Transcripts For BLOOMBERG Bloomberg Surveillance 20170215

To reasonable policies. Francine good morning. This is bloomberg surveillance. We have great guests. We will be talking dollar, pound, and some of the greek bonds. First things first. Thats check in on your markets. This is the picture. Banks in the u. S. Yesterday leading the rally, as janet yellen, with her comments yesterday, seemed have buoyed equities. A lot of banks in europe are still gaming. 1. 6 for the industry in europe. Stocks in general are gaming. A next bag in terms of earnings. Lot has been playing out on the currency markets. Chinese stocks in hong kong jumping after record new credit fueled optimism for strength of the chinese economy. Lets get straight to the first word news. Here is nejra cehic. Trumpsides to donald president ial campaign had contact with russian intelligence officials according to the New York Times citing former and current officials saying intercepted calls show repeated contacts with senior russian intelligence officials in the year before the election. The u. S. Treasury secretary, Steven Mnuchin and, has expressed his desire to strengthen the deep economic bond with britain, according to a statement on his phone call with u. K. Chancellor Philip Hammond. The pair discussed the opportunity to work to support the socalled special relationship, especially as britain prepares to leave the e. U. Malaysian investigators continue to search for clues after the sudden death of kim jonguns halfbrother. According to reports, he was targeted by women with a chemical spray at a shopping concourse in Kuala Lumpur International airport. South koreas by service said spyh korea south koreas service said north korea had been working for years to kill him. Underwriting security offerings move is mored the akoni and than in past years, when dealmakers who failed to impress bosses still got something. Goldman sachs shares closed at a record high yesterday amid optimism for a positive economic and Regulatory Environment under the Trump Administration. Indias space agency has notched a world record while launching 104 satellites aboard a single rocket, which lasted from an island carrying nano satellites from seven countries. India is looking to cement its position as the dominant destination for lowcost launches. Global news 24 hours a day powered by journalists and analysts in more than 120 countries. I am nejra cehic. Francine thank you. Fed chair janet yellen says they would be unwise to wait too long to raise rates, sending the dollar and treasury yields higher. The odds for a hike rose slightly under comments for the Senate Banking under comments fe Senate Banking committee, and major equity benchmarks closed at record levels for a second day, as yellen said the fed does not need to wait for Trump Administration plans on fiscal stimulus before taking action. Yellen as i noted on previous occasions, waiting too long to remove accommodation would be unwise. Fomctially requiring the to eventually raise rates rapidly, which could risk disrupting Financial Markets and pushing the economy into recession. We do not know what fiscal plans will congress and the administration will decide on. We are not basing our judgments about current Interest Rates on speculation about that. Been makinghas solid progress toward achieving our objectives. The Unemployment Rate is close to levels we regard as sustainable in the longer run. Inflation has moved up. And it is those trends that are driving our policy decisions, and not speculation about fiscal policy. The fomc has enunciated that its longer run its longerrun goal is to shrink our Balance Sheet to levels consistent with the efficient and effective implementation of Monetary Policy. Francine that was janet yellen yesterday. We bring in the chief Investment Officer at cross bridge capital, and stephen gallo. Thank you for joining us. Stephen, let me kick off with you. What did we learn from janet yellen . She is ready to go despite having much of an idea of what is. Ps economic plan stephen she has obviously expressed concern about Market Expectations for march, and rick rate hikes in general falling too low. I think that is one of the main things yellen was trying to get out in front of yesterday. March did slipt too low and they should be close or50 50, rather than 80 20, Something Like that. The bottom line is that when faced with the uncertainty of trump, they are still faced potentially with a sea change in fiscal policy. They do not want to fall behind the curve. Two of the things that have happened since the crisis is that Capital Investment in the u. S. Has been very weak, and so has productivity growth. Those things could change materially as a result of fiscal policy. The delta is potentially huge. Productivity, a change for the better, right . How does fiscal policy automatically impact productivity . Stephen fiscal policy and changes to the tax code and more importantly, potential for reshoring of u. S. Production as a result of trade policies could effect willingness to invest. Effect Capacity Utilization in the states. Both of those things would be positive for fed policy upward trajectory for rates. Francine do you actually assume that the trend is going to be better for now unless we get a fullon trade war with china . Yes. I think if i look at economic growth, i am feeling more positive. The liver, i do not expect rates are going to increase in march. One measure we look at is core pc number. December 2011 through april 2012, we have not seen that hitting 2 . Consistently, the fed in its own measures that it expects to do a 2 , it has been undershooting it. My view is that a lot of the change that President Trump has promised is not going to come until the second half of the year or the later part of the second half of the year. I do not see concerns in terms of the fed raising rates. It is continuing to maintain its reinvestment policy, which it said it will not temper with. To me, markets will rally, as we have seen consistently. Risk was talked about but did not happen. Francine i wonder how much of it is priced into the dollar. Stephen there are about two rate hikes priced in, i would say. Two and a bit. I would also highlight that after the second or third rate fedsf the cycle, the tightening, raising rates, does not matter for the dollar anymore. Back toour attention the potential seachange on the fiscal side. Economists from all over the world have been calling for a change, a move from the central tok Balance Sheet expansion different drivers of growth. Now that we have the francine you need to fund it. You need to fund infrastructure. That is impacted by Dollar Strength. Stephen that is where changes to the Corporate Tax code come in, tweaks for the better way approach, potentially a capital flows tax with a border adjustment. That is where the funding question comes in. Francine the problem with the tax rate how does he conciliate the working for the average man, the man and woman that felt they were left behind by globalization, with seemingly giving more to companies and people who already have quite a lot . Manish i think the key thing about tax reform is, how does it impact . It is not about the large corporate. The u. S. Corporate tax rate is highest in the g20. You look at who is carrying the burden. Francine wall street are not doing that on the back of this. Manish it is not about large corporations. It is about smes. They have complained about high taxation from epa, from health care issues, and all. If you do not sell that part, you do not get a 4 growth rate. That is what i am looking for when they do the taxes. How does that affect the Small Businesses, the bulwark of the American Economy . Francine as long as there is no protectionist measures, because that would be counterproductive, some kind of tariffs. That would impact the supply chain. Stephen i would agree with manish that changes in Financial Regulation could allow Small Businesses access to credit and could open investment opportunities. I would also point out that we would expect, as a result of reshoring of production back to the u. S. , a smaller u. S. Trade deficit over time. Countries that have small trade deficits or trade surpluses generally have lower ginny coefficients gini coefficients, through the developed world. The u. S. Has been a lacquered because of lack of reform to Corporate Tax policy. That is one reason the u. S. Has been a laggard. The same have not had subsidies as exporters in foreign countries, and the u. S. Has run trade deficits. Francine we will come back to that. We will get more comments from the fed chair janet yellen today. She speaks to the House Financial Services committee at 3 00 p. M. U. K. Time. You can follow that live on bloomberg. If you are a bloomberg customer, you can watch the show using tv. You can go back and hear what our guests were saying. You can stream it. You can follow our charts and functions and reach out to the show directly by clicking send ib to the show producers, and ask questions i will ask our guests. That is for tv. He sure you use it. Thats get straight to the Bloomberg Business flash. Abn amro has reported a 23 increase in fourthquarter profit. The statecontrolled dutch lender says underlying net income, which strips out one millionms, rose to 333 euros, helped by higher Interest Income and lower provisions set aside for risky loans. Credit agricole saw fourthquarter profit slump in net income dropped to 291 Million Euros after it booked a goodwill writedown of its french Consumer Banking unit as trading revenue fell. That compares with a 315 million euro analyst estimate. It is a beat for heineken operating profit. The worlds secondlargest brewer says it came in at 3. 50 4 billion euros. Sales and earnings will both increase this year as it makes headway in asian markets, such as vietnam. General motors shares closed almost 5 higher in yesterdays new york trading after bloomberg revealed the psa group is exploring and acquisition of the carmakers business. Gm is seeking a multibillion dollar amount for opel, which operates vauxhall. That is the business flash. Francine the deputy ceo of agricole,ank, credit told bloomberg he is not expecting a Marine Le Pen victory in the election or a potential frexit. Those comments, as polls show a tightening of the race. Markets are exaggerating this type of risk. They have been impressed by previous episodes, notably brexit. I quoted that a few minutes ago. They are now always looking for the risk. I am convinced it will not happen, and i am convinced that france will stick to reasonable policies. Francine meanwhile, it is exactly one month until elections are held in the netherlands. The ceo of Deutsche Bank abn amro told us an exit is not a scenario he expects either. Thel with us, the sick chief executive officer executive officer across bridge and the head of european fx strategy at fimo Capital Markets. Manish, you were a brexit proponent when you came on the show. Do you think it is the same fear that ledaccept, to brexit m donald trump, that means Marine Le Pen could have a chance . Manish when people say it will not happen, it always scares me, because clearly, there is a risk that it could happen. I would say that the problem definitely is, if you look at what people are revolting against look at germany. Germany is in a system with everyone. You would expect that if you are exporting a lot, your currency should strengthen. It does not help the rest of the european countries. I had this question yesterday francine a very Peter Navarro argument, cheating the rest of the world. Manish by design or whatever it is, germany is in a system with everyone else in the eurozone. If you export more, your currency does not move . I would say that is an argument of dissatisfaction on the part of people in the rest of the eurozone. There is clearly i would say people francine you could argue that without germany, there would be no eurozone. You look at the greek bailout manish it is true, and we should look at the system and balance. That is the biggest risk people are not looking at. If frexit were to happen, currentaccount surplus germany has accumulated, is it real or fake money . Paper money is getting people worried about if it was going to go there. The risk of Marine Le Pen winning, i would not rule it out. Francine 20 or higher . Manish higher, but we have two months to go. They said they will bring out more things on macro. Macron. You should not take this as a small risk. Francine what is your take on what the ecb could do . Stephen that attitude you just made about germany and the eurozone, that is why there is dissatisfaction with the euro in southern countries and greece. Francine what, . Stephen the comment about germany supporting the euro, and there would be no euro without germany. Francine the point is what, that they should break up . Stephen the point is that the attitude and the lack of acceptance for blame is what elected the political dissent, the dissatisfaction. Francine but it is not to be fair, i am playing devils. I do not have an opinion either way. When you look at the conception of the euro, i do not know what germany could have done, apart from spending more. They have very strong stephen germany could have exercised francine very weak currency area currency. Stephen politically, merkel could have accepted responsibility for the crisis. Germany is responsible for the crisis as much as greece is. Francine what is the step . What should they do . Stephen it is difficult now. We are getting to the point where we are beyond the point of no return. We have kicked the can down the road so many times and we have a sevenyearold can we have kicked multiple times. Solutionsrospects for are being clouded over by the political cycle. In our view you asked about the ecb and about Marine Le Pen. In our view, 2017 is going to lead to a situation, regardless whether Marine Le Pen wins or loses in france 2017 is going to lead to a situation in europe where you are going to have multiple competing interests across the bloc. The prospect for financial architecture, the necessary architecture of the eurozone being completed, is looking more distant. Francine could it break up this year . Stephen moreover, Debt Forgiveness in greece will probably be even less likely after the german election. I do not think it breaks up this year, but the odds of an exit are in the 50 to 60 range. We could have a sea change in the attitude, but i do not think that is likely. In terms of ecb policy, i think they are kind of boxed in. We are at the point now where if the euro is too strong and policy is too tight, it is going to be a problem for weaker economies, where they are seeing key levels of Economic Activities fall below precrisis levels. Core inflation in italy is barely moving. It is very low, below 1 . You have this disparity. If the euro is too weak, it is a problem for Northern European countries. We have always had that risk with the eurozone. But now, more than ever, the tensions are heightened as a result of those risks. Francine our guests stay with us. Steven mnuchin and Philip Hammond discuss strengthening ties between their countries. We talk brexit and Transatlantic Relations under the new presidency. And an interview i am looking forward to is we speak greek bonds and greek Debt Forgiveness with a guest from japonica. They hold 10 of all greek bonds. Francine this is bloomberg surveillance. Secretary Steven Mnuchin and has stressed his desire to strengthen the economic bond with written, according to a statement on his phone call with chancellor Philip Hammond. We get an update with the latest jobs data in about 10 minutes. Lets get the thoughts of manish singh and stephen gallo. You spoke to someone at Deutsche Bank yesterday, and he was calling the pound at 1. 05 versus the dollar. Where do you see it . Stephen on the dollar side, based on tweaks to fiscal policy 7 the u. S. , we see a 5 to appreciation. For sterling in 12 months, we think it will trade at 1. 37. The reason is that we think the Political Climate in the rest of the e. U. Will move in a direction that effectively favors the u. K. s position, the position the u. K. Has adopted government. Y we think the political transition and the rest of the e. U. As we move through the political cycles of various countries will allow the u. K. To secure transitional arrangements and ultimately decent fair trade yields with various countries, or the e. U. As a whole, pending on how the e. U. Decides to approach freetrade deals. Francine your take . Manish i agree with what stephen is saying. I was surprised when i heard the 1. 05 production yesterday. People are ignoring the politics. It is not the u. K. Wants the best deal for itself. It should be good for the e. U. As well. The Political Climate in the e. U. Over the next year is going to question how things are happening. What i think on the one hand, politics said brexit is bad. On the other hand francine i understand with greece, the problem is immigration. There is a redline that the e. U. Wants to keep together. You could have a deal that is good for both parties, but the e. U. Wants is for the country to accept immigrants. Stephen lets talk about Single Movement and the Free Movement of capital goods and everything. I have a view that we have Free Movement of people, but not in a true sense. If you compare it, this free market, to the u. S. , we have language barriers. We have barriers about local laws. It is not like moving to another place and getting a job tomorrow. I am saying the fundamental thing the u. K. Keeps talking about will not be a fundamental requirement for a market. They keep banging on that they want to create a United States of europe. It is a good treaty, but if you become too ideological about it, to the point where you do not want to negotiate, bad things happen. What the u. K. Asked was a fair question. Francine but that is like changing a mandate from the central bank. Stephen i would like to see where it is in the treaty that exiting countries from the e. U. Deserved negative trade negotiations. There is no law on that. Francine we do not know. They have not negotiated yet. Stephen that is the attitude they took prior to mays speech, quite negative. Francine in what sense . Stephen inflicting punishment on the u. K. For its decision to leave the e. U. Francine isnt that an negotiating position . We do not know where they will come from. They said, we are sticking to a redline. Manish i have a feeling they do not. It was a surprise to many people. I do not think the e. U. Thought they could leave. It would have been better in negotiations. Things were said. You see that mellowing, because the economic reality is the real reality. People want jobs, wages. If you are bullish People Living in the u. K. , you are going to go with brussels, which does not want to hurt its own people. Informative, that the u. K. Could break the e. U. In terms of negotiation strategy. That is the economic reality they are facing. Francine up next on the program, greece is back in the spotlight, and we are speaking to one of the biggest holders of greek government debt. This is bloomberg. Ive spent my life planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Is bloombergs surveillance. I am Francine Lacqua. Janet yellen has backed great heights ahead as the u. S. Economy stays on its current course, investors see a 34 chance of an increase in midmarch, janet gave no clear signal on timing. We have eight meetings a year and it means and some meetings, if things remain on course, increase our target for the federal funds rate and not act at others, precisely when we would take an action, whether march or may or june, i know people are focused on that and i cannot tell you the u. S. Treasury secretary Steven Mnuchin has expressed his desire to strengthen the deep economic bond with britain according to a statement on his phone call yesterday with the u. K. Chancellor Philip Hammond, they discover opportunities to Work Together to support the socalled special relationship, especially as britain prepares to leave the eu. Sachs does not pay 2016 bonuses to 100 backers who advise on takeovers and underwrite securities offerings according to people with knowledge of the matter, seeing the movie is more akoni and men in past years when many dealmakers who failed to impress their bosses still got something. The Company Shares closed at a record high yesterday amid optimism for a positive economic and Regulatory Environment under the donald Trump Administration. Indias space agency has notched up a world record by launching 104 satellites aboard a single rocket. The satellite launch vehicle blasted off from an island in theast india carrying india is looking to cement its position as the dominant destination for lowcost launches. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. This is bloomberg. Rancine thank you we are getting breaking news out of the u. K. Economy, in terms of jobs, the jobs, unemployment , in line with estimates but the basic wage growth, extremely important because not only it means that people feel richer over, or poorer Fourth Quarter ways gross slow to 2. 6 and we not much of reaction on pound but we need to keep an eye on it as mark carney decides what to do next and as you start the negotiations on brexit. Euro pound 84. 756. To donald trump repeated contacts with russian intelligence officials according to the New York Times, citing former and current american officials, they say phone records and intercepted calls showed dialogue with senior russian intelligence officials in the year before the election. Lets introduce my guest for the ,ext half hour, Paul Kazarian glad he is with us come he makes investment in underperforming global solutions, situations, and mark gilbert, we are glad to hear you. Trump, what, donald is priced in at the moment . We expecting to kickstart the economy or continued this trend through fiscal adjustment, spending, and taxation reform . Paul a lot, the mercenary aspect of the market have looked at it and said he is going to be as henations pu is in almost Everything Else he deals with. Francine already priced in which meets at the moment, do you believe he needs to exceed expectations to move markets . Spirits . Tart animal paul he needs to exceed expectations, a lot has been built into the market. He has set a very high bar for himself, had the market moved up a little or stay flat, tactically he may have actually liked it a little better. , thes been a big runup markets tend to overshoot in one direction or another quite often , they are expecting a lot from him and he will have to deliver. Mark janet yellen was cautious yesterday when asked about the fiscal input applications of a Trump Administration, she danced around that and it complicates that policy Going Forward. She put march back on the table saw, apening but as we 34 chance of a rate increase, that is not a meeting envoy. Francine what did you learn . , did youuguration learn that the institutions are working better than expected, did you learn that markets are still waiting on something that may not come, is your main angle on the fed . Mark i am with paul, his isitude matters, in a way it refreshing, you have a president who will do what he says come on tax he seems to be taking an active interest in tax. On bank regulations, stripping back that. Maybe the animal spirits get released. Francine does that mean we should expect a trade war with china . He almost promised that on the campaign trail. Paul when he has enough advisors, wilbur ross, steve cohen, schwartzman, over the last few years, the u. S. Has lost jobs and when we were running sunday, i spoke to trent lott and said the chinese were dumping, they were building aluminum facilities for our furniture business and they were selling at a fraction of the price. Hundreds of thousands of jobs and did that movie because the government had not moved properly. I do not know if it is a trade war or a recognition that one party is substantially subsidizing their manufacturing because they want the jobs. Francine the inauguration was generally 20, a correction, i apologize. January 20, a correction, i apologize. Paul everybody cannot be a anyer, everybody cannot be investment banker, you want manufacturing manufacturing, they are jobs come support jobs, electrical jobs, those are not the jobs to have good. Francine paul in the interest francine realistically, donald trump is a fighting new York Real Estate competitor. That is in his persona and you can see it and everything much like an entrepreneur, he likes absolutes, black and white, that is a direction, the and i gets complicated think, for him, trade wars are not productive, declining europe creates turmoil. Also a competitive but he can turn on the charm. Very quickly. He is a businessperson and if it means having goal with a Prime Minister, they will do it and they will love each other, that is a businessperson. Francine will he play golf would be that officials, what kind of fed does he want . Is morefed that supportive of business that he see the current administration, three new officials we will get in the next year will change the complexion of the fed by quite a bit. Hopefully he chooses good businesspeople, one of my complaints for years have been , whohd academic economics run Monetary Policy, maybe it is time for business people, who have to make payroll on a friday afternoon to be in control of Monetary Policy to. Paul that is right. Francine we will see in 12 months. Up, couldus, coming things get hot for greece this summer . We will analyze the prospect for a deal over the countrys debt, more than 6 billion euros which is due in july. I urge everyone to check us out on the bloomberg terminal, mark gilbert wrote a great piece on greek today. A busy year for elections in europe kicks off in exactly one month and the dutch vote, we will talk european politics and the potentially huge impact of the market. At the latest on the political situation in the United States and reports that donald trump, president ial Campaign Aides had contact with russian intelligence officials. This is bloomberg. Francine bloomberg surveillance. Mark barton has been watching the market action. Led by banksn janet yellen saying the fed does not need to wait for the Trump Administration plans on this goal stimulus to hike rates. The stoxx 600 at the highest level since december 7, 2015. Global stocks going from strength to strength, msc our country world index highest since may 2015 and the record close that day was for very close to the alltime record high, stocks this year on the msc up by 5 after gaining 5. 6 last year. Best performance since 2013, the lower half is the rsi telling us that global stocks are overbought, rsi at 76 today. 10 year yield telling us relation trades are back in both following off from the Janet Yellens comment, the yield on the 10 year rising for a fifth day, the worst run into months. A rate hike in march, risen post yellen by futures traders see less than 50 ons 43 right height this year, donald trump about to pursue progrowth policies that push the fed to pick up the pace of rate hikes, some think. Heineken a big mover, shares up as much as 4. 6 , biggest thing since august of 2015 after the world secondbiggest brewer forecast growth in sales and earnings this year. Customers in vietnam and other asian markets drinking more tiger beer, 2016 earnings also Beat Estimates driven by 13 increase in asian revenue, growth in markets like cambodia and indonesia help offset slowing shipments in europe, americas, and vietnam. , aher middleclass income boosting consumption, shares of heineken up by 4. 6 today. Francine thank you. Lets talk about greece and the eu commissioner, the met with the greek Prime Minister in an effort to find agreement over what reforms are needed to stabilize the countrys economy in both sides intensifying efforts to complete a review of the nations bailout which would unlike aid before july, the crunch time for more than 6 billion euros in obligations come due. Paul kazarian is with us, from one of the World Biggest holders of greek Government Bonds and mark gilbert who has an opinion piece on the subject out this morning. Hers entitled, greece as membership looks vulnerable again, what are the chances of it beating the eurozone . Mark the 23 billion euros they need to repay if they do not get a new deal and the chances that money that is money they do not happen it is hard to see defaulting countries being allowed to stay in the euro. That becomes a political and an economic issue but mainly political. That july payment comes up, they have a soft deadline, a hard deadline in july, if they cannot pay their debt, i start to see it be more difficult for them to stay in europe. Francine the last possible moment where a deal can be done, and will it be done then . Paul the tendency with greece is that it never gets done until it is absolutely the last minute. Tends to be much tougher terms for greece. The longer they wait, politically for them it may be a calculus issue but the terms, they locked the lost the s p rebates which were rebates of interest and got tougher terms, they wait, wait, wait, wait, they get worse fiscal terms that may have, that has been the patent, a gets done and they are worse off. Political calculus, citrus is still way behind in the polls, this has become a political issue and not a factbased issue. Francine the greek twoyear yield at nine point six, if you look at the overall greek Government Bonds, you wont and percent, right own 10 . By bloomberg terminal is saying they are doing worse than even france, do you have second thoughts about your investment . Paul no, they came out with their primary ballots numbers come a they deny get much press, they have the secondbest prime rate balance in europe. The ims had them at. 9, coming and they even. 4, paid out the christmas bonus of 600 million, had they not pay that, francine the the economy is shrinking which was unexpected. Not a real number, the issue is one of trust and rightence, yes people are , they do not have a debt problem, debt is one of the lowest in europe. Thathallenge you have is greece and the imf continued to not use real numbers and tell everybody the debt is not sustainable, and that does not inspire trust and confidence. Francine you can see this going horribly wrong, maybe unintended consequences, this is a crisis, a crisis looming when we thought after last summer this was dealt with, it could go badly. Mark you have the dutch and german elections, not in anyones interest in the eurozone leadership to be pushing greece out. I think greece is fairly committed late wants to stay in the euro, so the risk is there is an accident, a misstep that ends up pushing them out of the euro. Backdrop of those elections, the longer this goes on the harder it is to reach a deal. Chancee a 20 jets, 40 checks, 40 chance . Paul greece gets 40 billion a year in aid, they know it, and 2016 over 10 of gdp, they are this is a fundamental appendage in terms of their alliance, politics aside, they got bad political calculus, the numbers are extraordinary, any nation realistically, you would love to have their primary ballots numbers, they would kill for them. Even though there is turmoil, you look at fundamentals of the number and they are quite extraordinary. When you step back and look, how did you do, and the imf predicted they would come in at 0. 7 , having not done the bonus they would happen over 3 , that is extraordinary and their economy is still basically frozen, they have capital controls, no real estate, when you look at the ballots from a base, what they need is a couple of credible people on the finance side, they really do, the issues here hopefully is that common sense comes in and realizes whether it is mario draghi, they need good management. Francine stay with us. Paul kazarian and mark gilbert. You can read marks columns by on the bloomberg and a section on the internet, just search on Bloomberg View. Com. Busy for the elections in europe, and one month the dutch vote, we will talk european politics and the digital huge impact on the markets. This is bloomberg. Francine this is bloomberg surveillance. The wto of frances thirdlargest nato bloomberg is not expected a Marine Le Pen vote in the election later this year. Or a potential brexit. The comments come as the whole show a tightening of the race. Markets are exaggerating this type of risk, they have been impressed by previous episodes, the brexit, i quoted a few minutes ago, they are always looking for the worst. I am convinced it will not happen and i am convinced france will stick to reasonable policies. Francine it is exactly one month until elections are held in the netherlands, the ceo of dutch mac told us that a socalled exit is not a scenario he is expecting. Paul kazarian is with us and mark gilbert from Bloomberg View, mark coming have written about markets and investors in general jumping at shadows, what are the likelihood about a Marine Le Pen victory . Mark we got blindsided by donald trump and brexit, you cannot really blame investors for wanting insurance about the prospect of Marine Le Pen. Whole show she wins the first round and loses the second round. Show shesome polls wins the first round and loses the second round. As talk of Marine Le Pen a way of funding it, and expansion of social programs, that is scary for investors, the idea you will be read on nominated back into french francs, you want insurance, against the likelihood that the polls are wrong and that she does when the second round of the election. Francine given what the european landscape is on what mark was just saying, their focus on underperforming assets, equities come and fixedincome, where are you going want and where do you see the best value . Paul we probably will be opening an office in lisbon weekly, in the near weeks. I think our focus will be italy and france and probably portugal, and maybe spain. Francine biting what buying what . Paul listed companies. Francine 10 what sector in what sector . Paul hoping the prices do not inflate. Francine give us specifics, what is overbought in europe, the asset most overbought . Paul i think for us, depending on where you look at them, the financial industry tends to be the one that swings between value and not, if you go back to 2008 Morgan Stanley was on the verge of bankruptcy and their bonds were trading in the 20s. Now they have a 75 billion market cap. That is a big swing for a couple of years from being worth nothing. We will stay with the more fundamental operations where we can add value and probably combine them, that is where we will look. , a reviewl in france is let it create turmoil, investors will get worried, comments made by Marine Le Pen are scary, whether intentionally scary or like donald trump, to create the drama in the market, let it push down prices. That is fine. Francine mark, do you think the market is right to be relaxed about brexit . Mark i do not think the market is relaxed about brexit, the pound is still way down than it was before the vote, the economy is fine at the moment but we are still in the european union, you have two years of, i think the market is corrected to not jump at shadows correct to not jump and shout is about brexit but if you look at the political dialogue developing between london and brussels, nothing to give you confidence. There is nothing to give you comfort that the uks holds the upper hand in these negotiations. All of the cards seem to be in the hands of brussels and the eu Going Forward. Hold,k the market is on but is rightly nervous about what happens next once we actually trigger article 50 and once we start francine thank you, it has been great, come back soon together. Paul kazarian and mark gilbert, Bloomberg View columnist. We continue in the next hour i will be joined by tom keene who joins me from new york and we will talk to a professor. This is bloomberg. Jumping after janet, Global Equities resorts as janet yellen says the Central Banks focus is on raising rates, not reducing bond holdings. The ties, Steve Mnuchin tells a u. K. Chancellor of his desire to strengthen the economic bond with written. Athensissioner lance in as the euro groups president says the imf must be involved in any great that restructuring. Good morning. This is bloomberg surveillance. This is Francine Lacqua in london and tom keene in new york. There is russia overhanging everything, we talk about animal spirit, a Nobel Laureate we have, at janet yellen in greece. Tom extraordinary evening last night as the New York Times broke the story, taylor was big of that in a moment and i cannot convey enough to our global obvious how unusual the moment is in washington this morning. Francine lets get straight to the bloomberg first word news. Here is taylor riggs. Members ofeport that the trump president ial tampering had repeated contacts with russian intelligence, according the u. S. W york times, authorities intercepted the communications at the same time they learnt russia was trying to hack into the Democratic National committee. They quote officials who say there is no evidence that the Trump Campaign was colluding with russia to try to influence the election. The white house was tried to replace Michael Flynn as early as last week, that was after the Justice Department warned that Michael Flynn may have misled the president and Vice President about his contact with the russian ambassador. This is according to a Senior Administration official. Several republicans in congress are now calling for expanded probes into the administrations relations with russia. Janet were mentioning, yellen sounds like she is on a mission to raise Interest Rates this year, at a Senate Hearing yesterday, she said that fed policymakers do not need to wait for the Trump Administrations plans on tax cuts and spending in order to raise rates. Janet yellen we do not know what fiscal plans will that congress and the administration will decide on. We are not basing our judgments about current Interest Rate on speculation about that. The economy has been making solid progress toward achieving our objectives. Taylor she will be question today by a house committee. In malaysia, a vietnamese woman arrested in the death of the halfbrother of north korean dictator kim jong and, Authorities Say two women the airportim and and poison him with either a needle or sprayed, he was a critic of north korean who lived outside the country or years. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Equities, bonds, currencies, commodities, Real Movement yesterday and a shift in the market. Not see itng, you do in the curve, flatter over 24 hours but at 123 basis points, the elephant in the room that did not move, Everything Else did with stronger dollar, the euro well under a 106 and crude oil it yesterday on inventory data. The yellennto conundrum with equities a moonshot, it is a meld of, a chart on that later. There is Dollar Strength reaching out over 101 and euro swissie, i am watching, not like euro but grudgingly swiss franc when stronger yesterday. Francine i like that, i never heard of that, melt up. Tom level four. Francine banks, gaining one for euro dollar 1. 6 , 10 five 105. I want to say the chinese chair to traded in hong kong. , this is thechart great unspoken of american industry, Robert Nardelli will join us in the next hour. Here is 50 years of Industrial Production in america, a large chart, slope matters, here is the malaise of the 1970s and 1980s, greatly my mouse is not working, now my mouse is not working. The carter malaise is on the left and on the right side is the much longer malaise going back to 2008. We forget what has not happened in the United States, which is Industrial Production. Francine we have to talk about animal spirit with chris. This is my chart, i was trying to find something, i did a very simple greek Government Bond the chart, this is the twoyear and this is after greece is being cut between major creditors on one side with the imf which is significant debt relief is needed, and then the eurozone saying it is not a you see a new Crisis Brewing and some people say, the euro membership of greece looked pretty vulnerable. We will get to that and a second but now back to dollar and treasuries, janet yellen says the Central Banks focus is on raising Interest Rates, not on reducing its holdings on bonds. This comes after markets hit an alltime high once again and joining us is the professor of economics and the recipient of a nobel prize of Economic Science and what a great pleasure to speak with you. You are an expert on Labor Dynamics. Talk to me about animal spirits in the United States. What does President Trump have to deliver to make sure they take force and the trend is upside . He has to get rid of uncertainty about animal spirit. Animal spirit were invented by John Maynard Keynes to show there are many unpredictables in the economy, that investment does not always take place on the basis of true documented prospects of business or Interest Rates, it takes place in response to what investors and entrepreneurs think about the economy. That is not good for the medium to long term fortunes of an economy. What President Trump has to do in the economy is to get a good Strong Economy team in place. Advisersconomic functioning as he did in the last few years. And tell us exactly what he intends to do as janet yellen was saying only yesterday, we do not know what is fiscal policy will be at we will not wait, that is not good for an economy. His palmslook back on of tax reform and infrastructure spending, is that enough to keep animal spirits high . Christoper those are very big things to do. , the uniteddo it states has now reduced taxes, Ronald Reagan tried it in the early years of his presidency and it did not work because the debt was being built up all the time. The United States needs more infrastructure for sure. I do not think it needs lower taxes. Administration, you can understand why they would say that. Interesting to see i do not think they can do both. At the same time. Tom your work with professor mortensen i think 23 years ago, this idea of frictions within the information that we receive, go to the chart. Here is the ultimate friction in the United States, what is not happening, Industrial Production has not happened going back to 2 007, 2006. Is globalization the ultimate friction, and is the new globalization really what everybody has to focus on . Christopher globalization has a lot to do with it. Because and duster production is shifting to other countries. It shifted to china. It will now be shifting to india tigers,other asian southeast asia. I do not think the United States is going to see a new surge in Industrial Production, maybe a little bit back to normal growth. But do not expect Industrial Production to become the dominant force of the United States economy, whatever President Trump was saying in his election campaign. Im help me with this guess this is the undergraduate question of the day our services the new Industrial Production our services the new Industrial Production . Christopher they are, especially highquality services, once getting automated now, robotics being introduced services productions, Services Becoming exportable, if we continue with the openness of the economy with globalization, countries have companies have High Technology in the United States, and in britain where we can now export more services. That is where the future growth will be. Look at Silicon Valley and what it can do to the service sector. Not too old fashion industry in pennsylvania. Francine talk about Labor Dynamics in the u. S. , will be Trump Administration provide quality jobs . The administration in the United States do not provide jobs. Francine they can provide the framework that would spur employment. Christopher in order to provide the framework they have to provide the infrastructure in the country. Not only the entitlement not only roads, airports, which they are badly needed, but also wifi, do we get it everywhere . Can we use it to the advantage of the business . That kind of infrastructure. Once that is done, the private sector will open the jobs. , noquestion that remains president has managed to do, i doubt whether the Trump Administration can do it given what they said, inequality which in the case of the United States is showing up as the gain for many new production coming in the new automation, they are going to the top incomes, and the bottom incomes. We are seeing that now. We are seeing rising employment. Many more jobs came on in january but rages wages did not rise. What do you do to make sure wages rise is the big puzzle now facing economist and i am afraid we do not have a straight answer. Tom lets continue with Christopher Pissarides of the London School and economics tomorrow, conversation with the vicechairman of the federal reserve, i would do that in washington with stan fischer, so much to talk about, office fees last week and sally fisher on america and the view forward. Francine this is bloomberg surveillance. I am Francine Lacqua in london and tom keene is in your. Achingly impacted that is in new york. Has recreated apollo group 2018 but shares are down as the company is bracing for higher raw material costs and joining us from amsterdam is the ceo. Give me a sense of your main worry about inflation, well this link to paris for the commodity side, are you worried about brexit . Good morning and thank you for having me. When we look back at 2016 we solve Raw Material Prices at the beginning of the year were clearly lower than the year before but looking at q4, Raw Material Prices have leveled out , and we do expect inflationary pressures during the course of 2017 but we have taken lots of measures in place to deal with that as we have done in the past because it is not a new development. Francine do you want m a . You were looking for acquisitions, are the cheap or expensive they cheap or expensive . We close it in the Fourth Quarter, we will be integrating it and will be adding the revenue and 2017 and beyond. We are open for further acquisition efforts but we will be quite disciplined when it comes to value creation. Tom good morning from new york, i want to ask you about the turnaround, flat revenues, you have turned around cash flow nicely, are you anywhere near distributing the greater cash flow to shareholders, or is it still triage for the next 36 months . Done, this is the second year we a proposed an increase in dividends, last year 7 and this year 6. 5 and today in the middle of a Share Buyback effort. Returning cash to shareholders is definitely part of the things we are doing and we will continue to do Going Forward. Tom tell me about expense reduction, it seems to be the new religion, a new fervor, is the only solution to know growth, is expense reduction, do you presume on a daytoday basis that continues . Ton yes, we have moved from what i call a restructuring mode of the past to what is more a Continuous Improvement mode, and in this Continuous Improvement mode we improve the efficiency of our factories, what apply chance, functions, and with limited restructuring costs, last year less than 65 million, we took 200 million of costs out of the system and this Continuous Improvement mode is something we will be in on in 2017 as well let the same time we will invest in capital expenditures, joint ventures, other efforts like innovation to drive growth Going Forward. Francine give me a sense of your biggest worry, is a trade brexit . Going up, is it what we have done so far is concentrate on things we can control, we watch very controlling what happens in the brexit, the development in the u. K. Where we are a significant participant, it turned out better than most people expected at the middle of the comment positive developments for our business there as well. We do not want to anticipate or hypothesize about many of these events. We are working on a builtin agility of the company to respond when something happens, that is what we are focusing on and in our control, the geopolitical events that may or may not take place is not something we can affect but we can affect our responses to it. Francine we are exactly one month away from the dutch elections, what happens if the wave of populism that engulfed brexit and engulfed the u. S. Touches europe . Again, this is a political question and we normally as a company was a leave politics to the politicians. We as a company are a successful participant in the economy in the netherlands, a large for distance, a growing participant, and i do not think that will change with the elections. In the overall picture, commenting on what may happen Going Forward in europe is not something we would normally entertain and support because we do not know. So far the effects of most of these developments on the economies have still been relatively benign. Francine thank you very much. Chris pissarides, when you look at the positive populist that could or could not take over europe, are ceos right to discard it . Christopher i am sure they are they feelsing it, but uncertainty, their contingency plans is not something that the ceo would not want to say in public. Something for the boardroom. I am for both ceos of big company in europe and macroeconomists, people concerned about jobs like myself, is something always in the back of our might and worried what will happen. Francine thank you. The fed chair later today testifies before the House Financial Services committee and bloomberg will bring you that, all coverage, look for at 10 00 a. M. In new york at 3 00 p. M. In london. This is bloomberg. Surveillance. Commenting in your and Francine Lacqua in london. The news flow last night was extraordinary, i will let you read about it across the bloomberg and across all the world media. Give me the backstory on mr. Benton bannon. With a New York Times article and what the Washington Post was doing and cnn doing, i did not hear any discussion about steve bannon, did he have a good 24 hours . Yes, when you look at what happened 48 hours ago with you resignation of general flynn, steve bannon who will be the driving force behind President Trumps infrastructure plan has aligned himself with some folks in the u. S. Intelligence community who are now with President Trump, including people in general kelly and general mattis. Looking ahead, i think you have a much longerterm strategy that while the u. S. Intelligence , thettee in the Senate Joint Intelligence Committee will continue to press the administration on their ties to russia, look for this administration to quickly turn the page. Tom help us, what is the shortterm strategy like, how does the president get to lunch . What will be the response this morning . I think what we have seen in they typicallyt in these types of situations attack the media. Already the Trump Administration will look to single out some of these reports and try to distance themselves from the reporting. Beyond that, regardless of how they criticize the media, i think that, again, joint Intelligence Committee in the senate really could pose new difficulties for them because that is not just democrats, it is republicans. Tom we will have you back in 30 minutes, how many republicans did the rope up president lose yesterday, any in the senate and any in the house . More that this is another crack, the department of labor nominees hearing on thursday and slowly it weaken political capital, that is where this hurts him as he tries to accomplish more of his legislative agenda. We will speak you at the top of the hour, next ordinary events last night, our Washington Team working on that and today on Bloomberg Radio and television, the laureate pissarides and another laureate, paul krugman, somehow a Nobel Laureate in politics, look for that this afternoon. It is a washington no other way to put it after last night. Stay with us worldwide. This is bloomberg. [ alarm clock beeping ] weather. [ laughter ] cartoons. Wait for it. [ cat screech ] [ laughter ] [ screaming ] [ laughter ] make everyday awesome with the power of xfinity x1. Hi grandma and the fastest internet. [ girl screaming ] [ laughter ] francine this is bloomberg surveillance. This is Francine Lacqua in london and tom keene in new york. James games matt mattis is in europe where he will say we are committed to europe, he is expected to us european counterparts to commit to spending more money on defense. The u. S. Is after more assistance for campaign in afghanistan and elsewhere. A new challenge to President Trump from russia, the New York Times says russia secretly deploy a Cruise Missile in violation of landmark Arms Treaties come in 2014 the Obama Administration says the ground launched Cruise Missile has been launched despite a 1987 treaty that bans them. It British Governments right to commence President Trump this for the landmark Paris Agreement on climate change, according to persons than they are with the docs, british officials are pushing the economic benefits of clean energy, but staying away from the debate on climate science. Singapore may ease regulations on Venture Capitalists to promote financing for startups, according to a proposal, Venture Capital managers would not be subject to the same Capital Requirements and conduct rules that apply to Fund Managers in general. Regular the regular to in singapore are trying to make it easier to experiment with financial technology. Softbank has agreed to buy alternative asset manager Fortress Investment group, the price is 3. 3 billion. Fortress will operate alongside soft brexit to be established 100 billion Technology Investment fund, shares of fortress have fallen by two thirds since it went public in 2007. Global news 24 hours a day, powered by more than 2600 journalist and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Fortress,et the a on fallen by two thirds as you mentioned. You see the success of mr. Shan, softbank,vement of this is the desire of the guide to be a big player. Dogs, i this dog of like what bloomberg wrote an deal book wrote in the New York Times, these guys with good intention, cannot get out of their own way, the stock has been a huge disappointment, normalized back to 2007. I laud them for coming out and saying enough, lets do a deal and move on. I love the idea of what ive seen in the articles, head scratching, what does softbank need with this conglomeration of distressed hedge funds . It has all of the right algorithms. They you paid bought it on the cheap and a lot of people questioning why they want to buy a private equity firm, soft mac has diversified in the past, internet startups, ecommerce. The ravens of keep making reports, talking about soft make and then earnings, from Credit Suisse, the ceo told me the climate for the industry is improving and costcutting is on track. Reports come as the european Banking Industry braces for President Trumps much touted deregulation drive. Ats bring in Chris Wheeler still with us is Christopher Pissarides. , a lot me about softbank of people questioning why they bought fortress, is it diversification, can they use some of the Technology May have . I think a big factor is the ability to bring on board the investment skills that fortress as, which clearly they do not have to such extent. I think they are trying to boost the Technology Fund of theres. Francine what is the one thing you will have learned in terms of banks, european banks will suffer, i do not know if it is countries like softbank needing to diversify. We have learned in terms of the european banks, if you want to weather the storm, if you look at the bank results from evidence of the issues around negative Interest Rates that occurred both of them , the writedown of credit background, Credit Suisse yesterday, things are so much Better Things are better, they are pushing to one side, rather bold plan to ipo its less universal back which i think was probably a bit of showboating if you want to show something they could do if capital issues got tied. Right. Tight. That is positive and is shown in the share prices. Tom credit agricole, it is a troubled french bank that weather Credit Suisse, credit whener, credit pissarides, are we going to talk about mergers to put some of these people out of their pain . We have five this conversation many times. Francine everyday. We have had this conversation many times. Francine every day. You have heard, your new administration talking about the two big to fail issue in the United States, they have been talking about should we be bringing up the banks again. There is a great nervousness by the regulators and the ecb to allow bigger institutions to emerge, even though there could be enormous synergies that could be generated. Tom help me professor pissarides with the fractions of the perfect information known as nationalism, pissarides would vos, helpto me at da me with what David Rubenstein said in my panel, this is just about nationalism, nationalism is a true Economic Force and financial force, isnt it . It is but much less than anywhere else, nationalism. And economics we do not call it nationalism, we call it home buyers, you prefer to do things as a policy maker that helps your own financial industry. Are more global. If i go back to the discussion we are having, my main concern as an economist who is studying be entire economy, economic now closebor market, to 10 years after the financial crisis started showing up, nine years since lehman, still discussing the same issues and they are always coming back. Regulation is changing, we still do not have a quite right, no Banking Union in europe, i do not know why it is taking so long but it is slowing the economy. Francine do you believe that europe is over banked . Too many banks, or too many branches . Christopher not necessarily, but i want to see first is a plan a complete Banking Union and how they operate, then decide whether there are too many too big or too small. I am more at about the excessive regulation the European Central bank are coming. On the other hand, i do not want to see Something Like a too big to fail back that eventually fails and we have another lehman event in europe. It works both ways. Tom that is interesting after a wonderful conversation francine had with the head of Credit Suisse to see where this goes. Chris for wheeler and Christopher Pissarides, thank you, tomorrow and important conversation with Stanley Fischer, we will talk economics, a little bit of fed policy, mostly Stanley Fischer on the American Economic experiment. Pictures, toms favorite view of london. Do Christopher Pissarides, something about this view, the ugliness of the london skyline, that is appalling. Too many grains. Cranes. Francine the rhetoric over greece with the to lay the groundwork for a crucial euro group meeting, the euro Group President says the imf must be on board in any deals, the greek Prime Minister says the fund does not have the courage of his convictions and german spd candidate Martin Schulz says point with the brexit means playing with splitting because in the joining us are Christopher Pissarides and christopher wheeler. He is a banking analyst. Is thepher pissarides, greekeuro membership very vulnerable . Are we looking at a fresh crisis . It looks like it and i confess, the most recent , ieement we had, a year ago was expecting this to come back again, because it was not a complete agreement about what will happen, there were many open ends and when you get a Prime Minister telling you, i do not like it but i will try and do it, you know that what he will do is show that he is doing something without actually doing it and that is what is happening. You can blame on both sides but it looks like we are back again, will there be a brexit . Will there be done relief that relief . Debt relief . Francine he said not a problem with the country, not a problem with the figure, the problem is with great confidence greek confident. The issue is of trust and confidence. They do not have a debt problem, it is one of the lowest in europe, the challenge you have is that greece and the imf continue to not use real numbers and tell everybody the debt is not sustainable, that does not inspire trust and confidence. Francine will they get a deal the last will it be at minute, the latest possible deadline for a deal to be reached . Important elections coming up in europe, especially germany, i do not think they will get a deal before the german elections because of fear of any backlash in germany. Any deal they get within the euro will have to involve some kind of debt relief, or giving them more money. You can imagine the opposition in germany saying we are throwing money at the greeks again. That will backfire on angela merkel. The uncertainty this fund will last longer than previously. Tom here is the elephant in the room, lets bring up the chart, here is real gdp, the successful greek experiment, here they top out, here they greater, no comeback, christopher wheeler, what do they need to jumpstart the Financial System that will underpin investment to get greece going again . I think it is difficult because there has been so many efforts made to get the Financial System working again. What is most interesting, i was asked this morning, what could derail the markets at the moment, what a great default, a grexit, not to the extent we saw the market disruption during the last couple of crisis is in greece because the european banks in particular have isolated themselves to a large degree from the greek market. It is very difficult to know what you will do unless you get domestic demand within the greek market. Do not seent, we that for the good reason people are not spending money. Uxo what wese is heard the other day, if you bring up the chart, if you extrapolate that greek growth, the United States is up here somewhere and other major developed countries. To me, the big thing professor greece is is alone alone, they cannot get back to this kind of growth, do we have crisis fatigue . And what do the institutions do to jumpstart this . We have crisis fatigue, i do not think the institutions can do very much currently to jumpstart greece. Greece currently has the lowest investment as a fraction of its reduced gdp than any country in europe as far as i can tell. We talked about animal spirits before, and greece we have the most negative animal spirit we have ever seen in a developed country. People are simply not investing the cause there is nothing positive test because there is nothing positive for them to look at, the government is not doing what they are saying and investors are waiting for a change in government but we have so many that did not work out before. Dysfunctional and we have debt hanging over them. We do not know what is happening and now arguments between the imf and the europeans bailout people. To begin with, we have to see the uncertainty being resolved. The uncertainty being resolved ,s to help greece on the debt now there are promises there would be a deal if they do certain things. Second, whether the imf will be involved and i do not see them getting involved. Francine do you see fresh elections in greece . Something that could be far more extreme than Alexis Tsipras . Fresh elections know what not give us change. It will be the same government again. Done has done many you ns, but he is not limiting the reforms he said, it has to go many layers of the Public Sector and you get into a bottleneck at the stops. Francine the risk in europe, can the eurozone survive a greek exit, and the election of Marine Le Pen . It can survive a greek exit because the ecb has isolated itself over the years and the greek crisis have has been going on for eight years. There are measures in place that will make it survive. The main reason i am against a grexit is for the benefit of greece. Greece would collapse. The question is with the european economy not so much the Financial Sector of europe but the european economy as a whole, trading partners in europe, a week europe, will they survive a crisis in greece as they seem to be coming to terms with the brexit . That will be too much. The biggest rollback of grexit would be on greece itself. Francine thank you so much Christopher Pissarides. Chrisl be back with wheeler Atlantic Equities and talk u. S. Banks and look at ratio for u. S. Versus european banks. If you are a bloomberg terminal user, watch us on tv , tight tv under terminal and watch dr. The showat producers and ask us questions taylor d the Bloomberg Business flash. Another blow to the Affordable Care act, humana plans to get out of all of obamacare marketplaces for 2018, the president responded on twitter, writing obamacare continues to fail. Republicans have vowed to repeal and replace the Affordable Care act. The British Labor market is moving closer to full capacity, unemployment fell in the Fourth Quarter and one measure of the number of people working in the u. K. Rose to a record, the british jobless rate is 4. 8 , the lowest in more than a decade. Wage growth was weaker than expected. Goldman sachs is sending a signal to underperformers at the firm, according to people with knowledge of the matter, they will not be paying bonuses to about 100 bankers who advise on takeovers and underwrite securities offerings. That is a message to those bankers that they are better off elsewhere. That is your Bloomberg Business flash. Tom thank you. Lets get into u. S. And european banking, where we will be in the new economy, Christopher Weaver of Atlantic Equities with a real focus on eu backing and with and with banking, respect to the u. S. As well. We have shown this chart a million times, this is a little small thing, which is the melt up and jpmorgan shares and the nonmelt up in europe, the trump bump seems to be american when you look at finance. How does europe get on track, or should the u. S. Banks begin to strategically acquire European Assets . First of all, we have to remember that u. S. Banks we talk about before we had a bank recapitalized during the crisis, the europeans have not still got there. , you canddfrank complain about it but the stress testing was much tougher and you created stronger institutions, taking market share and Capital Markets, now have the benefit of rising rates to boost their margins and will not go to. Egative rates in addition, you have the prospect of taxation cuts, Corporation Tax rate coming down from 35 to 39 , to something maybe in the 20s, europe does not have those things, still negative Interest Rate, still have not fully we capitalized the banks, we had the discussion about Credit Suisse earlier, still a long way to go for the said citizens but you are right. Tom the german to your down twoyear down, we made global headlines with george sarah bellis at Deutsche Bank at a 108 sterling, if we get that depreciation in sterling, what does it mean for the london banks . Christopher it puts them under severe pressure, i go back when sterling almost went against the dollar, i think 1985, it caused major problems for the banks who obviously saw big problems with their dollar assets ballooned on the asset sheets and we could see that. The translation of earnings, you could argue that is at least positive if you have u. S. Businesses but they have been cutting back u. S. Businesses in most cases to deal with the fact that they want more capital within the operating subsidiaries francine this is the pricetobook ratio, in blue, u. S. Banks and in white european banks, fourpoint plan for this . One of the things i remember during the 1990s, is that Investment Banking earnings in particular were flying, we were always behind the curve in operating earnings and behind the curve and down ratings who went into the crisis. We are in the same situation in the moment with the u. S. Banks underestimating just how strong earnings will move in 2018, on the back of rising rates, much Better Capital markets, keeping a lid on costs and the possibility of tax cuts which will not be a big boost. As well as earnings per share to. Tom thank you, Christopher Weaver of Atlantic Equitiestom . The news flow has been extraordinary, in our next hour, kevins are really on the events last night in washington and a very important guest, robert l. A. Will join us with his expense of Industrial America and ceo leadership, what do Corporate Executives do given the ballet in washington . There is no evidence of corporation yet. Russian intelligence officials were in active and repeated contact with trump officials. Silence from the white house. Cirilli reports in moments. Americas Industrial Production signals a great malaise. Robert nardelli on the how and americanhe diminished spirits. Dollar, renewed strength. Good morning. This is bloomberg surveillance. With me is francine. Absolutely remarkable. I can honestly say that 4 00 p. M. Every afternoon i dont know what will happen in the evening and we saw it again last night. Francine a lot of focus on the banks. We are expecting inflation figures in the u. S. A little bit later on. Senate testimony of janet yellen yesterday, we did see the dollar stronger. But first, first word news. Taylor there are reports that the trump president ial campaign had repeated conduct with russian intelligence according to the New York Times. Authorities intercepted the communications at the same time they learned russia was trying to hack into the dnc. No evidence that the Trump Campaign was colluding the election. Sounds like says she is on a mission to raise Interest Rates this year. Saying they dont need to wait for the plan on tax cuts. Janet yellen we dont know what plans will be decided on. Interest ratesng on speculation about that. Economy has been making solid progress towards achieving our objective. Taylor janet yellen will the question today of by the house committee. Antiwoman has been arrested in the death of the halfbrother of kim jongun. Him in thepproached airport and poisoned him with a needle or spray. He was a critic of north korea who lived outside the country for years. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Im taylor riggs. This is bloomberg. Equities, bonds, currencies and commodities are really looking at the Dollar Strength as the big move. The yield curve didnt change. That didnt move yesterday, the euro is weaker. The next screen, if you would. That is a stunning statistic on the dow. Robert nardelli is making money. Francine . Banks let the game yesterday and they are leaving the game today in europe. Theyre waiting on inflation data. But what we saw yesterday was the result of the fed raising Interest Rates and one thing i do want to mention is the chinese stock in hong kong. A sleepless night in washington. Kevin cirilli joins us now. Response of the trump . What will be the response of his white house today . Silence or a cogent response on the last 24 hours . Cogent response. First and foremost they will attack the media. We have seen this before. The second thing they will do his work there angle on capitol hill to turn the page ahead of the Prime Minister of israel press conference with trump later. I want to ask you a simple outside the beltway question. I thought the russians were the bad guys. Do the republicans in both houses, do they perceive the russians as the bad guys . Kevin its split. There is a sense with people sense thatccain, a the russians cannot be trusted. Is avladimir putin dictator who is hurt so many people. But you have to also remember, i talked to some republicans who reminded me that Hillary Clinton as secretary of state try to reset the relationship with russia. So there is a lot of diverse thought and opinion on how to navigate russia. Francine at the same time, we hear Rex Tillerson will be with his counterpart. What will they talk about . Kevin hacking. What does the news from last night, how does that impact the walking back of sanctions from the Obama Administration against russia . A lot of folks in the Business Community would like to see some of the sanctions walked back. But the Political Climate is too intense for that to happen right now. Aboutne talked to be Michael Flynn. Will have be held accountable . Kevin both are intensifying calls to have him testify before congress but the developments from last night regarding paul manafort, regarding his ties with russia. Could have to testify. This is not going away. Again because of the joint bipartisan committee. Tom the boston globe last night with chris matthews. Let me be direct. Isnt there a transcript of this . Will we see that . Kevin the particular point of nuance is that the freedom of communication laws between the Campaign Officials are not purview of under the the open records law because they are not government records at time. So that is where it gets tricky. And that is where the lawyers will come in. That is why we love to talk to kevin cirilli. Now we talked to our chief midwest correspondent. Robert nardelli. In illinois. Cted are they still behind him . Robert what is going on right now is a terrible distraction. Discussed, there will be people that want to get to the root of this thing and have a real dissection me of what is going on. I remember 1973 and 1974. Dan rathers last night suggested that this is a little bit of a watergate twist. Are we at a point yet or soon when your world of tax reform Investment Infrastructure thats derailed by the distraction of this . Robert a very legitimate point. Obviously, we are excited in the Business Community about the prospects of what we heard. Corporate tax reduction. Repatriation. Tom the market loves it. Even you are making money. Robert not as much as you. [laughter] robert you are the expert in the room. But this is a bumpy road for all of us. And it doesnt sound like this is going to go away. This is a distraction. Expert, tom, the another expert. Anothero bring you to expert. I dont have to look at this. It is a watergate moment or whether the institutions are working. So will he reflate the economy and we will be fine . The checks and balances in the u. S. System are incredibly strong. Honest, the increasing Global Growth before donald trump is now starting to spread. And i am struck by the optimism in the market. Anything at this point is good. I am quite intrigued. We dont do details on trade thecy and fiscal policy and direction of travel is right. We may be generally right but specifically wrong. About the specifics. Francine is very concerned about the specifics needing to be stronger . Because a lot of it is priced in the market. Robert first of all, the banks are doing extremely well. They can ask i go out and start doing things relative now. Think Janet Yellens comments about the Interest Rate increase is a positive sign. You have seen the impact on the banks. Tom we are getting the usual dose of Robert Nardelli. Straighten him out. I have a run rate of 1. 9 . Where is the growth and when is the growth . Huw i think there isnt enough growth. Between 3 and 4 globally this year, certainly i would hope we could be at the upper end. The environment makes a huge difference. You focus and the dot plot, you get an increase in earnings. We already have a rally over 20 . It also gives a much stronger sense about the change in the regulatory agenda. Will not be talking about rolling back but the stopping makes a difference. Because the rules today for a bank is 5 and they want 10. The banks more problems that they can work through this. Francine why is the market ignoring the fact of the tariff going up . Silver hes delivered everything that he said on the campaign trail. Huw i am with you. I want to know what this means for mexico and china and india. Whether he accelerates that will be a big concern. At this stage, the market is looking at checks and balances. We dont yet know. Steenis is in london and Robert Nardelli is here with us. Tomorrow, i will be in washington for a conversation with the vice chairman of the federal reserve. Stanley fischer. About,s too much to talk including americas search for economic growth. This is bloomberg. Francine this is bloomberg surveillance. We need to talk about banks. A big week for european banks and yesterday we spoke to a ceo who told us that the climate of the sector is improving and costcutting is on track. Today, First Quarter profits went on a goodwill writedown. With huw vanow. Teenis and Robert Nardelli the expert on all things banks. Let me bring you to my chart. The u. S. Versus euro. This is pretty self explanatory. Foremost, they deal with this much quicker. We have just had the capacity in the last three months. Second, this is about growth. Earlier, we now have singledigit corporate loan growth in the state. Mary. Oes the third is the Interest Rate environment. Banks make money out of rates. Chancely, if there was a for june, that would give another shot of adrenaline. Francine tom is going to ask he needs to give me five pounds every time we talk about this. But do we understand this . The question is, what Interest Rate environment are you in . It could be phenomenally difficult for some banks to make money. Bank youe a german have not that many loans. You are drowning. So one thing we talked about last time is whether you grow to greatness or use drink greatness or shrink to greatness. You saw with your interview difficult,it is very european banks are looking to take out between 10 and 30 . That is extraordinary. So u. S. Banks europe has the potential recovery trade. Tom i have two angles here want to go to. Bring up the chart. Jpmorgan is at the top. This is the bmp. Ball lift. Is this not doing Something Different and superior compared to all of the other banks . Huw look, there is a variety of things going on here. One of the key factors involved bmp has a Significant Interest in the states. It includes u. S. And bmp. Managementofessional team. The french banks up until now have lower funding costs that maybe you mentioned. Is cost of french debt starting to unnerve the markets. And i think you can never disconnect the bank from the with bmp tom help me with the london banks. We were stunned yesterday with a call for 108 sterling. Folks, that is down here. What does this mean for your steenis, if we see massive sterling, consistent devaluation . Look, first and foremost, what is the reaction . You could argue that the bank of england is actually even a little bit behind the curve here. The fed could raise rates earlier and he gives the potential. The three is domestic banks have earnings. And things seem to be going on reasonably well. Seem touncertainty does be on the mind of the ceos i speak to. Francine thank you. Yellen goes janet before the House Financial Services committee. Bloomberg will bring you full coverage at 10 00 a. M. In new york. This is bloomberg. Tom what an evening in washington. Kevin cirilli is on top of this story providing some clarity from the white house this morning. Stay with us on our platforms today for the drama in washington. Right now, the drama with Robert Nardelli. Lets try retail. I call this my Stephen Roach chart. About the deaths of american consumption. About the deaths of american consumption. Robert nardelli, here we are. When you were selling two by fours at home depot and now we are down here. We have come up a little bit, we are getting a little bit better that it is hard to do retail given no consumption and amazon. What is the retail prescription . Robert we have the meeting in washington today with the retail executives. If you look at the mix that is there today we have clothing retail like jcpenney and there under siege, exactly to your point, about amazon. Aspirational gratification. Then you look at autozone, for example. We recently sold pep boys to carl icahn. Distribute thel products. He has a great continuum of opportunity here through that acquisition and his other retail. So retail, because of the car part, it is really good. People are driving longer and more. Idealets begin with the when ford motor chose not to go bankrupt. You remember when auto went flat. The consumption czar . Robert consumption may go up but it may be in a different fashion. But it is now up online versus brick. So there will be an issue here. The Square Footage here during the small sector, what will happen to it . The thing we see in the business the rate of change is accelerating. T has to be able to pay that you have to look around the corner and anticipate where the consumers going and what are the channels in success to market. At gm, do you grow to grow or shrink to grow . And product goes down. I need a citroen. Francine that is a very small car. Robert you need a u. S. Manufactured car. Have Robert Nardelli and Huw Van Steenis staying with us. This is bloomberg. Planting a sizesix, nonslip shoe into that door. On this side, i want my customers to relax and enjoy themselves. But these days its phones before forks. They want wifi out here. But behind that door, i need a private connection for my business. Wifi pro from comcast business. Public wifi for your customers. Private wifi for your business. Strong and secure. Good for a door. And a network. Comcast business. Built for security. Built for business. Thecine overlooking millennium bridge. What do these people do . They are probably tourists. Because not a lot of people in the city of the time to go to the bridge. You can also see the cathedral. ,n terms of what we had unemployment falling, as expected. There hasnt been that much wage inflation. Does that mean the labor market is getting to the capacity . That is one thing that mark carney needs to find out. Whether to raise or not raise rates. Lets get to taylor riggs. Taylor trump meets with Benjamin Netanyahu today and the white house signaling eight shift from the longstanding u. S. Position. According to officials, trump will not center his israelipiston israelipalestinian goals around the conflict. And the New York Times that the russia secretly deployed a missile in violation of the arms treaty. In 2014, the Obama Administration said a Cruise Missile had been tested despite a 1987 treaty that bans them. And the British Government is trying to convince the Trump Administration to support the Climate Exchange pairs agreement. They are staying away from the debate on climate science. The one signal oil prices have to alaska lawmakers reconsider right now they pay no state income taxes and get dividend checks. But alaska is facing a 3 billion budget shortfall so the income tax could return for the First Time Since 1980 plus a statewide sales tax is being considered. Buyns bank has agreed to Fortress Investment groups for a price of 3. 3 billion. Fortress will operate alongside softbank. Shares of fortress have fallen 2 3 since they went public in 2007. Global news, 24 hours a day. Powered by our more than 2600 journalists and analysts, in more than 120 countries. Im taylor riggs. This is bloomberg. Thank you. You can see on our bloomberg hd that pepsicola is out with a below year estimate view. That came out of moments ago. The drink area has been beleaguered. Let me get to softbank. Here it is. I felt the coverage on this was great. Basically it is head scratching. Why are you doing this . Fortress just hasnt performed well since it normalized in 2007. They got a pop today on the takeout at this is totally mating of brain power. It will be fascinating to see where this transaction is forfive years from now. Francine the question for softbank, and the founder of softbank bought and diversified here Huw Van Steenis is and we will ask you more on that transaction and then we will get to the eurozone. What do softbank do with this . Commentis difficult to on this specific transaction without knowing the background are keen to put their money into real assets or private assets. Facets fortress is a mixed group. Second is investing in technology. It has been a constant theme and i will be intrigued by what they do. Entirely clear what the industrial logic is at this stage. Nardelli, thert world we live in, we talk about growth and doubt and brexit leading to trump being elected. What is the one thing that will change . Are we rethinking about the new world order and capitalism . Robert there is no question. The rate of change is the only constant out there. And the speed with which things are changing challenges all of us. So the question about softbank, trying to get funds out of china. Getting them into hard assets in the u. S. , it is a trend we have seen. The other trend we see is that if you look at the big hedge funds, they have really taken a front row, if you will, in helping to shape the economic environment here in the u. S. Too big forcompany them to take an active position. And if you look recently at Procter Gamble or at what is happening in the large companies, what used to be a back room activity is now taking a front seat and changing the dynamics of what is happening out there across the entire portfolio that we see. This is critical. This was my chart of the year last year and then it got pushed aside. This is the ugliest chart on the world economy. A 10 year moving average of trade gross in the world. 1989, the growth of trade. I believe will make America Great again with the architecture. This morning, if you are with trump, how do you get him away from the mentality that would have killed you at chrysler and home depot . Have seenat we recently is major commitments on the part of intel, for example. The Auto Industry committing to put a significant amount of money back into the u. S. Economy, helping to create jobs and stimulate and increase our exports. So i am really focused on thinking globally and actually locally, that is the buzzword out there right now dealing with this administration. Tom how is this playing with Global Banking . When we say to make America Great again, should we say to just make jamie dimon great again . And, to beanks honest, japanese banks european banks are lending 6 trillion less. So half is split between the japanese and the u. S. Banking sector. One of myhan that, big concerns is the challenge to globalization, will there be a challenge to global plans. This also involves crossborder funding. And bringing in europe, one of the things that concerns me the postbrexit, you want a Capital Market to fill in the gap. And what im struck by is a lack of enthusiasm for Capital Market unions and capital base finance. Just american banks, it is the whole system. Francine does protectionism work . Huw the history is that it typically does not. There is a great book that was recommended to me looking at latin american populism in the 1980s. Clearly, we are not there. Some of the change is due regulatory policy and trade policy could potentially be positive. But at the back of my mind i wondered there is a misdiagnosis. I think technology is the megatrend here. 86 of the jobs which left america in the last 10 years were more to do with the priority of new technology then global trade. So you wonder whether these policies will really acts against that. Francine some of them will be for good for Global Economy and america. Others will not be good in terms of terrorists. Does that cancel each other out . Is there a concern that we need to go back to a different kind of crisis or we stopped growing . Huw we try to think through the different scenarios on this like you are. There is a concern that the rise in militarism and protectionism could be quite destabilizing. China, that is the center of this. Less between europe and the u. S. Francine are you worried about the dollar . With the protectionist measures . A globale have economy. We have a Global Supply chain. So it cant be black or white. We have to understand the globality by which we have established over the past couple of decades. That toake tweaks to increase some of our production here in the u. S. . Can we do that in a manner in which we will create more jobs. The to your point and the comment you are making. Or we willinnovate evaporate. And i predict the rate of innovation is going to accelerate. If you look at what we are doing in the Financial Services sector, for 150,000, you will place between 1015 equivalents. Will we see young men and women coming out of college, they no longer can get the job swear there is a learning experience. They have to come out with a knowledgebased childhood,ck to your with a trump industrial policy. It is finally time where we grow up with an industry policy . Robert i think you are spot on. I think we do need to have a well thought out thoughtfully done industrial policy. It isnt about protectionism. It has to be thoughtfully done. We cant just close the borders going out and coming in. We cant run the risk of high tariffs because only a couple of things will happen. Either consumers will pay more, corporations earned less and in a public market, investors will not be happy with that. Particularly with the Industrial Investors out there. So we have to think about this thing in a thoughtful way and move with measured decisions Going Forward. Saying webut you are cant close the borders but will they close the borders . Dont think so. Sometimes you have to put a shock out into the system to get people to think differently. Looking forward. A factoryn building in mexico, which they didnt need because consumers are not buying small cars, they will invest here to buy trucks. Tom we will continue. Look for this. Mike Allen Publishing focusing on stanley yates, who the president fired. Look for that at noon across all of bloomberg. This is bloomberg. Francine we are in london and new york. We need to talk about greece. The rhetoric is building. Laying the groundwork for a crucial european meeting and five days. , alier we talk with a ceo high profile holder of greek bonds. He owns 10 of them. And here is his take over the agreement on the nations debt. Gdp is a smirky number because it isnt real. The issue is one of trust and confidence. Is debt on the debt issue. They dont have a debt problem. The debt is one of the lowest in europe. What the challenge you have here is that greece and the imf continue to not use real numbers and tell everybody the debt isnt sustainable. And that doesnt inspire confidence. Markine joining us now is gilbert. Again, still with us is Robert Nardelli and Huw Van Steenis. A great piece, you everyone to check this out. Talk to me about the parallels haveen the impact of would on the next level of the greek crisis . Background of the talks you have the prospect of the french, german elections. It seems like greece is dragging its feet. The risk of an accident is huge. They have to pay back 23 billion euros between now and the end of august and it peaks in july. If they dont have that money and they default, i just dont see how they could stay in the euro as a default the country. And with the elections in the background, the willingness to give them what they want is diminishing rapidly. Francine could the eu survive a greek exit . Mark i think it could. Marine le pen want to take france out of the eurozone. It would have massive repercussions with the electoral cycle. That . Euro survive yes, it could. But if you see Marine Le Pen winning the election, that changes the game completely for the euro. Francine what is your take on the french elections and looking at the three top candidates. Marine le pen is gaining ground. Chances that the polls are completely wrong and she becomes president . Huw there is a chance of that. There is consumption in the the odds are that she would lose the second round. I must admit that i am probably more focused on italy than france. Spreadening out of the in france is troubling. The one thing that has held to an together is extent, the ecb wants to ease off from that, it may create a lot of fractures. We talked about the chart of the year, one of the charts was the imf one on the greek report showing that the greek performance was worse than the u. S. Postgreat depression. And looking at that with the 25 fall in the industrial capacity, it is really the failure to grow and how we can resolve the lack of growth in europe. France is there but it is actually growing. Tom i look at this. Happen andhat will it is amazing to me with the greek depreciation versus france and italy. It is a completely different story. And to Huw Van Steeniss point about italy, when is the when . Help me. When should i wake up and say ok, i will Pay Attention to this. Every morning at 5 00 a. M. When the show starts. Mark that is true. Year,e elections this greece wants a new deal in place but that doesnt look like its going to happen. We have a harder deadline in july. Where it needs to make 23 billion euros. This is real money that greece doesnt have. And you are starting to see an endgame whereby you could have an accident. Dont want this in the election year. Greece doesnt want this. But you could have an accident where you have a defaulted member of the euro system. I dont think the ecb should put up with it. Dazzle Huw Van Steenis and mark with the mathematics. Ok, heres the devaluation of france, going back to 1981. Italy is worse. Evaluation italy when everything goes flat. This is deutsche mark. Greece is its own Banana Republic east, a complete failure. We dont understand, mark gilbert, the difference between this question on greece and europe. Do we . Mark well if contracted. Economists had expected it to gain. Clearly the economy is in deep trouble. They have done a lot on tax reform. But it still isnt a functioning member of the euro society in the way that the architectures of the master treaty and remember talking to them about how this is going to enforce this, it hasnt worked out the way they had expected. And it is partly why think greece is in danger of accidentally slipping out of the common currency. Tom mark gilbert, i appreciate that. I dont know who is buying who in europe. Tv , lets see it right now. This is outstanding. Is an actual chart of softbank. You can download that onto your bloomberg. Send loveere you notes to Francine Lacqua and i get the hate mail. Francine this is bloomberg surveillance. Coming up soon is bloomberg america. David we are delighted to have a member of the federal board of governors who has announced he will be stepping down. And banks are in the news right now. Well have our colleague to talk to him about what he did and what he wouldve liked to do and how much he agrees or disagrees with donald trump. You may be surprised. That is coming up with a lot more. Tom david westin, thank you so much. This chart was made for us yesterday. I dont know who is selling what to him. I cant pronounce this. I dont not a pronounce this. There is the chart with where they were in 1999, there was no car czar. Robert nardelli is with us. How much of a dog of gods is over rocksalt . Robert the board had decided to sell that business. And with the change in they confirmed it was an integral part of they wanted to be involved in the market and in spite of all of the efforts in energy, it wasnt working. Tom did you ever sit on the of the european auto factory and think, this is not detroit. It is different than what we do. Robert i cant say i stood on the floor and shouted to the masses. This is different, different meaning not good. So look, i think mary is making a very informed decision. Getting up volume to be the number one producer in the world but she is focus on profitability. And that is where the Institutional Investors want her and that company to be. A very goodt is decision on her part. Francine what does this tell us . I dont know if down the line we it isook at this and say difficult for companies to do business in germany because of labor unions. Huw i think the biggest theme is that m a will be back. There is also a sense that if global risk is your plan . You really Want Companies to be. Nvesting so i think it probably is more about a sense that there is a rolling funder of m a coming through the market. Tom Huw Van Steenis, thank you so much. Let me do the forex report quickly. And tell you about our interviews. Governor to reload is coming up next on daybreak. And tomorrow, Stanley Fischer and i will have a conversation in his washington chaos. This is bloomberg. David white house plays defense , less than a month after the inauguration members of President Trumps party want to know what the communications were with the russians leading up to the election. As washington headed into a morass of congressional investigations . Thet yellen tells says fed is on the path for a rate hike. The dollar hit a onemonth high as the trump trade continues. A warm welcome to bloomberg daybreak. We are happy to have carol massar with us. Carol massar, star of Bloomberg Television and radio, we are in good hands. Carol great to be here. Lets get you going with a look at the trades. Dow futures little change little change. S p futures are just down a hair. Quiet trade on the equity front. In the european market, half a percent gain on the ftse 100. The