 0 . I remember the day when we woke up and it was. David people got destroyed. This is happening in slowly here than switzerland. It is not a day, but the market is coming to terms growth has been reasonable in japan with the most safe haven currency. Abenomics has failed and the dollaryen needs to go back to the 1. 05 level. Francine david bloom stays with us. Also a conversation with the managing director. We also talk about the political side of brexit. Also, david bloom, making him a beautiful europound chart. We look at that and it has been moving sideways for quite some time, a couple months at least. What comes next . We ask that question and many more. This is bloomberg. Good morning, everyone. Francine lacqua in london. I am tom keene in new york. Here is taylor riggs. Taylor special Counsel Robert Mueller is ramping up the legal pressure against Paul Manafort. Freshr has now filed fraud and tax charges against him. Rick gates was also charged. They indicate plea negotiations would not work. Have not worked. Biggest package of sanctions against north korea according to reuters, which sites a senior government official. President trump is expected to talk about the sanctions in a speech today to a conservative congress. James mattis is warning against broader tariffs on steel and aluminum. He is calling for targeted tariffs and says broader action could antagonize u. S. Allies. South korea, germany, and canada are among the Biggest Forces sources of imported steel. In australia, Barnaby Joyce has quit over a sexed scandal. Joyce has been having a next her merit all fail extramarital affair. Global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Francine thank you so much. Mayon to brexit and theresa held an eight hour brexit session with top ministers yesterday in an attempt to win unanimous backing for her e. U. Divorce plan. Pricing in an 84 up from 51 earlier this month. Joining us, sony kapoor and still with us on fx, david bloom. Sony, welcome to the program. David, thank you for sticking around. Brexit, this is like a massive troll from the brussels the commission. Our even before they stop meeting at checkers, the Commission Already started tweeting out your proposals are no good for us. Sony one of the two negotiating parties has to be the in a the adult in the room and thus far, the commission has been the only one. Francine they have just been saying no to everything. Sony they have been very clear right from the onset what the negotiating position was unlike the u. K. , which has an actually had one or has been everywhere. I think this is so important because the European Commission is not just speaking to the Prime Minister in the cabinet, but the u. K. Parliament and u. K. Public and u. K. Businesses, the confederation for british industry, the whole of the u. K. And that is the right message to send. Francine what i dont understand is we are hearing messages from germany, possibly france, maybe less from germany that they are happy or they would consider giving the u. K. And easier deal, right . Four try to win them back and the commission is saying blanket no, no, no. Who is in charge . Sony the commission is the only one that has negotiating power by the other 27 member states. Its not just one particular politician in one party in france or germany that will decide the fate of the u. K. And there have been many false rumors before. Her member when the German Confederation of Automotive Industry was going to save the u. K. s neck and they came out immediately and said they would do no such thing . If manynot be surprised of these added up to absolutely nothing and it is the commissions consensus position which is more hardline and will be the actually go shooting position the u. K. Will have to accept. Tom sony, good morning. I believe we wander into march of 2018 in a number of days. What is the urgency of 2019 for the e. U. . I dont see any. Dont they just sit on their hands and wait, wait, wait . Sony one can already see the signs of that as we go closer to the cliff. There are increasing signs of desperation from the u. K. We have been all over the place and you are right, its a completely asymmetric bargaining position not just in terms of the relative size of the economy, relative control on what the outcome will be, but as you said, the timing. It was the u. K. That pulled the trigger and said we are leaving in 2019 and the e. U. Closer we get to that date without any particular deal that is going to make economic sense, the more desperate we are going to become. You are very right in that. Of the e. U. Just needs to the e. U. Just needs to sit back and watch the u. K. Cavein on one redline after another. Tom what is the economic relative dynamics of these two efforts . What is the relative Economic Growth as we get to 2019 . David if you look at eurosterling, which i wanted to talk about, it has done absolutely nothing. Fx is saying show me the money, show me a deal. Show me something. Most people are still looking at cable, but we had a whole conversation about the dollar. Is renegotiating its position with the e. U. Lets look at sterling against europe and if you look at that, does it dishwater . It look like sterling was weakening, weakening, something happened and it strengthened and if you look at the charts in september, last year, has done nothing. Francine look at that. Lets bring it up. David if you look at the dotted line of eurosterling, it looks like it was creeping up in every thing was going horribly wrong. By september, we got traction and eurosterling settled down and since then, it has been in the toxic range of possibly getting foreignexchange this going on at checkers in the European Commission, show me the money. Lets see the deal. At the moment, the currency is going until weve got that, we are staying where we are and the whole world can go up and down. Sterling rising against the dollar as you see sterling rising against the dollar, the euro is rising equally against the dollar. Lets take the dollar out of it. Francine we will push this out on social media so you can look at a rather animated david Bloom Together with my charts that i painfully made for david. What kind of deal doesnt push your euro pound parity your a pound parity . David its going to get tough and when it gets tough, those people that are eurosterling sideways argan to get cold feet and its can look like there is no deal sideways, you are going to get cold feet and its going to look like there is no i think we can sterling could weaken from here. We havent quite got parity, but we have gotten up to the 95 in eurosterling. I think people are going to sweat before this is over. Tom if you look at the distinctions of europe, forget ortie a where they latvia germany, how does a country like the netherlands perceive the soap opera of political britain . Have had their versioner more modest of the soap opera. The political fragmentation in the netherlands over the past two or three election cycles has really gone to the extremes. They worry, but at the same time, them being dutch and responsible, they have started to prepare for a hard brexit. They are starting to look at hiring new customs agents. They are looking to expand capacity at rotterdam, their biggest port the biggest port in the whole of the e. U. And this whole idea that u. K. Has push, which is that we have liberal allies amongst the likes of sweden and the netherlands and central east European Countries that are different from lets say more protectionist france and germany, and that they would fight the u. K. s corner to get us the best possible deal. Anytime push has come to shove, anybody and everybody we could potentially count on from ireland, the netherlands, to france or germany has said no, we are part of the e. U. 27 and there is a united position. I think, again, despite what the dutch might want privately, they are a relatively small sized countries, the negotiating positions are clear, the red lines are clear and them teaming up with sweden no matter what they want to do for the u. K. , they will simply not be able to give us a better deal. The u. K. Will have to take what the European Commission is saying. Tom lets get the in trouble. . S hsbc going to move jobs david i think, yes. Tom i think it is fascinating. I was amazed at the vibrancy of london. You wonder what are people actually going to do into 2019. Francine there are still huge lobby groups from the parts of germany, milan, to try to attract talent. I dont know whether we want to get david bloom fire today. Lets not. David my lips will remain sealed. Francine are we going to see a lot more volatility on pound . I have a chart i will bring up in a second, but this i almost had it this talk and i will get you the. There it is. David again, you have gone to cable and when you look at eurosterling, youve got a completely different picture. Here we are capturing the dollar. With munchen mnuchin speaking, lets remove the dollar bit and look at eurosterling. As i said, dishwater going sideways. Andan look at the vix cable, but its the wrong currency when you talk about brexit. We are now focused on eurosterling. When cable francine what about trade weighted . Because of the dollar component, sterling is going up. We are negotiating with our biggest trading partner, the europeans, lets look at a currency against them. Why would we look at the dollar . Francine that is a call with conviction. We will be back with sony kapoor and david bloom. Bloombergn daybreak Europe America look for that interview this is bloomberg. Good morning, everyone. This is bloomberg surveillance. Ets talk about italy we are about 8 days away from the italian election and if we focus on what we know so far of course we know the regions thirdbiggest economy in the elections take place on march 4 towering debtns and Banking System potential stress points. Italy ambivalent relationship with the single currency. The leader of the eurosceptic leak has said the euro is a mistake in social and economic stay with us, sony kapoor and david bloom. Thank you for sticking around. I thought a lot of the parties if not all the parties backed away from challenging the euro. They are talking about the relationship between italy and germany, italy and brussels, but not the euro because theres overwhelming support for the euro in general. Sony the closer we have come to election date, the less extreme the eurosceptic positions have become across the board, which is interesting given that the problem the background to the italian election is that italian gdp per capita today is less than what it was in 1999 when it joined the eurozone and that captures the italian malaise in the background of why this will be an election about protest. Francine what is that mean for the market . Does it mean it hurts spreads . David the seminole moment for the euro was the French Election where you had the antieuropean candidates who looked like they could win. We are talking about holland earlier. Once that was over, we had completely changed the forecast for the euro and turned bullish. We had the italian election last year and hardly had the German Government and the euro is doing just fine. As far as politics in europe, its a switch off. As far as politics are concerned in the u. K. And europe, its a switch on and that is just Financial Markets for you. Tom i think what is so distinctive here is a rise of a desire to get things fixed and maybe we could call it delicately authoritarianism or maybe use a word from centuries ago, fascism. What is the desire you see in italy to return to a more authoritative democracy . That is, as you rightly pointed out, an underlying result of years of what is perceived to be extreme mismanagement of the economy. We see that tendency both on the left and the right and the tendency that matteo renzi had, for example, despite being a democrat and having been elected, to have a slightly authoritarian bent to his policymaking and perhaps which is why he is not a Prime Minister over more come he sort of overreached, but this is definitely this extreme longterm frustration amongst the italian electorate and businesses and across the community that some strongman is needed to come and fix italy once and for all. This also explains why douglas why hasmanaged managed year after year of attending to be a strongman and promising to fix italy to win the election and he might just do so again this time and his track record once in power has been the exact opposite. He hasnt actually enacted any substantial promises, but he has this deep desire that italy must be fixed after all these two decades of decline, is very strong in this election. Francine is euro positivity a little bit too shortterm . Lets say italy has a government that cant reform where unemployment is not fixed and even the ntls remain a problem and deficit goes up, will it not be really ugly in two or three years for now from now . Ity it doesnt david doesnt sharpen the currency. Its the unified currency of 27 countries. It could sharpen spreads and the equity market, but i dont think it shows up in the equity nobody is brave enough to be antieuropean. Spreade i have the between german and italian yields and i will push that out on social media. At what level does euro become harmful to the european economy . David thats a very good question. The euro is at the bottom of the value at the moment so i think it would have to go well above fair value, which on our calculations would be somewhere becomes40 where it harmful. A lot of people are forecasting it going down a long way before it went up a long way this year. Thats not really a forecast. Even if spreadsheet can do that. Poodlinghe eurozone sideways. September after last year, just saying this is bouncing around sideways for the moment. Francine thank you so much david bloom and sony kapoor for joining us. Coming up next, we have quite a lot going on. What i want to bring your attention to is tv. You can ask some very difficult and obscure questions to david bloom by clicking underneath the video screen and you consent tom and we will put it next to david bloom. This is bloomberg. Taylor this is bloomberg surveillance. I am taylor riggs. Pimco says its a good time to buy u. S. Government bonds. The manager these Interest Rate risk held back by inflation. Ns Asset Management says its time to go back on u. S. Debt. Theres a surprise at the top of the Consumer Reports annual car brand ranking in the u. S. It is hyundais new genesis line. It bumped audi from the top spot to number two. Never doubt the power of the kardashianjenner plan. Clan. Shares of snapchat fell after kylie jenner tweeted she did number she does not open the app anymore. That is your Bloomberg Business flash. Tom i was just crushed by that. Taylor i am sure you were, you snap all the time. Tom this pushed the news a in america yesterday. Kylie is doing the beauty thing why does she need to trash snap like that . She crushed it. Francine she did. It happens with you all the time. She just hadthink a baby. It was unclear to me looking at that tweet whether it was i no longer do snap because it is a nightmare and no one is on it, or if it is i have a newborn. That is a whole other story, lets get back to the market. Tom ok, if youtom want to. Lets talk about the South African rand. David bloom with us. It is South African rand dynamics all about the politics or can you say it has dynamics that have to do with any kind of recovery in commodities . David lets talk about cyclical structural and Political Forces in Foreign Exchange. This is a Political Force absolutely and completely. This is people being overwhelmingly positive on the big picture basis and that is what it has got to do with. Its nothing to do with the economy, structural aspect. This is people seeing politics how politics can affect the currency. When i was talking about the dollar, there is policy and cycle all mixed in and here it is just politics and people and the market is being it is overwhelmingly positive. Tom how do you play that if some but he wants to execute a bet on the future of south africa, whats the best way to play it . Is it dollar rand or euro rand or something more esoteric . David i think they shouldnt bet, they should invest. I just want to say that, tom. On that, the rand has moved such a long way, i not convinced there is much left in it at all. In fact, we see some francine what is the one thing you are looking out for . If you look at currencies and equities in emerging markets, a lot of them were driven by chipmakers and ai. Intothat not translate currencies . David i think the three things you need for em currencies is chinese growth, commodity market being positive, and the fed and stability Monetary Policy in the United States weve got at least two and three quarters. What happened was when equities went down 6. 5 , em held in and everyone said, if that cant smash em, as soon as equities stabilize, this is going to be delicious and as soon as equities stabilized, everybody rushed back in. People are confident em gives you a hard growth tom thank you so much, particularly those terse comments on pound sterling. In our next hour, we will continue the friday briefing, looking into the end of february and into the spring months. We are thrilled to bring you together, michael darda of mk m partners and Carl Weinberg of highfrequency economics will join us. Thrilled to have both of their perspectives where the real focus is michael darda and Carl Weinberg on the animal spirit of the nation on our nominal outlook. Please stay with us. Quieter markets this morning. From new york and from london, this is bloomberg. Tom this morning, after this markets,rge in yields they stabilize in this hour. Michael darda and Carl Weinberg on the economy, the animal spirit of america, and your nine year bull market. Plea is evidence that negotiations have failed. Mr. Mueller throws another book gates. Fort and 30 million is a lot of money to send to the laundry. In china, a cinematic implosion. Perhaps theres a hotel on park avenue up for sale. Good morning, this is bloomberg surveillance. We are live from our World Headquarters in new york. With me in london, Francine Lacqua. I thought and the current report enda curran report on china was wonderful and its not just about waldorfastoria, its about assets around the world. Francine it is. What we are trying to figure out and we have our morning must read on it is whether this is something china will continue to do or whether it is on one person and the and bank embank chief executive. Tom its a fascinating story, an important story overlaid on other chinese companies. Taylor u. S. Treasury secretary Steve Mnuchin is brushing aside signs investors are growing nervous about rising prices. Mnuchin tells bloomberg Trump Administration policies will raise wages without causing broader inflation. Longterm treasury yields have part recently part in due to budget concerns that will raise inflation. Deputy atrmed sheriff the school where 17 people were killed took cover when the shooting started instead of going after the attacker. The deputy has resigned after being suspended and the sheriff said his office received two dozen calls about the suspect over a decade that may not have followed up adequately. Pakistan is going to be placed on a Terror Financing monster list monitor list in june. Opposed tohina was putting pakistan on the list, but now it has relented. European union preempted the outcome of british Prime Minister theresa mays day long Brexit Strategy session. She gathered her senior colleagues together. She got an agreement that the e. U. And e. U. Already said it will not accept the plan. Global news 24 hours a day, powered by more 2700 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg though this is bloomberg. Tom set up a good hour of conversation with weinberg and darda. Down futures up 87. Not much else going on. We move onto the next screen with a little bit of curve flattening and the vix under the longterm average. 30 year bond, 3. 20 comes down to a large yield. That should be read on the screen. Red on the screen. Francine i am looking at stocks in europe a little bit moving sideways. Earlier on, they were a little bit lower, looking at what investors want to know, the outlook for Central Banks and whether it means they are normalizing policies. Bonds in the euro region gaining with treasuries while the dollar studying after thursday steadying after thursdays drop. this is what bloomberg surveillance is about, we want to bring in two mines. Two minds. Let me bring in up a chart right now, the 30 year bond and the price. Bigs way out, so its got a move versus the twoyear and a 10 year, but this is a pretty elegant chart. Michael darda, does this scream higher yield to come . Michael not necessarily. I think the situation in the bond market is this, Economic Growth has accelerated and now bond yields have moved back up to levels we havent seen since 2014. It shouldnt be surprising that the last time nominal and real growth rates were as strong as they were recently, bond yields were pushing 3 . This is an economic acceleration story. The call for higher yields from here, you have to be willing to bet this transition will sustain itself through the year and into next year. We think next year will be slower on the back of the lag effects of additional fed tightening. We are probably getting to the type top yet the of the range here. Tom michael darda doesnt look at this doesnt want to look at this model, so i am doing it with you. Fiscal stimulus and more fiscal stimulus. Do you link what washington has wrought into these higher yields and can they push higher . Carl fiscal stimulus at a time when we are already at full employment and already growing fast enough to keep the mployment rate going down you are telling us the market is looking for a little more inflation and they are convinced the fed is going to hike rates and they are pretty much convinced growth is going to continue for a while. Sorry to tell you this, probably there are higher yields coming in our future. Not necessarily a lot. Chief sullivan looks at past. Of fed tightening and so often, it doesnt have to be a big one, but right now you really want to look for reasons yields not to go higher. Are they going to go higher or not . Good morning, everyone. Carl, let me bring it over to you and i have a nice treasury chart. Where does the 10 year yield go from here . How quickly does it touch 3 and where does it go from there . Carl you do not have to be brave to talk about 3 . It certainly looks like its headed in that direction. How it gets to where it is going, its hard to know. What the actual path is going to be on a daytoday basis. I think we are headed in that direction and theres no part no point denying it. Francine what about you, michael . Michael i think those are very good points. On average throughout this recovery cycle, the spread between 10 year yield and nominal gdp growth has been about 140 basis points. We are basically right there, around 3 for a yield. Thinking about where we go from here is 2019 and 2020 likely to feature 4. 5 percent plus nominal gdp growth . I think we are going to be below 4 . Tom did you just say we were going to be below 4 for nominal . Michael for nominal. Of the reason i believe that if you have to build in productivity acceleration into the forecast to look for sustained stronger growth and much higher yields from here. We are thinking 3. 5 to 4 on the 10 year yield come i can see 4 without a return to old and there conditions is really no evidence productivity is picking up at this point. We had the strongest growth last year since 2014 and productivity was lousy, essentially zilch in q4. That looks like the new normal. Tom this is incredibly port rda says here. This is the italian nominal gdp per capita and this is the failure of the italian experience going back 12 years or so. Carl weinberg, that is the malaise everybody wants to avoid, including the United States. As we get a if we get a darda 5 animal growth process plus inflation, that doesnt get it done for the president or america, does it . Carl we have italy up on the screen and i think italy is an important subject, but italy is expending a lot of things we are not experiencing in the United States. I think maybe you are drawing a connection to a point that is not the right point for comparison on the u. S. I agree with mike, the productivity is the core to everything. For me, the core productivity is not so much on the growth side, but the inflation side. You listen to secretary mnuchin and he says we are going to see wages accelerate and that can happen without inflation. The only way that can happen is if labor costs dont go up and that means productivity is going to grow and if you get wage increases and not the productivity growth, then you get inflation and inflation is important because the feds mandate is all about inflation and not about growth, per se. Francine right. What if actually inflation were to go very fast up to 2. 5 percent . That u. S. Ncerned economy is overheating. Carl i think you have to be concerned about and inflation shock i dont want to say shock, that is overstating. Even if productivity goes up a lot, its not going to go up a lot in the next week or month or year and the laws of supply and demand are still operational in the job market. That is what our chief economist points out all the time. At some point, wages are going to have to start accelerating and it will pass through into prices. I think we are to see some acceleration of prices and we are seeing early signs of it now in the wage data. Unless you buy into this productivity story really big, it will be hard to avoid coming out with a forecast of inflation. Quickly, do you see investment by corporations or are they giving it all back to shareholders . Michael we are in the throes of a moderate Capital Spending upswing, but it has its roots in 2016. I dont think it has much to do with the recent tax legislation. This idea of much faster sustained productivity built on the back of the Corporate Tax reform is simply a theory. And this idea that we are already getting faster growth based on expectations of a tax cut recently past i think is really stretching the fact. Tom we have two wonderful guests and we will do what they want to talk about. We are hearing from darda and weinberg that they want to talk about the mystery and complexity of productivity in america. We will do that in a bit. On policy, Libby Cantrill of pimco. Speak with her later today on washington and policy amid trillion dollar deficit. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance. I am taylor riggs. Royal bank of scotland posted its first fullyear profit in a decade, but there is not much celebrating going on. Rbs still hasnt settled the u. S. Justice Department Investigation into mortgage securities. Until the is a deal, they cannot return dividends to help sell the British Governments majority stake. Aberdeen has agreed to sell its Insurance Business to phoenix group. The price, 4. 5 billion. Part of the price is a 20 stake in phoenix. They want to focus on Asset Management. Hackers from north korea are going after one of the few Foreign Companies willing to work with kim jonguns regime are you according to people familiar with the matter, they targeted computers and egypt, telecom, media, and technology. Helped build north koreas communications network. That is your Bloomberg Business flash. Francine thank you so much. China has taken control of anbang, prosecuting the chairman for fraud. Of move cements the downfall a politically connected dealmaker with an aggressive Global Expansion strategy. Our morning must read comes from bloomberg gadflys and says by taking control of anbang, authorities reinforce the message that president gigi ping president gigi ping xi jin michael darda of mkm partners and Carl Weinberg of High Frequency economics still with us. Does the move actually show real resolve and determination from the authorities of china to get a grip on debt . Michael i missed the very first part, if you wouldnt mind reframing for me or carl can pick up. Francine carl, we are talking about china, anbang, this is allegedly a, but does it show the chinese authorities really want to crack down on the debt and how they manage it seems to be with much more resolve that we were thinking five or six months ago . Carl this is a pretty bold move and politically it is even bolder than economically. Compared to the size of the economy, its not all of the economy. President xi has made it clear he is not going to tolerate corruption or even the slightest hint of it. To remain in the government and in a formal position to deal with enforcement and Party Discipline is all part of the same story. I think they are looking at one aspect of chinese policy to be to rope in corruption and make the Playing Field more level, but that is only one part of a really big picture. Tom the heart of the story and i guess we are affected by park avenue and a small hotel they picked up for almost 2 million. Michael darda, you have written on this for almost two years, we are awash in money whether its private equity, capital venture, the world is floating on money right now. Wind is that end, when does that end, if ever . Michael you can define liquidity in any way in many ways. You are not getting high nominal growth and high inflation. This is very much the opposite of what the environment looked like say in the 1970s for example. We have to be a little bit careful with definitions. When does that change . As economies emerge from swamps and policies start to change. The u. S. Is in the forefront of that. We essentially returned to full employment and the fed is more confident reaching inflation goals so they are taking down the Balance Sheet and shortterm Interest Rates and that is a process that will continue to unfold through the balance of this year and probably into next. Tom your colleague sullivan has a more optimistic view three how does this system taken all that money as witnessed by the chinese with all that money . Is a biggerk this story than the United States. Globally, we have qe in japan come in europe, we have had it in the united dates and the Balance Sheet position is large. You print all that money and there will obviously be excesses out there. Thanks are a wash banks are awash with reserves. This is what you expect after easy monetary conditions for a long time. Tom what is the history on how that outcome occurs besides banks Building Size gravers skyscrapers . Carl theres going to be excessive investment and everything we have said that is wrong about keeping Interest Rates too low for too long and overpumping the monetary system. This is the 10 Year Anniversary of the Global Financial crisis. We got into this position for a reason and the alternative to that reason would have been a huge financial crash a decade ago that wouldve left us a lot worse off now than we actually are. I think we are ok compared to where we could have a management problem to rope it back in. Europe hasnt started and will not start for a while. Japan has showed signs of starting to rope it back in. We will see more of these excesses and big leverage exceptions. Tom we will continue to do data checks along the way. On bloomberg daybreak this morning, mr. Fallon, pearson chief executive officer with some real challenges in parts of their business, john fallon with an update in the 8 00 hour. This is bloomberg. Francine this is bloomberg surveillance with tom and francine from london and new york. We have another speech coming from theresa may that is due in exactly seven days from now. We heard theresa may will outline her Brexit Strategy in a speech on march 2. This is after she had a massive brainstorm yesterday that lasted eight hours. It seems the fault lines are now a little bit clearer ereader cabinet is together and i have a threepoint plan of what they want to ask of europe, including having some of the blocks regulations on a regulatory basis with key sectors such as car making. Something it seems the commission has already refused. It will be interesting to see how she positions herself and as possible no from the Commission Next friday. Tom let me do a morning must read on washington from our wonderful timothy obrien, an expert on the president s past and finances. Mr. Trump also lays bare the tragic comic path a president usually follows toward any policy position, how easily swayed he is by the last person he speaks with. Arming teachers would violate a 1990 federal law that designates School Campuses as gun free zones. It is quite an essay from tim obrien this morning. Kevin cirilli, this is completely consumed has completely consumed in the nation. Our french teachers teachers going to return the fire in our schools . Kevin i think the administration has since backed off the president s original proposing to arm teachers and administrators. Now they are saying maybe providing bonuses or whatnot. I think the crux of the potential done reform we could see as early as next week when lawmakers return from congress is lifting the age of being able to purchase a firearm from 18 to 21, increase funds to provide mental background checks, and bolstering the background check system. Anything else is really just fodder for the nra. Tom the news flow is so extraordinary. Our general mcmaster and general kelly going to survive the weekend . Kevin i think theres a lot of tension between them and to be honest, its quite surprising from where we were a year ago simply because the military folks in the administration were very much in on the same page and now it seems theres distance between general mcmaster and general kelly and that there has been for quite some time and senior members and outgoing members and folks who have just left have quite frankly had to a line between the two camps. Francine who does the president support . I think the now tension between general kelly and trump has largely dissipated. We have all seen in the past how sometimes the president turns his attention to other folks, francine. The news of the additional indictment yesterday against his former Campaign Chairman Paul Manafort as well as rick gates as deputy, Paul Manaforts number two, it all leads to this continual notion that this is just going to continue to be a shadow for them. Yesterday, Vice President mike and theeaking at cpac head of the nra. President trump will be there today. I am hearing its largely going to be a Campaign Style speech. Tom thank you for the update. He is our chief washington correspondent. We continue with Carl Weinberg and michael darda. Stay with us, worldwide. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Show me the olympic winter games leaving every competitor, threat and challenge outmaneuvered. Like ive never seen before. Xfinity x1, yeah, i always know the scor. Triple corks in 4k. Lookin so sick. Stream live on every screen, every win, every trick. 2000 hours of coverage, get your mind blown. 50 olympic channels, yup, youre in the zone. And if theres something that you want to see, pick up that voice remote and just say show me. Experience nbcuniversals coverage of the olympic winter games like never before with xfinity. Proud partner of team usa. Tom i am tom keene in new york, Francine Lacqua in london. With us are Carl Weinberg and michael darda. Right now, here is taylor riggs. Taylor special Counsel Robert Mueller is ramping up the pressure against the former Campaign Chairman Paul Manafort. He filed fresh tax and charges. The new charges appear to indicate that plea negotiations have not worked. The u. S. Plans to announce what is said to be the biggest package of sanctions yet against north korea, according to reuters which cites a senior government official. President trump is expected to talk about the sanctions in a speech today. U. S. Defense secretary james mattis is warning against tariffs on steel and aluminum. He says broader action could antagonize u. S. Allies. South korea, germany, and canada are among the biggest sources of imported steel. In australia, the deputy Prime Minister quit over a sex scandal. He has been having an german marital affair with his former Media Advisor that led to allegations he breached ministerial guidelines. 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. The u. K. Prime minister theresa may held an eight hour brexit session with her top ministers yesterday to win unanimous backing for hurt e. U. Divorce plan hurt e. U. Divorce plan. Of the bankbility of england rate hike in may, up from 50 earlier this month. Carl weinberg says the boe will not be hiking again this year. Michael darda a is also still with us. Carl, you believe this is baloney, they will not be able to hike. And the economy is slowing we saw that most obviously in the gdp number. Retail sales are weak. Wages are dead flat. I all indications, the u. K. Economy is in a slow down. Credit growth is slowing. What is the rationale for hiking rates in an economy where inflation is temporarily above target, but headed back to target this summer, where wages are pretty well behaved or accelerating . The only argument i can see is on the labor market right, the Unemployment Rate is very low. As long as the market is open to immigration, the market can tighten up. I think the course they will choose will be in the face of uncertainty, to do as little harm as possible, and wait and see what happens. Francine the outlier call that you have would go against the idea that they need tools to deal with the downturn, or something ugly happens with brexit. Do they not need a toolbox, and the only way to replenish it is by hiking . Carl they had their opportunity to do that and the perfect pretext last year, when retail sales were still growing at 6 , 7 in volume. The economy was unambiguously strong even though there was no inflation. That was the time to rebuild the room for maneuver, but not now. The hundred 99 days away from brexit, this is not the time to squeeze the economy. Tom lets do a counterfactual on the United Kingdom. Michael darda, what would jude winning ski say about this odd political economics known as the United Kingdom . How do you get a supply side pop . Michael i do not think you will, at least in the foreseeable future. He would probably characterize brexit is a supplyside shock. If you make the movement of goods, services, capital, people more difficult, that will reduce efficiency. That lowers productivity. If you are lowering productive potential overtime, you have a less favorable tradeoff between nominal and real gdp. Tom the probrexit people, not that i am expert, they are going to build a new british empire. Michael if you want to dig into the political roots, it is a reaction to a deep slump, a slow recovery, and concerns and fears over immigration and terrorism. That has created xenophobia and that is where the political roots are. I am not a political scientist. Tom that is why you are on the show. Francine i just want to go back to some of your thoughts on the bank of england. If the bank of england has continuously told the market they are hiking, and now it is almost fully priced in. Can they not hike if it is priced in . Or do they lose credibility . Carl lets talk about the bank of england. Was it two years ago or three years ago that mark carney told them that the times of raising Interest Rates is growing nearer . We get a lot of tough rhetoric out of the bank of england, but not a lot of action. Kristin forbes, in her going away speech, talked about why the bank of england was unable to consummate the rate hike it has been talking about. The governors strategy is to keep us on the seat of our chair edge of our chair, all the time worrying that rates will be higher and he does not want us to commit to longterm credit positions. In terms of actually delivering, the bank has been short in that department and i suspect we will continue to see them finding reasons to fall short. Francine at the same time, last time this happened he was called the unreliable boyfriend. Who wants to be called that again . Carl in canada, we saw the same thing, a persistent inclination to state the obvious in a way that spins it in a way that is negative for Interest Rates. The time will come soon for Interest Rates that will have to go up, but not necessarily at the march meeting. Tom i guess we could fold it over, we still have the central Bank Experience going on. Is that the ultimate shock of march 21 . Chairman powell will come out and change the dialogue on what written does, what europe does, what japan does, and what we do . I would say highly unlikely. He was essentially selected because he was basically the safest, nine yellen sort of yellenesque choice. Unexpected, dramatic uturn or policy pronouncement would be surprising. Tom lets come back on the u. S. Economy, some of the dynamics. Michael darda is five goals focused on gdp and Carl Weinberg is focused on all going on in washington. Do not forget, bloomberg daybreak on radio, bob moon and karen moskow coasttocoast. This is bloomberg. Taylor this is bloomberg surveillance. There is a surprise at the top of the Consumer Reports annual car rankings. It is hyundais genesis line. And bmw, lexus, and porsche round out the top five. General mills is adding natural dog food. They have agreed to buy blue buffalo pet products for about eight alien dollars. Whichts have beens have faster sales growth in the mainstream brands. That is your Bloomberg Business flash. That is for your dog. Tom the beast eats the fancy stuff. Buried in the press release is the idea of early innings. This really shows the desperation of the Food Companies to get out front and buy organic. General mills already, and i was surprised they went after blue buffalo, which is such a new and young enterprise. That is someone to watch, the desperation and change in the food business. Taylor back in 2016, they bought annies, and there has been a shift where the sugary cereal sales are climbing. Tom you do not just do it with bottles of water. Thank you. Right now, michael darda and Carl Weinberg, i want to do a lengthy conversation on what is going on with the pulse of our economy. It is a good friday briefing. Here is the chart, i call this the darda chart. Nominal gdp back 20 years, this is what it used to be and this is what it has been off the crisis. Everybody wants to get back to that greenline. I will put this chart out for radio london on twitter. How will we get back to the greenline . Michael unfortunately, i think getting back to the green line at this point would have to imply sustained, faster growth and economic potential. So productivity plus the labor force growth. If you are below the level of potential, you can grow faster than that for a while. That was the story through most of the economic expansion. If essentially the labor market labor market is healed and outlook is closed, nominal gdp, wel growth plus inflation, have to ask ourselves is there a significant productivity pick up in the cards . There is no evidence of it yet. Some are quite hopeful the recent Corporate Tax bill will catalyze much faster productivity growth. Tom but this is critical. Within michaels wonderful analysis, there is no discussion of population, and to me, back here, big boom. Immigration, body count up in america, and now less so over here. Carl baby boomers and their prime, you forgot to mention that. The big challenge for productivity, it has to keep up with the aging baby boomers. They are not all like you and continuing to work into their golden years. Tom i do not have a choice. I am on a tuition plan. Carl i have a twoyearold. Most baby boomers are retiring and this gives productivity and next hurdle to overcome. The productivity growth we had back then, we will not get the same gdp growth as before, and this is not just the United States. It plays a windfall when we look at the u. K. Or germany. When people are going, they are growing. Tom i just got a message from a viewer that says, why dont you have a twoyearold . Francine i am not possibly going to comment. Tom i am not going to go there. Francine michael, when you look at productivity, are we measuring it wrong . We have been talking about this for years, but there are new studies done by the bank of england and the chancellor in the u. K. That say if you look at regulations and some of these new economies, they have a huge role in this. Productivity is puzzling, but not as bad as we think it is. Any truth in that . Michael there could be some truth in that. That is been part of an ongoing debate, but the reality is the slow growth rates we have seen during this Business Cycle upswing in the u. S. Have still been sufficient to tighten the labor market. So by definition, you are growing faster than the growth rate of potential, so whether it is temporary or permanent, it has been slower than in the past. Youre working age population now is much slower in terms of growth rate. At least it is positive in the u. S. , which is not the case in parts of europe and japan, but not the 1 to 2 that was the old normal. It is about. 5 per annum at best year it the overall growth. Ate potential will be slower this idea of 3 to 4 sustained real growth is simply not in the cards. Francine do you go back to looking at the phillips curve in 2018, or is that a 2019 story or a never story . Carl go back to where . Francine phillips curve. Carl i think right now it is in kind of a funny place, but we still believe in the phillips curve and High Frequency economics. We are looking at a different kind of labor market than we have seen before, so maybe we have a little bit of a shift of the phillips curve going on with different kinds of participants and the labor force, with the millennial generation being part of a gig economy. And baby boomers and women, the workforce is changing. The theory is still a good one and if we do not keep creating jobs at this rate, we will run out of work. Thatwe have Central Banks through 10 years of courage have adapted to the cards that were dealt. This subpart, economy, potential gdp down. Is the price of that the market tumult we saw 10 days ago . Michael there is still a debate about what triggered that, but in my opinion it was associated with stock market valuations running up the cycle highs, almost 20 multiple on forward earnings which have been growing pretty quickly, and then this move up in long range that we started to show with. All things equal, higher discount rates will lower stock market valuations, and that was not happening and then it started to happen suddenly. Tom is there more suddenly to come . Michael long rates are still basically up there at four year highs, and the equity market alterable has recovered a good chunk of what it lost, so there could be more volatility. Tom i look at the flow of data. What data point does the market care about into march . It is not just another jobs report, that does not do it. Is it inflation . What will we focus on . Carl i do not think it will be a data point. The trends in the data are clear now, and surprises will happen, but will not drive the market. It is up to chairman powell to set the tone of a gradual transition, continuation of policies as they are. What scares the market is the possibility that we get a surprise out of the fed, a sudden acceleration is their pace of tightening, and that is probably not in the cards but the market has to hear it. Tom it was important when Governor Carney set the tone. I think people are looking for another smooth transition as perhaps we got from Governor Carney. Francine on mark carney, i think a lot of markets are positioned say, even if we do not have a big conviction of a rate hike at the moment, they are following the boe at face value because they are saying they will hike rates this year. Tom thrilled to have Carl Weinberg and michael darda with us to prepare for thinking about where we are in economics, finance, and investment. You are at your desk watching tv. Far more importantly, on the right side of the screen, you get to take michael darda to your 11 00 a. M. Briefing. You click on the puppy, you bring it up, and there is the darda chart on year over year nominal gdp. You can go animal spirit with tv. Tom welcome to bloomberg. Doom and gloom with francine in london, tom in new york. It has been gloomy talking about the future of the american economy. Single best chart with michael darda, and Carl Weinberg, the most optimistic chart. Jobless claims adjusted for employee, there is no other choice like this. I am going to suggest nobody saw this coming. Here we are the 1990s. Carl weinberg, it is a fully employed america when you look at that chart. Carl unambiguously. Joined fiveullivan years ago, he said the most important indicator was jobless claims. In this episode, jobless claims is the whole story. No need to waiver your view. Just follow your jobless claims. Jim says, they get stronger, the economy gets stronger. Tom how can this be, given the opioid crisis, the malaise in america, the reason the president got elected, how can that chart exist . Ichael we are recovering it has been a slow recovery from a deep downturn, but the recovery is complete in many ways. Are a fantastic indicator, a leading indicator of the labor market and the Business Cycle. If you take that chart and smooth it out with the quarterly average, and look at the yearoveryear change, you will have almost a perfect, slightly leading variable of economic downturns. Anything more than 13 to 15 yearoveryear is now smooth quarterly. That has been a signal of a Business Cycle peak, on average about one quarter from a cycle peak. This is a powerful indicator that is still sometimes overlooked. Francine where does dollar go from here . Michael that is a tough one. I will go with the trends. To down, but it is a guest. I have not found a model that can predict currencies very well , and we have seen a big surprise. This is an interesting situation with Economic Growth picking up in the fed continuing to tighten Monetary Policy while other Central Banks are not. With a strange, pro cyclical easing of policy that is virtually unprecedented, to see the dollar falling like this. , the theory is expect the unexpected. Tom here is a chart, a gorgeous chart, and it is way elegant. The bloomberg dollar index with a massive downturn. Can we break that and get the strong dollar policy secretary mnuchin do myers desires . Carl beats me. Tom tv is not working, folks. Was dead wrong i about the currency. Everything should be supporting the dollar now. We have growth, a fed that is tightening, a strong stock market, attractive conditions for investors, qe in europe driving money to the u. S. We seeing this in the dollar . I do not have a next but nation. The dollar explanation. The dollar should get stronger, but i will not bet on it. Francine who do you think will be vice chair of the fed . Place,e is a hawk put in does that do for market psychology . Only speculate, so i will take a pass on that question. You keep asking me questions i cannot answer. I do not know if i will get invited back. Tom thank you so much, gentlemen. Michael darda a with mkm partners and Carl Weinberg with High Frequency economics. Data check now, i think i have a forex report coming up. A number of dollar opinions from david bloom of hsbc. Euroswissie under 115 as a renewed modest about of the swiss franc. On the data front, i am watching bonds more than anything. 3. 18, and a solace basis point solid basis point. The president speech president s near speech your the 10 00 a. M. Hour. ,lix the 315 billion blowup china takes control of anbang insurance group, the largest takeover of a private company ever. The secretary of treasury says you can have inflation snoozer, japan inflation stays below 1 , eurozone inflation stuck below one. David welcome to bloomberg bloombergi am daybreak, i am david westin. Alix we are about to run a half hours to the cash open. Deputies equity futures, just hire, but it is all about selling it to the close. The dollar is broadly stronger against all g10 currencies. By treasuries, that has been the theme over the last couple of days since bond options did not