we're worrying about commodities. they both disappointed with huge losses. tom: correlated fragility's across all markets. nothing dramatic other than the china news. you follow on 48 hours or so. it is heads up. we have a great set of guests to drive the market discussion. francine: you are right. let's get bloomberg's first word news with caroline hyde. caroline: austria is not waiting for the european union to come up with a response to the refugee crisis. wayshave agreed on several to cut off the flow of refugees. --y would essentially limit bar people from countries -- economist are warning the u.k. should not need the european union. those responding to a bluebook survey says leaving the eu would triple the chance of the u.k. falling into recession. those campaigning for britain to stay said it would jeopardize investment, jobs and growth. the u.s. and china has agreed on new human sections to punish north korea for that recent rocket launch. secretary of state john kerry and his chinese counterpart has said they are making significant progress. china is important because it is north korea's against trading partner. australia will increase this fence spending -- increase defense spending. much of that money will be spent on increasing the size of the australian navy. now donald trump is getting into it. trump tweeted that mitt romney is a full who desk is a fool -- is a full who blew the 2012 election. republican candidates square off tonight in their final debate before super tuesday. news, 24 hours a day, powered by 2400 journalists and over one and 50 news bureaus around the world. tom: equity bonds and commodities are stable across most markets. futures negative for. the curve is flatter. curves flattening and fixed 31.73.-- a two decade-- in average. i will let francine talk about china did -- china. twos intense spread the difference between the 10 year and the two year yield. sterling was 1.38 is today. stunning francine lacqua. they have a massive rebound at 1.39. francine: if there is a brexit, there is a 40% chance the u.k. will falling to recession. european stoxx 600 gaining 1%. see 9.4%lowest you can higher. the ceoe first time also got a raise. going back to bonds, there's something that caught my eye. japan's longest bond, so basically joined the rest. -- 40 year yield tom: it is an interesting time here at -- interesting time. shahab jalinoos joining us. let's look at gold right now. we haven't done this chart in ages. this is one of my most famous charts. inflation adjusted gold. down we go, long-term gold declines. i am passing my book with a brilliant -- this. d of gold currency. go and here is this very quiet rebound. isn't that the end of the bear market? i do not have an opinion. francine lacqua does not have an opinion. james steel does. we'll talk about that later. there is the effervescence, francine, of gold over 30 years. francine: yet. a -- weat gold, we had had an exchange strategist facing it is all playing out in gold. shanghai, the stock exchange fell 6%. you need to see how you price risk and exactly what that means for investment and whether we should be more worried. let's get to our guest host for -- hour, he is rick like i he is rick lacaille. great to have you on the rim. are we in graczyk -- great to have you on the program. great to have you on the program. rick: that is not my principal fear. we are worried about the very weak economic growth spreading from china into the rest of the world. that is a downside risk. commodities ring a bank down here it -- down. francine: what is the risk? rick: we think we'll have pretty steady economic growth. there is a chance it is much worse. worse?e: recessionary rick: recessionary worse. they are not flashing as many warning signals as financial markets. francine: the financial markets are right. what are they saying? this is the linkage between oil and the rest of the markets because china is much worse than expected. rick: he mentioned gold, the shape of the yield curve. those are signals that maybe there's trouble. the economic forecast that we are going have weeks. we'll think the weeks are going to be as bad as the market is predicting. tom: let's look at two charts. karen, bring up the china equity chart. this is the outcome and the great bear market and collapse of china. the shanghai composite showing this morning. that was a big move down, 6% overnight. a currency market, so we are waiting for equities to sort out in china. we are waiting with his big renminbi depreciation. a little bit of devaluation right here. rick, i'm am fascinated by the waiting on currency in china. what is the price to the chinese economy and government by waiting, waiting, waiting for presumed appreciation? are trying to buy time and they need stability and currency. indicated they want in processa basket but not be tied to it. it has already derailed the plan . we think the currency can depreciate in an orderly fashion. it would be helped if there was more of a physical desk a fiscal stimulus. -- a fiscal stimulus. tom: can i say the same thing about currency dynamics in china? does the romney be desk does the remnant women the -- rick: it affects them through industry. i don't think china is an export machine. you've got liabilities are some of those corporations that is generating foreign currency. the pictures more complex. -- the picture is more complex. you're talking about recessionary pressures. you're talking about the huge debt problem that china has. it also be an oil commodity putting the saudi in trouble for example? rick: there is a lack of demand. francine: and oil? rick: no, and the world economy. economy. the world it is not come from china, maybe it is coming from the u.s. consumer. that is spilling over into the commodities sector. that is a supply, rather than a demand issue, and commodities. francine: coming up on the next seo, we will be joined by jim bouygues -- ceo tim hoettges. that is coming up next. ♪ tom: china hysterics. the shanghai down 6.4% did that does get your attention. the struggles they have had over recent months. look at curves happening globally. in the u.s., vanilla curves. the difference between two and 9%.ear is our business newsflash in london. here is caroline hyde. caroline: consumer spending powered the british economy to a 12 street quarter of growth. the economy grew one half of 1%. an increase in household spending helped to offset declines in exports. americans are not kicking budweiser the way they are just are not kicking budweiser the way -- are not picking budweiser the way they used to. the company needs to complete its acquisition of sabmiller. helpingo tim cook says the fbi unlike a dead terrorist iphone would be bad for america. he told abc news that public safety is important but complying with the court order would set a precedent would hurt millions of iphone users. >> the only to that information asld be to -- that we view software cancer. we have never written it. that is what is at stake. caroline: the u.s. government says this is a one-time request. that is the bloombergs that's that is the bloomberg is his flash. francine: let's talk about oil, a little bit lower today and we have a huge summit we have been him to monitor almost oil co under the sun. did --ceo under the sun son. this is where crude is. he is heading our commodities and oil coverage. when we look at the price of oil, it is impossible to predict. we try to quiz you. do we know the trend is downwards now? >> the is destined depends on what comes out of these talks. the general noises from countries like oman and mexico. oman came out and gave a number but now it is not going to remove a needle. whether that transpires into a think therement, i is a lot of doubt. you look at the prices to get that message. francine: are ceos to optimistic. we seem to be fine, is that ?ight stuart: you are seeing that across the low commodities sector as well. when you look at some of the smaller -- it is the more physical and we have seen early signs of companies unable to pay the interest. it is the first stage. haveyour -- your new team watched the collapse and oil, tell me about the rationalization of the market. i set on this desk in new york and we rationalized 80. we rationalized 60. we rationalized 40. there's something different this time as we figure out if are going to 29 or lower. what is the difference? stuart: fundamentally what is changed is people keep getting the forecast wrong. yet to give them some credit for having a go at it. you look the activity in the -- theymarket, that were all priced lower than where we are today. that is a new sentiment today. it is not necessarily great. a 1% move down in the market may not be particularly big news. tom: well said. we see that in technicals as well. rick lacaille, you're at state street to do you watch money flows. your background is operational research. what are people doing with their money and oil? do you see institutional and retail flows into hydrocarbons? was everybody exiting out the theater door? we are underweight commodities. we feel cautious on. people are beginning to get their toe in the water of that -- in that high-yield distress market in the u.s. as a way of participating in what could be an interesting story. maybe a long-term story. they're looking at what happened with subprime saying look when prices became very extreme, the -- there were some opportunities but you need to be very conservative. that is now for trade. -- that is an alpha trade. tom: i look at this and with our two guests, i wonder about the london versus new york feel. lme you see in commodities, and emerging cost? isncine, do you report there a stress coming out of lme? francine: there is stress coming out at times. it is like the chinese markets. there is a distress call one day and then things stabilize. if you look at the oil markets and you say you have to choose a trade. on the back of consolidation, decent difference? would say the u-shaped trajectory the banks were pitching was a little implausible. to your point about integrative oh companies, they might be offering -- they have more than just a merger. downstream operations. many have capitulated and have written off investments. they have yet to capitulate. francine: interesting. rick, think he so much for coming on. coming up, credit suisse will join us. precious metals and linkage between risk and gold. probably at its highest in two years. 11:00.m. in new york and a.m. in london. this is surveillance. tom: a gorgeous early spring in new york city. somewhere in that vista is one christopher white whale and. he is watching bloomberg surveillance. he only watches for francine. you got on twitter saying flattering will not work. mr. whalen, a part of our digital media. look for interesting announcements from francine and myself about digital coming up in the coming weeks. francine you've got a wonderful -- pick something -- i picked something we don't normally talk about. you were talking about women in finance. there are so few women in senior positions because their few women in finance. the numbers are changing. that is for the better. ricky, i know it state street, you do have women in finance. is there a difference on how they see risk? rick: we have them in very prominent positions. more than half of our managers. corporate governance. i think it is important's -- it is important. we are a really good employer. how you treat women when they are in a workplace. that nurtures that diversity. francine: i spoke to christine lagarde, first of all, she is making the point. is that fair? is that the kind of rhetoric we should be talking about? rick: i think seeing men and women in a simple way is not helpful. i really don't think we should think about people in that way. francine: do you think it would change for other firms. will more women be in finance and five to 10 years? rick: in the u.s. there is a prominent process of networking that is helpful. when i think of the progress we have made, you do rely on what you do yourself. that is more prominent in the u.s. francine: rick stays with us. we would be talking about negative rates. up next on bloomberg surveillance, we are joined by tina fordham. she is the city's chief global finance analysts. in the u k, they believe if the the union, itexit would increase the chance of a recession. ♪ tom: turns to the market, fragile markets. china hammered overnight. hammered is the right word. down 6% when you seek shanghai move 3%, 4% and the now -6%. he is caroline hyde. caroline: tom, thank you. the u.s. has described as has discouraged -- has discouraged other countries. russia is trying to return to form that markets for the first time since 2013. u.s. will send the united nations security council a proposal for new sections on north korea. the u.s. and china thought of new ways to punish north korea for its recent test of a nuclear device. american diplomats once china's support. ramping upouse is the pressure on senate republicans to vote for a supreme court nominee. the administration is already considering a republican for the job, nevada's governor brian sandoval. they think the next president should make the choice. a power. system swept across the east of the united states. a death occurred in virginia. weres and mobile homes damaged. tens of thousands of people in the region lost power. health officials in florida say three pregnant women have tested positive for the zika virus. all three cases appeared to be travel related. global news, 20 hours in a, powered by 2400 journalists. i am caroline hyde. francine? francine: one of the biggest global political risks of 2016 we will find out from tina --dham. she co-authored investment environment. also with this is rick lacaille. tina, thanks for joining us. when you look at political risk, we have -- a direct impact of the economy. my question to you is what is the most difficult to predict? rick, what is the most difficult to model? tina: we have identified those two events of the top political signposts we talk about audiogence risk between politics and associate economics. they are both reflected in who is going to sit in the white house next. the u.s. has a complex system which not only mystifies outsiders but many in the united states, going through the primary process and against what pundits expected, it looks like donald trump may get the republican nomination. come on the back of the election/two, we have to be compared for these types of outsiders and think about what they might mean for the markets. u.k. referendum is not only important for u.k. plc but the inspiration it is providing to others in europe. the unraveling of your. francine: they both seem so emotional. are mores -- they extreme views. how do you model them? after what we have seen the last several elections get how do you model it? thinking out your risk budget very carefully and raining and risks where you have no certainty. premium ford a risk holding sterling. we have seen sterling decline in value. after that, if you think about ,ermany on migration crisis this is going to unfold later this year. relative weakening of angela merkel's position. kind of compels the brexit risk. tina: we talk about that and our new report, the merkel exit. tom: i want francine was to pick up on the merkel theme. in the united kingdom, the .ngaged public anger on brexit when i look the newspapers, it looks like a political exercise of elite. angerre a trump/sanders to this debate about the future of the united kingdom with europe? and with scotland? extent, i certain think part of what we see is how the benefits of european union membership is taken for granted and priced in. , gave a talk yesterday 16-year-olds in the u.k.. the whole come station was about integrate -- about immigration. this is what they're talking about at home. of beingmic benefits in the eu is not being appreciated by the public. tom: give us an update. your that's what you are doing it citigroup. tina: it is clearly influence of the atmosphere. obliged the u.k. is not to take refugees, the sense of chaos in europe and the better off out notion of very much accelerated by chaos. that is why of course the prime minister wants you to avoid having the referendum in autumn. mitigate in june helps the sense of another day loose in the summer. extent in which is played out in the british twos is a battle between university chums. this is a huge impact on europe. even if the u.k. votes to stay, referendum and the negotiation process will have a big impact on the future of europe. francine: this is difficult, because it is emotional. and hek at the tabloids will go what, this is what they are writing. pinpointy difficult to the mood at the moment of the people. could it be a vote against david cameron? aecks -- rick: it will be grassroots element that will be influenced by the tabloids. what will be key is what the turnout will look like. they're getting jazzed up about these issues. thet of people that take benefits of the european union for granted. lester for those who want pro-eu, how do they know these people will come out? the scare tactics will work. short-term pain. francine: can we trust the polls at all? tina: the campaign is just starting. mondayrling selloff on because there was a credible figure. boris johnson being the most popular figure in the u.k. does it matter to metropolitan to nonmetropolitan elites? we do not know yet. todoes it matter nonmetropolitan elites, we do not know yet? it has been building for some time. tom: let's move on to super tuesday. francine, you would not believe super tuesday. georgiannessee, texas, and virginia and vermont. every year is different with super tuesday. how are we going to feel on super wednesday? tina: how are we going to feel? how are express going to feel might be different. super tuesday might be important in the primary calendar. it is remarkable to the extent pundits were convinced that donald trump could not get anywhere. very demographic and socioeconomic makeup. he has done very well here it -- very well. tom: yes-men many years trying to figure out foreign policy. a for- do you detect policy for mr. trump? mr. rubio? or mr. cruz? tina: foreign policy does not u.s.- play a big role in presidential campaigns as you know. trump is talking about foreign policy. giving desk given a some hint about what he would do in the middle east. mr. rubio said he would overturn the iran deal. oscillation is something that is growing. these candidates do not seem to be positioning themselves on foreign policy. tom: i totally agree. tina, think you so much. go back and look at the 1960 campaign dialogue which is all about foreign policy. whatever you believe it was a very sophisticated debate. that was the and jfk. coming up, we're going to go back to the bull market in the 1980's. james steel of hsbc. ♪ francine: our hans nichols spoke to the head of the bundesbank. ecb's next possible measure. he expressed some caution over stimulus that could backfire for the economy. here he is. >> what matters is we don't produce counterproductive effects did -- counterproductive >> at -- fx. the effect on the stability of banks on measures produced the opposite of what we want, then it would be smart -- francine: a morning were this morning has been lloyds bank. shares jumping the biggest gain in five years. tripled its dividend, introducing a special payout. by more, we're joined richard. we look at lloyds, the share price -- does we make of it it is a lot more healthy than we thought? is it just because of dividends? richard: the outlook for the year ahead is better than most investors expected. .hey were looking at guidance how profitable the bank is. in this environment where interest rates are going to continue to be low, the bank of hurtnd, that is what to banks in this type of world. lloyds growing its profitability measure which is very kurds and to investors. as long as that is a good thing. with the dividend, that is a good thing for the bank. francine: lloyds is focusing on a huge stake. can we take it as a bellwether for the state of u.k. banks? richard: it can be a bellwether, yes. the rest of the banking industry is shrinking back to more like lloyds could we see the world bank of scotland doing the same. whether barclays was to become more straightforward, we will know next week when they deliver the strategic update. however, lloyds is different. it is purely consumer focused. call it for me how lloyds needs to struggle back? we have a view of every beleaguered bank in the united states. is a mystery. how do they make it back to normal? richard: normal is a most here. they took a 2.1 billion pound and payment protection. the european banks for the u.s. comparison, they are struggling. the environment starring into negative rates. -- stirring into negative rates. did they want to be? bnp paribas? what does lloyds want to be? richard: the way the chairman has described lloyds to me is a british institution. they want to be a solid as a rock. plain and simple, straightforward. whether they would be a takeover target in this world is questionable, given the desire of regulators for big bank mergers. perhaps they're going to keep on chugging along, throwing up dividends. that is just a straightforward story and people seem to like at the moment. francine: they just want to be boring, right rick? rick: they want to be a dividend machine without too many convocations. many of the others got a very different starting point. they were overseas businesses. lloyds is at a different starting point. they have concentration risks. u.k. economy is doing well. , from a banking perspective, worried about loan rights officers in the corporate sector. something, ist lloyds the best in class? rick: i would not call lloyds being best in class. the executors, what investors expected and being rewarded for. dividends are really important, more than any other countries. you can investors love dividends. as a dividendat machine, that is something that the stock price will reward. tom: anthony, come up. the boring bank. we have seen this before. richard, help me with this. we go up here to 1999, this is a collapse. there are a lot of banks like this searching for a strategy. mckenzie comes in and said they're going to be the boring dividend paying bank. what does that get you? i don't understand five years on where that kind of is, other than a merge to take out. >> you're going to have a management team that will be different. -- chief executive officer the chairman came in the other year. within five years, they will be a different team. they will be in this mature u.k. economy where credit growth is not going to expand too much. in that environment, what you're going to do in terms of making additional money? you might want to search overseas which is what lloyds done in the runoff and the financial crisis. it might go back to that time, who knows? tom: this is what i love about bloomberg surveillance, i would not know lloyds if it hit me or the head. i have learned a lot from our two guests. francine: i live here and i still learn a lot. richard, the government is to let 10%? we expect to go down in the next year or so? runoff and the financial crisis. it might go back to that time, who knows? richard: the chancellor george osborne has been running a trading program to dribble out those shares. that is not selling at the moment. time heod to take some they can fully exit. francine: bridgette, think you so much. rick lacaille stays with us. by timup, we're joined hoettges. he is the ceo of deutsche telekom. that is that 6:00 a.m. in new york. this is bloomberg surveillance where chinese stocks at 10%. european stocks are holding up. ♪ tom: if you are a part of global wall street, in our next hour, james steel joins us and shahab and his stunning call on a weaker sterling. 1.20. 6:00 hour. to our bloomberg business flash, here is caroline hyde. caroline: deutsche telekom posted fourth-quarter earnings that beat estimates. t-mobile added more than a million units for the sixth quarter in a row. germany track to slow the loss and it is investing in new broadband. iswan focused on technology -- to can desk to take control of sharp. the company wants to review information it received from sharp yesterday. an advisor to one of the world's largest money managers said emerging market assets may be the trade of the decade. research affiliates is an advisor at pimco. cheap, it is a wonderful opportunity for long-term investors. that is bloomberg business flash. francine? francine: think you so much, caroline. what we are watching for the next test for the coming days. dennis lockhart speaks at the banks conference. at 12:00 p.m. new york time, 5:00 p.m. here in london, vice president john williams will speak at new york university. tomorrow, a group of 25 ministers convene in shanghai to discuss growth in the face of global headwinds. bloomberg will the reporting live. great interviews lined up, including the spanish finance minister. -- -- the election that could bolster president rouhani's. the -- effective negative rates. the 40 year japanese yield is below percent. richard lacaille from state street, what would you do in this type of environment? rick: negativee. rates do not seem to be doing the trick it if you think about the timing and japan, it was unfortunate timing it sentiments realized this could be damaging. in terms of bank health, finding ways of doing it and finding banks remaining healthy. the global economy is like the donkey and you've got the master whipping it and it is not going any faster. the g-20 needs to focus on things other than negative rates. here with thep me likelihood forward. to state street understands flows and emotional, what people want to do with money. it is an underperforming quarter. what is the best likelihood to a good outcome and in the first quarter of 2016? rick: there isn't anything rabbits out of the hat that will improve the first quarter, and less there is a implead game changer. the best thing is to be patient. cash.st position is -- to put that emerging market trade on. mind, they are a value trap. they will remain a value trap until we see improvement. tom: rick, we are going to have to leave it there. a very valuable hour. in our next hour, we are thrilled to bring you shahab jalinoos with the most twisted perspective on sterling. we will look at the currency known as gold. futures flat right now. stay with us another hour. bloomberg surveillance. ♪ it is a thursday of fragile markets. china shares plunge this morning. we look at liquidity in regime. if gold a currency? in this hour, it james steel. he says, stay long, gold. in the united kingdom, they consider the great expectations of margaret thatcher. will starling sink further. good morning, this is "bloomberg surveillance." i am tom keene. with me is francine lacqua in london. francine:in this hour, it james. he says, stay long, gold. starling was a bit of a bid. we have a survey out saying that --rexit vote would actually of course, we are looking at china, as you mentioned. guests. wonderful to our first link word news in london with caroline hyde. in germany, parliament has approved tighter rules on refugees act by angela merkel. the measures would speed up the processing of requests for asylum. those who do not qualify could be expelled for third -- expelled faster. economists are warning that the u.k. should not leave the european union. in germany, parliament has approved tighter rules on refugees act by angela merkel. those responding to a bloomberg survey said that leaving would triple the chances of the u.k. falling into a recession. those campaigning for britain to stay has said that leaving would jeopardize jobs and growth. and the u.s. and china have agreed on new u.n. sanctions to punish north korea. that is for the recent rocket launch. that is according to different diplomats on the un security council. john kerry and his chinese counterpart has said they are making significant protest -- significant progress. dayal news, 24 hours a powered by our 2400 journalists. i am caroline hyde. tom: thank you. let's do a data check. let's get through this quickly. futures are flat, the euro is 110. 21. onto the next screen. quickly. we are looking at starling with 139.3. francine: i also have the shanghai composite. you lloyd it'sw because it is the biggest gainer in europe because it is still a bank owned by the u.k. government doing better than expected after focusing on dividends. let's go to the bloomberg terminal. the idea of gold, coming up here, the bull market of the -- with adavid magnificent call on a currency adjusted gold. down we go. we get into the bull market. with us is shahab jalinoos. as we go to you and james steel, is gold a currency? shahab: it has certain features of a currency. on the other hand, can you pay your taxes with gold? tom: no. is your backdrop in credit suisse -- they have been great about underplaying deflation. going the other way, is there an inflation fear that goes into your foreign exchange and analysis? shahab: the fear is not so much inflation itself, it is the policies that will be taken next to create inflation. people are talking about ideas monetization.debt if that happens at a global , itl, a commodity like gold gets a bid from that type of thinking. had two foreign investors yesterday. they said they were looking at brexit and sterling actually, the chart of the year is gold. it tells us that something is wrong. it quantifies risk like nothing else. yes, gold captures many different themes. really the most important theme is captures is the idea that interest rates are going to be very low in all of countries, including now, the u.s. as well. is a big change from where we were at the end of last year. people who are thinking about the possibility of negative rates in the u.s. of 2017, that is where the futures options are taking us. when you think of it in those terms, it is not so surprising that gold is back in the limelight. especially after many years of losses. is a big change from where we were at the end of last year. people who are thinking about the possibility of negative rates in the u.s.it is as short. francine: thank you so much. now let's go straight to germany where the cro joins us. .e is timotheus hoettges thank you for joining us. gains boosted profit. what is the endgame for the u.s.? how do you nurture? we have a great business in the u.s., china is down, the revenues are going up. customers are flowing into our arms. we have no urgency to do anything in the u.s., we are going into the spectrum option for the low bend. that is the next option we are doing. we have great propositions in the market. we have no plans to sell the u.s. at that point in time but we have said if there is an opportunity to create something beyond what we could do organically, we are open to considering this but there is no emergency at this point in time. we have an outstanding business in the u.s. these days. francine: europe is falling apart in many ways. the growth and the expense coming from customers is not as strong as you would like it to be. why not sell some of your european assets? i am not that pessimistic on europe. we are to the markets, in germany, we are stable in a very competitive environment. the same is true for the entities. we have sold as is out of that. if you take that, you could see that even in the new york environment we are flat. the reason for that is because people appreciate the huge investment that they are putting into infrastructure and the coverage with mobile integrated products, we do see a good performance here and we are expecting a revenue increase over the next year of 1%-2%. we are in the middle of it. tom: you are in the heart of mergers and acquisitions in telecommunications in continental europe. that is why you have ascended at deutsche telecom. kom. -- talks about the strange combination that will happen in europe. how do you foresee m&a in your sector? look, the u.s. is a market of 300 million people and if you go to china, there are three carriers. in europe, 28 countries, 500 million inhabitants and we have every market. more than one edge of 50 players competing here. and by the way, the price that they are paying is 1/3 than in the u.s.. this market needs consolidation. what you have to prove it. you have to show that the synergies are coming in this environment. that is why we are saying, before we consider any type of outer market consolidation, we do it through infrastructure in the market that we have. markets here in europe and rebuilt a european network before we consider something across country. tom: i am fascinated by your thoughts on what we see in the united states, the uproar over apple. tim cook and the iphone and the washington federal government. thebasic idea that government can come in and start looking at cell phones. how does that play across your 12 markets in europe? seetheus: you know, what we here in europe is a different situation from the legislation than what you see in the u.s. market. privacy is a big issue here in , and germany, as you know, from our history. i don't know how the debate is going on with this subject. so i cannot speak for these guys. the t in our brand stands for trust. we are doing everything to protect the privacy of our customers in the telecommunications network. market, they are forcing us into this direction anyhow. telekom, we have to deal with this as well. francine: how often do you talk to -- if you going to play a big part in your sector? deutsche telekom is the biggest operator in europe. we have most of the markets adjacent, if you go from poland down to greece, we are the center of europe. we are the biggest shareholder of british telecom and we have a lot of possibilities to work with these guys together. it is another fixed mobile convergence market. europe, fixed and mobile is coming together. future, weinto the have a position. if the consolidation takes place, we would be one of the drivers in this. but the basis for that is a good performing market in which were operating in. so it is a must that we perform and outperform each we did in 2015, in the markets where we operate. percent growth is something that you won't find with the other carriers in europe. we are well prepared but the regulation is needed. tom: thank you so much. tomorrow, a wonderful friday for you. market economics at goldman sachs, before the crisis and now, here as a public service to the nation. good morning. ♪ straight tot's get the bloomberg business flash with caroline hyde. caroline: americans are not striking budweiser the way they used to. that could anheuser-busch to post fourth-quarter income below earnings. allow them to expand into emerging markets like africa. shares of lloyds banking group londonas much as 11% in today. the bank raised its dividend and introduced a special payout. it indicated it may have reached the end of legal charges. consumer spending power the british economy to a 12th straight quarter of growth. 1%.economy grew .5 of an increase in household spending helped. that is your bloomberg business flash. tom: caroline, thank you so much. the booking gods got to us where on the shahab jalinoos set with us. we need to do a victory lap of yesterday's single best chart. it got a huge response. this is sterling back 30 years .ith two standard deviations that little yellow box, down to 1.3.l of it is a brexit suggestion to end unimaginable suggestion of 1.2. frame for us the past to the tock of 1.37 and how we get .3? what we know right now is that people don't trust opinion polls. if they suggest that breaks it might not be a problem, they don't trust that. there will be uncertainty around this issue. on the other hand, we are not going to have clarity. in the meantime, if you have other shocks to the system -- --k shocks, low oil prices none of these things are good news for a country like the u.k. which is one big bank. maybe younk it was saying that it is a one leverage bank. is it a one leverage bank linked into the sterling? shahab: i think that is right. he pound is a special currency. it represents a country with an external budget sheet with 600% gdp. the u.s. is at 180%. do the hands on that. jump in here. about 180% of the gdp here is the banking. six times up here is what you got in the united kingdom. francine: that does put it into perspective somewhat. you are talking about oil weakness and the u.k. being a huge big bank but is this also at -- also markets at play? a.b. be there is not enough liquidity so this move is exasperated? it is not all about breaks it -- about brexit. this is boris johnson. shahab: the way to think about this is that the underlying thist is liquid anyway at point in time. so many different currencies are moving in unusual ways, surprising ways, because of a lack of the quiddity. people talk about reasons for that. of thetalk about all different reasons for that but t,e point is, if you get brexi the biggest event for the u.k. economy for 50 years, in a anyway, it is liquid is dependent on external inflows then really going to 1.2 is not as spectacular as it sounds. the mechanics for how that can already there. i would like to point out that the pound is still relatively strong against the euro right now. we are still well below 83. simply realigning the pound with the euro, that is enough. we had a survey, we spoke to many ceos and a lot of them were actually having the consensus that if we did have brexit, it increases the chance of the u.k. having recession by 40%. is that right? shahab: i think that is fair. again, for a country where the city of london is the single biggest industry and where markets will naturally worry about the future of the city of london in the environment of see a shock tol the system. some banks have talked about relocating staff to continental europe in the event of brexit. there are many manufacturers who use the u.k. as a center to europe. westin spoke to jack lew yesterday. an exceptional interview he didn't say. what he didn't say was about the strong dollar. if we get a 1.26 sterling, does that directly correlate into a stronger dollar? shahab: a strong dollar makes it easier for the pound to fall to that kind of level. when we look at the pound, we should be specific and look at the trade wind of the pound and how that moves. if we get a 1.26 sterling, does that directly correlate into a stronger dollar? shahab:that incorporates the dod the euro. tom: it doesn't come down as much. shahab: if they decided to rally by 10%, maybe it did matter. tom: i have bad news. we will come back and talk about this further. this is what the data is telling us. this is where european stocks are. they are still in the green but the pressure is mounting on the ecb. look at china. 6.4%. we will talk more about risk. ♪ it is a great day along the river thames. francine lacqua is in the , let'se of bishopsgate go to the morning must read. this is cool, it is a history lesson that i stumbled upon, thank you google and new york times. paul lewis, 31 years ago. a weak pound and opportunity forces should be allowed to work freely. the thatcher government acknowledged that its monetary policy had been laxer then it'd and warned that any further drop in the pound would add to the danger of renewed inflation. shahab jalinoos is with us. the inflation linkage is just gone, isn't it? shahab: that is an important aspect of the brexit-pound story. what does that mean for policymakers? dealing not in 1985? shahab: in the case of the u.k., if we take away the idea of a making thehat is pound fall, in every other way, policy makers would be happy about the pound falling. the government has been criticized for not helping to rebalance the economy. exports and investments are still weak. a weaker pound certainly helps from that aspect. and as far as the central bank goes, the weaker pound helps to generate inflation. so no one is going to fight a weaker pound in my view, unless it is very destabilized. francine: times have changed. this morning must-read from 1985, ronald reagan was president. we don't have those kinds of politicians anymore. if the u.k. leaves the eu, scotland may leave the u.k.. shahab: that is another possibility. investors have to think about that as well. the brexitrmath of decision, there is no guarantee that the u.k. itself -- tom: there is no guarantee. shahab: people also worry about not just the eu itself fragmenting. tom: we will come back and touch on that. what a special treat to have shahab jalinoos with us. , he is long gold with hsbc. this is "bloomberg surveillance." ♪ when you're on hold, your business is on hold. that's why comcast business doesn't leave you there. when you call, a small business expert will answer you in about 30 seconds. no annoying hold music. just a real person, real fast. whenever you need them. so your business can get back to business. sounds like my ride's ready. don't get stuck on hold. reach an expert fast. comcast business. built for business. francine: i am francine lacqua in london with tom keene in new york. let's get to the first word news with caroline hyde. caroline: austria is not waiting for the european union to come a response to the refugee crisis. they've agreed on several ways to cut off the flow of refugees going through greece. it would limit entry to iraqi's and syrians. the unitedll send nations secretary council a proposal for new sanctions on north korea. the u.s. and china agreed on new ways to punish north korea for the recent test of a nuclear device and the launch of a long-range rocket. the chinese are north korea's biggest trading partners. the white house is ramping up the pressure on senate republicans to vote on a supreme court nominee. the ministration is considering a republican for the job, the nevada governor. republican leaders have said they would not vote on anyone the president nominates. they think the next president should make the choice. now, donald trump is getting can it with the last couple nominee for president. he tweeted that mitt romney lou the 2012 election. romney after mitt speculated that a bombshell maybe released in donald trump's tax return. the republican square off in their final debate before super tuesday. global news, 24 hours a day covered by our 2400 journalists. i am caroline hyde. tom: thank you. this has been widely anticipated. it is one thing to get the movement right, but another to get the vector right. james steel has done that. he looked at the gold around the demand and he had the courage to go long. ring of the chart of gold. this is the bear market in gold. we have now broken out well over two standard deviations. why have we seen the move in gold? james: a number of things. you have had strong emerging market demand leading up to this year. although that has diminished somewhat. and really, what has taken as up to these higher levels has been the risk factor. he safe haven demand for gold has been very good. as we have seen money going to treasuries, it hasn't supported the dollar in the way it has the past couple of years and consequently, that safe haven flow, instead of pushing of the dollar, has actually been now to gold's benefit. tom: you have a nice move here. gold button move? or is it a more measured move? james: a more measured long move. a forget that when you get sudden and quick moves in gold, particularly if they are sharp, you get a sticker shock element where the physical consumption is. something like two thirds of all gold physical demand is between china and india. these are price-sensitive economies where if the market goes up to sharply, people on the ground, merchants, they pull back from buying and that is what we are seeing. tom: send that message to my house. almost 20%old gained this year on the backs of exactly what you have been explaining. what does it do from here? is this six months down the line, is there a price where we start to see real demand trading ? james: right now we have a steep discount in india between $25-$30 an ounce. india is traditionally the largest importer. so right now, we are seeing very little import demand into india. they are holding back the caceres a budget next week and they currently have a 10% tariff on gold. they might reduce that tariffs. up to 3000 is where we begin to 1300 is where we see the demand diminished a bit. doesn't mean it will entirely erode. wencine: at some point, do talk about a -- territory? are we a long way off? james: we are a long way off. the 1500-1800 level would be more like a bubble territory. tom: james sweeney from the credit suisse and steve from hsbc, sweeney says inflation fears are way overdone and steve major's historical on a lower terminal rate. help me with how gold reacts to the economy?in it seems out of kilter. that is the reason for gold's decline last year and the year before. it began to go down in 2013 when we heard qe was ending. we were assuming that the fed was going to increase rates and we thought last year at one point, -- when i say we, i mean the market, not hsbc. the market has factored in rises. rate if they do not materialize then it means that the gold market has fallen to sharply. o sharply.to tom: help me with this. filter this in to a financial depth like you have guarded at credit suisse? shahab: the first instinct is to look at gold as an inflation. tom: is that broken right now? shahab: think about central banks having to do things they have never done before. policymakers agree to do things that haven't done -- that they haven't done before. old is something that protects them from the mishaps that may arise from that behavior. francine: we talked about demand and we have talked about the role of gold as a safe haven. what do you see a supply crunch coming? thes: we are looking for gold mine production, the principal source of supply, to begin to moderate and edge lower. tom has heard this before. there is no saudi arabia of gold. there are no gigantic finds on the horizon. having said that, there is a lot above ground. wheatnot oil, it is not and it is not consumed. so it can be mobilized and brought onto the market. supply against to plateau or top out or edge slightly slower. francine: is there another way of playing the rally in gold right now? either through currency or even through mining companies? there are various ways where you can get into this. shahab: within currency space, what we have seen is a better need for currencies like the canadian, the australian dollar and to some extent, they reflect goals. other commodities like copper .nd iron ore perhaps what we are seeing is a resurgence of interest more , somey -- even oil believe, is bottoming out. tom: you and i have to get into the rock star business of gold. steel gets all of the interest. smart talk linking finance economics and international relations -- tomorrow, kissinger associates joins us. we go back to another time and place. pre-crisis. that is the must watch. that is on bloomberg surveillance tomorrow. ♪ francine: imf francine lacqua in london and tom keene is in new york. let's get to the bloomberg business flash with caroline hyde. caroline: munis has come out with a warning on investment slumping. if falling commodity prices stay low, this week, jpmorgan says -- increased by $500 million in the first quarter. foxconn technology is postponing a decision to take over sharp. sharp excepted the offer over one from innovation network. thecook says that helping fbi on lock a dead terrorists iphone would be bad for america. he told abc news that public safety is important but complying with court orders would set a precedent that would end up hurting millions. the only way we know would be to write a software that would be the software equivalent of cancer. he think this is bad news to write and we would never write it and we have never written it. that is what is at stake here. caroline: the u.s. government has said this is a one-time request to help the investigation in the san bernardino attacks. that is the bloomberg business flash. tom? caroline hyde, thank you so much. let's look at the single best chart. this is g7 inflation all blended together. it is a noisy three but you can see normal inflation is at 2%-3%. we come right back. so much. up we go. and boy, have we rolled over. james steel is here with us and shahab jalinoos as well. what i see is the duration of the disinflation that we have had, the word chronic comes to mind. shahab: even more concerning than actual inflation now are inflation expectations which are low. you have 10 year yields at 1.7%. that tells us that the future isn't investing and markets a responding strongly by pushing central banks to come up with new ideas. tom: one of the quiet stories are interest rate adjustments in china. everybody else is low at china has high real rates. how does that filter into the to ability that leads demand for gold? james: it is an alternative investment, that is where gold has to compete, against these high interest rates. one of the interesting things was that we didn't see gold, so much gold demand with the chinese equity markets were going up, but since they have come down, we didn't see the demand come in may of last year, when we got the additional decline, but since then, they have finally begun to feed into the gold demand. tom: interesting. francine: when you look at measures, the ecb has to deliver a lot more than what we think at the moment. forecast wasn revised downwards. what can they do? one train of thought is that they have no power over inflation at the moment so give it up as a mandate. be may be tooould much of a shock for the markets to handle at this sensitive point in the matters. at credit squeeze -- at credit suisse, one thing we believe would help would be to credit , it takes the money direct way to where it is needed and helps reduce the funding costs of companies. you have big spreads between tanks and companies have to pay for money and what the ecb does. you could try to reduce that. that is less political, going in and buying specific company bonds or even government bonds, for that matter. thecine: where do you see euro-dollar? what could put more pressure on the euro? breaks it risk take the euro down with the pound? shahab: the euro is the most complicated currency to think about right now. he can as everybody is short euro right now, waiting for the ecb to come up with something special. what we have seen though, this year, with the bank of japan and in sweden, we have seen the risk bank and in both cases, the currencies ended up much stronger. isin my view, the risk actually that whatever the ecb comes up with, it will eventually be deemed as insignificant. the euro could then pop higher, we think it could go up to 1.17. ultimately, it is a cyclical weakness in the structural rigidity of the euro and over the long term, it will dominate. had to take in the short-term factors and the long-term obvious negatives that the euro faces. tom: james steel has never seen this before. this is the three-dimensional surface of what he was just talking about. this is massive. a massive bet out -- i'm going to make it out one year on a weak euro. i know how you put steve majors world in there. how do you put hsbc currency dynamics into a gold world when you have these massive one way setups on the weak euro? there is a consistent inverse relationship between gold and the dollar. tom: that is still there? james: yes. it breaks down in times of extreme crisis. when investors go for gold and investments at the same time. we have a similar view. the ecb doesn't deliver as much on march 11, then we get a push back in the euro and that is a positive for gold. that is where we are looking really for one of the next issues to carry gold a bit higher. clear, yourto make target is 1300? 1025. our average is 205. francine: we have not even talked about negative rates. is it a huge concern, the impact banks? they may be even more risk-averse? gold. it is supportive of you don't have negative rates in an environment that is positive. thate risk factor there would be appropriate with negative rates, it is supportive of gold. it alleviates the opportunity cost of owning gold. i remember when rates were significantly higher, back in the 1990's. the market was in a funk week as it couldn't compete with the high interest rates. -- right now.een those things are positive for gold. tom: have you been to fort knox? james: no. tom: we should go sometime. when i was a kid, fort knox was a mystery. goldfinger, ite, has one of the best and most concise explanations of the gold standard that i have ever heard. tom: there you are. a movie review from james steel. goldfinger 47 times when i was 11 years old. james steel is with us from hsbc. today, we have an important guest on surveillance radio. a scathing critic of two big to fail. look for that in the 9:00 hour worldwide on bloomberg radio. ♪ tom: good morning everyone, this is "bloomberg surveillance." let's get to a foreign exchange report right now. the yen is 112.31. the sterling is on a rebound. crisis over. gold futures, i put in there after an hour with james steel from hsbc. 1234.s at shahab jalinoos is with us. is global litmus paper, it dollar-yen. why do we care every morning about the yen as a risk measurement of the world? shahab: japan is an important country. tom: but it is more than that. shahab: yes, japan has a lot of wealth. in that sense, when there is a shock to the global system, there is a fear that japanese investors hedge those exposures. it tells you quite a lot about how markets are perceiving global risk in a currency that is very liquid and trades 74 hours a day -- trades 24 hours a day. tom: bring the chart up. we have shown this chart 47 times this week and let's show it one more time. that worked out. are you kidding me? there is the effort by japan to weaken the yen. help me here with your textbook, this is what happens when you try to move a currency, right? shahab: the problem now is that we have a world where the other side of the coin, when we look at the dollar-yen rate, it is 2012-2015.ent than for most of that, they were looking at higher u.s. interest rates. you also have the factor of a stable global equity market. so that created a good story because it meant that the japanese could ease policy and you didn't have any headwinds coming from the other side of the coin. today's world is different. have a volatile equity market. you have a much lower u.s. rate. , to tryapanese policy to surround all of these difficulties to get the dollar-yen to go higher is much harder than it was before. for thank you so much coming in today. particularly with your effort on the single best chart yesterday. francine? francine: i bet you that a lot of the discussions will be on that. coming up shortly is bloomberg gold with david westin and stephanie ruhle. david: we will pick up where you left up with the g-20. it is an awkward day in china where their stock market is down. jack lew told us yesterday that we should not expect big growth. the imf said they want a big growth announcement coming up. also, apple against the fbi. tim cook was defending his company's position. he said that what they're being asked to do is 10 about to cancer. and also, we have a joe edelman coming up on bloomberg go. francine: that was a great interview. i wonder what he makes of the imf comments. they must have listened to the interview and said g-20 needs to take bold action on global growth. it is fascinating because you have half of the world leaders saying we are not in crisis, the market is doing their thing. and the central banks are looking at currencies. tom: i'm glad you bring that up. in the last 24-48 hours, once again, markets are telling officials what to do. i totally disagree with that assessment. riskts are discounting for and there is no question that the risk is increasing. as sam fisher would say, the uncertainties abound out there. up 26.ures are a constructive tone to the market. willrow, robert hormats join us in the 5:00 hour. this is "bloomberg surveillance." ♪ >> volatility returns to china. chinese stocks fall the most in a month as finance ministers prepare to meet in shanghai. investors are loving lloyd's today. payment forpecial pay holders. tim cook is not backing down. the apple ceo says unlocking the iphone would be bad for all of america. welcome to bloomberg . i am david westin. it is awkward for china. >> that is not what you want. >> maybe it is time for a call to action. >> let's get started with the first word from caroline hyde. caroline: thank you. gre

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