Erik new reports see Political Risk everywhere in 2017. Experts assess the hotspots. We are seeing the forces of gradual slow motion integration. When way the chinese could retaliate is going after American Companies. Erik ceos talk tech at the Consumer Electronics show. This is a year of dramatic change in industry structure. We have gone from Company Consolidation to industry consolidation. Erik that is all head on bloomberg best. Erik hello and welcome. I am erik schatzker. This is bloomberg best. Your weekly review of Business News and television from around the world. The week began quietly with most Global Markets closed for the new years holiday. The calm was disrupted on tuesday by a donald trump tweet. Donald trump criticized the automaker for building a plant in mexico. He said, make it in usa or pay a big border tax. Gm was not the only company under the gun should ford also canceled plans to build a plant in mexico. Give us an idea of how global the manufacturing apparatus is for general motors. What trump was talking about was the cruise that make most of the cars in ohio. The sedan is the car that consumers buy the most. Hatchbacks are made in mexico. Americans are never really embraced hatchbacks. This is still really symbolic. This is about donald trump pushing another automaker after already tussling with ford over investment in mexico. He wants them to start bringing jobs back. I will tariff if you dont. He is very good at governing by anecdote. This is one way he will try to govern. He will work very aggressively to say he is working for the american worker. It is going to make it very difficult for him to give this up on a global scale. Would you have made this same decision regardless of what the president elect had said . We would have made the same decision. Our main reason for canceling the plant is that our nextgeneration focus was going to be built in that plant. We have seen a market decline for small beagles in america. It is a ford decision. It is not something the president elect can go out and say he did it for america . We look at all kind of factors before we make these kind of decisions. We see it better Manufacturing Business environment under donald trump. We see the progrowth policies he is outlined in the tax reforms. This is a vote of confidence that he can deliver on those things. China is set to be supporting further capital outflows. Lets get over to beijing to our chinese correspondent. They are considering now contingency plans to support the yuan and easy capital outflows. That includes asking for conversion of some of their Foreign Exchange into yuan for the capital account. They may also trim some of their u. S. Treasury holdings to support the yuan and maintain a Stable Exchange rate. It shows the pressure they are under to pull back on some of these capital outflows. How unusual is this move by china . The fact that they are treating this contingency plan we have had the devaluation of the currency, the market troubles in january, at this time they are looking to kind of react to overseas movement in the dollar. It is slightly ominous in my point of view. This time, it is more of a dollar story. If donald trump makes good on his threats to do whatever he has said he is going to do, such as impose tariffs on chinese exports, that could spell a lot of trouble. I think people are very concerned about what will happen after he takes over. The minutes have been released after their meeting. Upside risks are being considered. Officials are concerned they might have to quicken the pace of rate hikes to fend off inflation. The were concerns about what might happen under the fiscal policies of donald trump. There is a lot of insurgency which is expected. What caught my eye was their discussion of labor markets, and that a number of people felt they could under shoot the fed target of full employment. There is a line in here that says, if that were to happen, many participants emphasized that adjustments to Monetary Policy might be required to achieve and maintain the committees maximum employment objectives. In other words, they are forecasting three rate increases over the year, but if the economy continues to run hot and labor markets get stronger we might move sooner and faster than markets anticipate. The chinese offshore yuan posted its biggest gain in todays on record. Overnight lending rates soared. Why is the yuan up so dramatically against the u. S. Dollar . It is almost killing season in china today. They are looking at those shorts in a big way it is not clear if they are directly intervening today. We do know they have engineered a classic, liquidity shortage. The are trying to stop the yuan flowing from the mainland and moving it into hong kong. The chinese authorities are really sending a signal that depreciation is not a oneway bet. Place your money where you will. We are coming after you. Five seconds away from the payroll report. The number comes now. 156,000, so below the 175,000 estimate that john mentioned. The unemployment rate, as expected, picking up. Hourly earnings coming in a little hotter than expected at 0. 4 . The yearoveryear gain at 2. 9 that matches the highest rate since june of 2009. A little bit higher wage growth as jobs gains were lower than estimated. The Participation Rate is steady at 62. 7 . That means total job growth overall the underemployment rate is relatively high and needs to come down by 1 or 2 . They were talking about the labor force that wants to work. It is a decent number, and it suggests the gdp is moving along as much as to percent or 2. 5 . I think, in order to get a healthy economy, donald trump suggests a Strong Economy you need 3 real growth and 5 nominal growth. We are not about a point under for both of those. Erik still ahead as we review the week on bloomberg best, exclusive said insight from a voting member. Plus, extra opinion on significant risks facing Global Markets in the financial economy in 2017. Up next, more of the top business stories. The renowned banking executive picks up a new challenge. Youll be looking at expansion into asia and other parts of the world. Erik this is bloomberg. Erik this is bloomberg best. I am erik schatzker. Lets take a look at the donald trump transition starting with the nomination of a new leader to the securities and exchange commission. Has been donald trump picking a long time Sullivan Cromwell partner. The president elect said he is a highly talented expert on financial and regulatory law. He will ensure that our Financial Institutions can thrive while playing by the rules. It sounds like donald trump picked the ultimate wall street insider. There is no doubt that he certainly has been wall street bona fide over the years. He has represented the biggest names in private equity funds and hedge funds. You are really talking about someone who has spent well over a decade representing some of the firms that ultimately are under the Regulatory Oversight of the sec. The battle over the fate for the Affordable Care act is underway. The opening salvo is underway on capitol hill. Mike pence earlier promised in orderly transition away from the health care law. He criticized obamacare. The American People have sent new people here because obamacare has failed. I think pence brought a little bit of news today in the realm of he said that president elect trump plans to use executive actions as part of the repeal and replace process. There is a lot he can do by executive action to begin Obamacare Services such as benefits that insurers have to include in their plans. I believe, and i believe the market people also will believe, medicare will be less expensive when obamacare is gone. We want to get rid of this law and then put in place a model and concept that is principled and doctorcentered. We have seen changes in rates for americans in recent times. We do not want to lose that. We want to try to protect the Insurance Coverage that americans have today. The affordability and quality of their Insurance Coverage. Toyota shares have fallen after criticism from donald trump to open a plant in mexico. They will build a new plant in baja, mexico to build cars for the u. S. Donald trump said, no way. We do not know how much that tax he is threatening will be. Take a look at the share price. You can see what the power of his tweet actually is. It cost toyota around 1. 25 billion. Toyota did come out with a defense saying that production would not decrease due to their new plant in mexico. For now, it seems targeted is going to move ahead with their mexico plant to make their cars. Also in that statement, toyota trying to burnish their credibility with the u. S. And really with donald trump by saying, look, we have done so much for the United States including millions of dollars of investment in the United States, manufacturing facilities, and employing 36,000 people. Moving beyond washington dc, the story about currency controls was not the only significant story out of china this week. We continue with encouraging data from the worlds secondlargest economy. The gauge coming in at more than an expected reading. It is the highest reading in almost three years. It is a bit misleading because thats is july 2015. I think there is better sentiment and mood among corporate china. You can see the escape from deflation after four years, and it is starting to feel true now. With that data, we are seeing the chinese economy in a sweet spot. Maybe they feel they can take their foot off the pedal of stimulus package. They are probably in a better spot them were they expected to be a year ago. He was the rainmaker that helped to build Deutsche Bank into a wall street giant. He is now planning his second act in a smaller competitor. We know what he is going to be doing . He is going to be the president. He will be leading expansion into asia and different parts of the world. He will also be doing a lot of what he did at Deutsche Bank creating new products for clients, finding new clients, and helping to push people into more complex products than they had before. He can bring in a lot of growth because they have a lot of leg room to grow in debt and equity sales, and also in trading. Writtens Prime Minister need to be told the uncomfortable truth about the difficulties negotiating brexit. Are we lurching with moments like this . It makes us think we are moving towards a harder form of brexit. I think it underlines how difficult the Brexit Process is going to be, and how long and drawn out it will be. I do not think that is news at all. Perhaps he has decided he does not need this kind of stress at the end of a long career. Clearly, it is going to be a difficult process. I think it is not also news to anyone that there are some differences of opinion in the government. Prime minister theresa may is taking no time in filling the vacuum from that surprise resignation. She reacted fast. I guess it is a question of strength and weakness. Which one is it . She did not want a vacuum to open up. That letter from ivan rogers laying there some feelings in the Civil Service about the lack of negotiating. So, she brings in a former ambassador to moscow. She did it very quickly barely 24 hours after rogers resigned. As a senior Government Official tells bloomberg correspondent tim ross, it seems to suggest she acted very quickly and was perhaps stung by some of his criticism. It is a fairly unprecedented look into the inside of government. Let us talk about Deutsche Bank. They are currently looking at private equity firms to look at their settlement with the u. S. According to someone with knowledge in the matter, one of those possibilities is that essentially, they are saying they can look at private equity and get that relief. Yes, they say these private equity firms can do this on a regular basis. If we look at them, we can get credit on the consumer relief total. What is a pitfall . It is part of the negotiations. It falls into the bucket of it cannot hurt to ask. However, they said that the point of the settlements is to provide additional consumer relief. This is something going on anyway. It is not additional. You cannot count it. Christmas is not really getting to some retailers this year. Macys reported disappointing holiday sales. They also said they would cut around 6000 jobs from its payroll. Macys it is not really a surprise, is it . They were hoping for better results. They had put a lot of work into the business. Yesterday, we got a look at some of the stores that will be closed. It is more than 60 of them. Lets talk about sears. There is news coming out that they are going to close another 150 stores that are not doing well for them. I think with them it is a liquidity management game. For them, it is about getting to figure out what the right size for the business is. Weve gone from 3000 stores to 1500 stores and maybe you get down to 700 or 800 stores at some point, but for them, it is just figuring out what the right size of the business is. Erik welcome back to bloomberg best. I am erik schatzker. The effectiveness of the central bank was a constant debate in 2016. Many complained that historically low Interest Rates were distorting the prices of financial assets. It is now a new year. Will we see a new direction in Monetary Policy . In an exclusive interview, we explore that question with the former head of the reserve bank of india. When do we exit our great bond market distortion . I think we are in the process of exiting. I think the Federal Reserve is seeing limited room for continued accommodation, and they are starting to raise Interest Rates. I think you will see the pressure on other Central Banks come off as much as it has over the past few years to continue accommodation. My guess is that we are in the process of exiting. How fast it will be depends on, to some degree, policies of the United States. What kind of policies the new administration rings. How comfortable they feel with those new policies and whether they need to move faster or slower depending on those administration proposals. It seems to me that as one pressure comes off, another comes on. We have seen plenty of rhetoric during the campaign and what is happening on capitol hill with a new round of congressman being sworn in. Many of them want to change the relationship between congress and the Federal Reserve. How do they deal with that change . I think it is an important issue around the world. The central bank has only been around for the last few years. They have acquired a sense of political power that certainly creates apprehension among the political establishment. Of course, they would like to control that power. Unfortunately, it is coming at a point when Central Bank Independence will become increasingly important as inflation prices rise. They will be asked to control inflation which we have spent many years getting an apparatus that will ensure independence and allow them to raise rates at the time that is needed without feeling constrained by political pressure. The backdrop to this is the possibility we could see policy changes in a big tax reform. A big Infrastructure Spending proposal. It seems a kind of damned if you and damned if you dont. Given the political situation, this is a time they have to tread very carefully. Given the tradition they have established, the fed will do what they think is right rather than cater to political opinion. Erik straight ahead on bloomberg best, we zero in on the fed. We have an exclusive interview. Also coming up, interviews with some leading lights of the tech industry. First, what you need to know about risk in 2017. Experts tell bloomberg it could come from places you do not usually expect. America is driving global Political Risk and uncertainty. This is bloomberg. Erik you are watching bloomberg best. I am erik schatzker. 2017 could be the most volatile year for clinical risk since world war ii. That is according to the Eurasia Group and their report that was released this week. We discussed some of the details with some very respected analysts. Starting with larry summer. What is your chief concern or observation as we are 17 days away from the inauguration of President Trump . I think it is a moment of extraordinary uncertainty. There are prospects that things could work out well for some. However, there are enormous risks to the global economy. Enormous risks from a possible United States protectionist measures. Risks from extra mentation in a world where certain pillars of american foreignpolicy are up for grabs. Enormous risk to the American Economy from an administration that will take a very different approach to American Society than has been traditional. This is probably the largest transition ideologically and in terms of substantive policy that we have seen in the United States of the last three quarters of a century. There is no question that donald trump comes into this office with a feeling that most important bilateral relationship in the world between the United States and china is not being fu