Transcripts For BLOOMBERG Bloomberg Surveillance 20170509

Is can i say the euro start the best thing europe has come up with. There is nothing close in america. Nothing close. Guy we were separated by a couple of characters. Tom we cannot go in the same car together. Guy we are a security risk. Here is the bloomberg first word news. Nejra in less than three hours, polls will close in the south korean election. There are concerns about trade ties and the increasingly aggressive northern neighbor. The country has a sorting pollution problem. A winner will be announced four hours after the end of voting. German exports rose for a third month in march, a sign they are benefiting from pick up in global trade. Gdpomists reckon germanys grew by 0. 6 in the first three months of the year and we get the official figures on friday. Eu president juncker regrets links over dinner with theresa may. In an interview, he said a publication of the comments were a serious mistake after he had been involved. He was told he was not taking responsibility. Former acting attorney general sally its says 18 days sally aftersays 18 days past theael flynn lied and decision made to fire him. In a tweet, President Trump suggested any problems with flynn should have been flagged by the previous administration. Aaa Credit Rating is under the microscope. Struggle to balance the books has been complicated by recession level wage increases and weaker growth after the Mining Investment boom. Economists predict a deficit in 2018 of 21 billion. Global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. This is bloomberg. Lets look only at currencies and we will do something a little different than we do in the states, start , below 10. Vix the historic level at the close. And here are three safe haven angles. The yen is weaker. Is at thei bottom. Guy the cac is outperforming today, tom. We have decent sentiment indicators coming out of france, Business Sentiment looking fairly solid. The cable rate, i bring this up just so you know what you can spend and what you cannot, 129. 54. Hadhe aussi dollar, we have commodities come under pressure. We have the budget and resale sells. That is the singapore ironore contract. Tom the bid is really fragile on commodities, all in all. I am on the bloomberg. We have the brexit over on the left side and then we go to the stronger swiss franc and that is a three deviation jump. The s p is feeling a lot more relaxed than they have. This is the german fiveyear, pretty exposed after what happened with draghi. , do wet a sanctions leak think . Maybe not. The german fiveyear has tried to break out above the critical level. It has just done it, folks. There are a bunch of reasons behind this, but that is something you want to be paying attention to as we see the german curve beginning to change. Joining us now, Vincent Chaigneau, the Societe Generale head of rates and fx strategy. Are you paying attention to the german fiveyear . Absolutely, and the 10 year bund. We are seeing a number of risks disappearing. Thats going to increase the focus on the Strong Economy performance. The economy is doing very well in europe and it is doing pretty well overall, globally. I think the pressure on rates is going to rise. Guy lets talk a little bit marketsnd of fear and and where we are. The bond markets are beginning to sense a change in europe, but we have the vix at exceptionally low levels. Talk me through fear. This is a bubble recovery. One of the things we said many onds offer was that b very little value to investors. As the economy accelerates, the move to buy negative yield disappears. You have the tenure bunds and inflation over 1 . You have gilt at 1 yield and u. K. Inflation around 3. 5 . You are getting very negative returns here. The question is when central bankers will give a signal that there is a turning point . And it could be before the summer. In alets bring up axel moment. The believe that germans are pushing back as a proximate to mr. Weber. Will there be huge disappointment for mr. Macron, and when does that occur . It is a hard road to do what macron wants to do, but you need to wait until the german elections. If he gets a higher majority, that means mr. Sheauble will become the third man. Ago asdid say one year the economy minister that he wanted the transfer. Tom you got the polling data 20 minutes before everyone else at socgen. It is an american joke, just a little humor there this early in the jetlagged morning. When i look at mr. Macron, there has got to be a challenge from the 43 of his voters that voted for him because they did not want madam le pen in office. When does the honeymoon and for mr. Macron, or has it already . There is quite a remarkable pull that came out, which is 34 of the french only want mr. Macron to have a majority. So, yes, i think the support is not huge. Nevertheless, we need to see how the negotiations into the general election give up in the coming weeks, and whether he can eventually have a majority. Tom guy, this is what you and i river seine. Of the ,his is a really important 30 wanting a majority. Guy he might not have a majority, but a working majority. He might be able to function as a president with a Prime Minister that can deliver on policy. We have the dead out from the have data out from the bank of france. Risingon, yeah, its not that fast, but its beginning to track up a little bit, despite what is happening in commodities. This feels like an incredibly benign environment, everything is rolling forward in the way he had hoped it would. How vulnerable are we to upsets here . As i said, i think the economy is doing well. We have not had it so good and europe for quite some time. Indeed, i think it is time for the ecb to take back some of the recommendations. That is where maybe in this market environment the oinpoint. Look at rate volatility int h te u. S. , extremely low. I think the markets are not positioned for that pressure on bonds that is rising now. We are getting a big report out this morning. We are about to celebrate the 10 Year Anniversary of the great financial crisis. The Global Economy today is doing much better. Yields remainwethe very low. I dont think they have really started to adjust to this new economic environment, which is quite positive. What hewill talk about had to say, what he did not have to say, whether he is positing a position with a certain point of view. Up next, we will be talking about mr. Weber. The language that will be changed after the summer. The language that mr. Draghi will change. And later, the rbs chairman joins us for brexit banking in the future of europe. That is all coming up. Paris, iarmer than would say. This is bloomberg. Tom bloomberg surveillance this week from london. We had a a great time in paris yesterday. A particular thanks to caroline. Guy johnson and tom keene with your morning business flash. E. Ons First Quarter profits fell 20 , missing analyst estimates after the company had to pay higher grid fees and keep the Nuclear Reactor offline. They posted net income totaling 525 million euros. Eon confirmed they are on course to increase adjusted net income by 50 this year. Activist investor says accell the goal reached for shareholders. Elliott has asked the dutch court to clear the way for a shareholder vote to oust the chairman. Vote would be damaging and not in the best interest of the company. Shares in british gas have fallen to the lowest level in 15 months after the u. K. Conservative party says it will cap Household Energy bills of theresa may wins the next election. Will havex suppliers to be under a limit agreed by the country. That is the Bloomberg Business flash. Guy lets get back to the banking sector. The german lender benefited from a rise in income from a rise in securities six months after it rolled out a strategy to scale back the business. The shares are higher. Matt miller has a breakdown of the numbers. Matt, great to see you. Walk us through the figures. So, 278 million was the prophet and that was bigger than the was the profit and that was bigger than the analyst estimates. The bigger the profit they generated from trading, the revenue they traded from trading, that is a business they had decided to scale back when we talked to them last september. I am assuming they will continue scaling that business back, making it more profitable, but relying on that revenue less. I will talk to the cfo in a couple of hours. I will be able to talk to him about that. More interesting is the focus on customers. They still want to add 2 million new clients by the end of the decade. The only way they will be able to do that is through acquisitions. They have only made one small acquisition so far, to add about 90,000 customers. There is a long way to go in building up to that big number. Guy what are they saying about loan growth in germany and the sense of where they feel that is going . Matt they are saying loan growth has been strong and that will continue. The forecast that to continue. Again, this is part of the new focus, or their new strategy to focus on retail banking, growing private customers, growing the corporate. Need to get those customers to continue the loan growth. They added 151,000 in the First Quarter. That is going to be on track. But they need to start boosting those numbers higher. Tom matt miller, thank you so much on commerzbank. With us this morning are Vincent Chaigneau and Alberto Gallo. Three out of five major banks in europe are french. Can mr. Macron make france increasingly more dominant . The idea of a capitalist revolution in paris that will make france even more competitive with the german banks, is that feasible . There is eternally an attempt from france to a trying to some of the bankers, people from the financial industry in paris, and especially after that election haslt, the risk there diminished quite sharply. More is an attempt to sell business friendly environment an d indeed, try to benefit from this brexit situation. Guy i have a chart up, which is european banks. They have been on a tear for quite some time. A, what does that tell mario draghi and b, are they telling going to upset the party . Are the italians going to upset the party . Italians in general. The banks were the most involved in the equity market one fear ago and there were so many fears about breakout risks. This prevented many investors from entering the market. They are still less expensive, cheaper than banks in the u. S. And the u. K. But what we think is that now Interest Rates need to make the move. Bank stocks have anticipated part of that move. Now the ecb needs to change. Maybe now the fact that the market is more stable would make more confidence about changing before the summer. They can taper long end bond purchases, or signal that at some point they will stabilize the deposit rate. We think it would be easier for them to taper, because it is already communicative. It is better for the economy if they normalize the deposit rate as well because it helps banks to lend. There is a new focus also on business models, profitability, where european banks need to go. Tom it will be interesting to see, particularly on profitability. We will come back with Alberto Gallo and Vincent Chaigneau. Coming up, an important conversation with axel weber on the fed and the European Central banks. This is bloomberg surveillance. Guy 23 minutes after the hour, both in new york and london. Axel weber thinks the ecb is getting closer to winding down the massive stimulus program. Bloomberg spoke with him earlier this morning. I think the ecb is only path to normalization, but they are following the fed with some delay. Like the fed, they are data driven. If anything were to go wrong in the economy, they might change their course. I think it is likely they will follow this course. Tom listen to what he has to say over the next couple days. It will be fascinating to see the german push back to the ascent of mr. Macron. We are with Alberto Gallo from algebris investment and Vincent Chaigneau from socgen. In america there is an amazing debate about soft datahard data. What is the soft datahard data axis that mr. Weber needs to know . In europe, that is also very strong. Actually, the ecb has the argument that eventually hard data will catch up. Tom it is the same idea in the United States. Is it going to happen . The argument already is quite solid. It makes the ecb more confident that this recovery is now sustained. Has growny, the ecb ever more confident about the sustainability of the recovery. They are not quite sure yet how, and if, that will translate into higher inflation. When it comes to the economy, they are very tom you are squirming over there. What do you think of this, the confidence . I think in europe there is a closer gap between soft data and hard data. We are seeing hard data manufacturings, everything is growing. There a few countries where there is still weak data, but they are catching up. Guy but the ecb wants to run the economy hot for a while. Lets take policy from janet yellen. Inflation is not going anywhere in a hurry. That is a possibility, but you have to think about the negative impact of having the positive rate at. 4. There was a move to compensate for other Central Banks using and to keep the euro lower. That is not needed anymore because the fed is hiking. That negative Interest Rates, banks in europe have a harder time lending. Some normalization needs to happen, at least in the form of Forward Guidance. Later in the year, maybe guy with the translation mechanism. We will be back with Alberto Gallo and Vincent Chaigneau shortly. A big day of earnings in europe. We will speak with the eon cfl. Also, we will be talking about the u. K. We will be capping Energy Prices. What does that mean in terms of profit and policy . That is next here on bloomberg. Guy good morning. Abouttalk a little bit how we refocus this morning from the weekend. Tom what i have noticed is a sobering understanding of what will happen in france. We saw the protest at the goodyear plant in france yesterday. They are real and tangible. There is a real pushback to this new capitalism. A guy i think its going to be interesting to see. Tom lets not forget about commodities. Guy it was a big night for iron ore and australia. In less than three hours, polls will close in the south korean president ial election. There are concerns about trade ties and the aggressive northern neighbor. They have pledged to promise the pollution problem. German exports rose for a third month in march. There is a pickup in global trade. Industrial production in march dropped less than was expected. 0. 6 ins gdp grew by the first three months of the year. We will get the official figures on friday. He regrets leaks to german media about brexit discussions with theresa may. Interview, he said publication of the comments was a serious mistake after he and been involved in the league. A he said he was not taking responsibility. Said 18 days passed between a warning to the white house that Michael Flynn lied to Vice President mike pence and the decision to fire him. She made the testimony to a judiciary subcommittee yesterday. Any problems with slim it should been flagged by the previous administration. Australias aaa Credit Rating is back under the microscope after they have less savings. The struggle to balance the books has been complicated i the Mining Investment boom. 21 billiondeficit of u. S. Dollars. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. Guy thank you so much. Im doing a safe haven day to check the celebration of president macron. The chinese yuan it continues to spread out. I will go with it. Again without question is risk on worldwide. Euro really gets my attention. That is a big move in that very stable pair. Guy its going to be fast and see how big the smiles are on the faces of the officials. Lets see what happened in european equities this morning. They are big this morning. 129. Able rate is there is a little bit of a bit on that. The u. K. Election doesnt seem to be having much effect. The Australian Dollar is something to Pay Attention to again. You can actually see the iron ore contract, which is big compared to where it was earlier on. We are looking at an australian budget in retail sales that have knocked it lower. Lets return to europe and lets happening in germany. There biggest renewables generator. The stock is up more than 2 . Lets bring in the cfo. Good morning to you. Thank you for your time. We just dealt with a number of issues in the numbers. How much of this is one off there and how much is something you will have to deal with for a while . Mark good morning from germany. Results, therter most important thing is we could affirm our outlook for the full year. Those things which you saw leading to a reduction, i wouldnt look too much. We can confirm fullyear result. Stableprovide a operating profit of them will turn into a 50 increase in net income. I think from that on track for the First Quarter greg quarter. Reduction, we may tangible progress. We released our annual results to over 7 billion target reduce our debt. Our is numbly due to Capital Increase which we executed in march, but also thanks to a strong operating cash flow. That turned into a nice Free Cash Flow which help our net debt. I am very positive on the debt side. It we will strengthen our Balance Sheet by 2 billion. We are fully interacted to give targets we set for 2018. Guy these expect margins to be affected if there is a cap on Energy Prices . That is a development in the u. K. That is something we monitor closely. They are very sensitive to that. We see the u. K. Market very competitive. Aggressiveoverly regulation that will only harm the market and customers at the end. Speculate about any concrete intake and any regulation after the election. We are getting prepared and i would like to stress the u. K. Is a competitive market. I think political intervention is not needed to keep working. Tom what you going to do about the stock . There is a little bit of renewed enthusiasm recently. What is the catalyst to get the stock to perform . Will stay fully focused on delivering on what we set out. Thats going to be the basis of the stock are good increasingly. We are bringing down our leverage as we sit. Weve already made big progress there. We are strengthening our equity base for dividend payments. 50 increased net profit will turn over time. Tom what do you need from mariota draw to do the Financial Engineering necessary to write strip . Overall, we are focusing on those things we can steer. Clearly, the lower Interest Rate environment is not help to us. With rising rates, it would be positive and we would benefit from that. We are not afraid of any increase in yields. Guy let me ask you a broader question. Is positive on the european project. Headlinesook at the as they come out on the political front, the have more optimism about the European Energy market, that it might finally be moving in the direction it should the . Should be . We are in favor of a unified european market. I think there is a lot to be done on the c. T. S. I can see a scheme that does not set the right incentives for energy efficiency. We have a very positive sign last year to use supporting the distribution and system operators where we are strong in our port olio. I see a lot of folio. I see portfolio. I see a lot of positive signs. That is what we are still missing. At this time, we hear a lot of voices. They need to be executed with ular proper register proper legislation. Guy thank you very much for taking the time. He sees a hard brexit. What does that mean for markets . This is bloomberg. Tom good morning, everyone. Guy is in for francine. This is bloomberg surveillance. Its an important conversation. The chair of the ubs. The he is weighing in on modest issue in the United Kingdom, that would be brexit. To have influence over immigration so they are not a part of the Common Market and they want trade agreements with the rest of the world. That is the definition of a hard brexit. They will be coming forward to accommodate that. It is self chosen. I think there will be a hard exit the end. There will be some negative repercussions on europe. It will spillover continuously over the next two years into market volatility. Righte is weighing and now. I will get this right. Fascinating comments. There seems to be a bouncing of the tennis ball over the net and ask, is he on the same page mr. Weber . I think the eu is much more united. When the brexit vote started, was on awas the eu part. Lets get out of there as soon as possible. We will have a Better Future as a separate United Kingdom. Europeane a united union and United Kingdom here. There are some regions that are very different and less wealthy than the center of london. Politically, there is little content within the conservatives and other parties. Some sites to see from the government find cap Energy Prices or increasing house prices show there is no economic plan. There is no plan for a postbrexit economy. They are trying to make the plane pain less visible to people. The curtain will fade at some point. People realize that brexit is bad and they are paying the cost. It is not free. They are being gamed. Guy were going to hear from the bank of england. He has been very quiet recently. We need to see how this one comes up. I think they will be very cautious. There are question marks about the consumer. Aboutare question marks Business Investment in who is going to invest in u. K. , with all the uncertainty that we see. Guy money is flowing in. There is no evidence of any of this at the moment. It is still early days. This is a huge shock of uncertainty, which eventually will do it. We are in a Global Environment and in that context, the u. K. Can do ok. Drag and their own that will be a significant drag. Europe is going to be tough. They dont want right it to be a template for others to follow. They dont want to be so tough that it becomes destructive and a loselose game. I think macron will bring a pragmatic approach. He wants to build a constructive relationship. Guy at the moment, the data are solid. The data are still showing you the u. K. Economy is not fading at this point in time. You can see it in the hard data. Going to change as aggressively as you think it is . How do you measure growth. Andou just look at gdp ignore all of the other measures of health, over the last 10 years the u. K. Has grown. Last year, the growth has come from consumption, that led consumption. People have brought on more debt. You have public death and that and private death is debt is very high. Gdp has grown. It is corporate profits. It is generating 27 of the income in the u. K. Tom that is amazing. I am a big fan of probability as being the driver of any nations efforts. We will continue this discussion. That, sir Howard Davies will join us. He is chairman of rbs. Guy johnson and tom keene in london. This is bloomberg. Tom good morning, everyone. We were coming back from paris and i brought guy johnson to tears with this chart during we showed it on the ipad. This is the france germany spread. The on the right side is woe is me we are all going to die. You can see the reason performance. You can migrate even further. It is common collected in paris. Greg, in the last 24 hours i have seen the honeymoon and. I saw protest near a goodyear factory. How is the president elect going to deal with the labor theology of france . Greg what hes got to do is get a majority in parliament. He doesnt have a majority in parliament or working coalition, he cant put any of this in power. There were some protest after his election. Compare to what wouldve happened if Marine Le Pen wouldve one, it was minor. I wouldnt exaggerate that side is ahead of a Political Movement that was created a year ago. There is no track record of winning an election. Parliament matters in france. The president can only do anything if he has control parliament. Guy does he need to Prime Ministers . Are those likely to be different people . Greg he names one as soon as he is president. He becomes president next sunday. The election in june. Depending on what comes out of that, if he has a majority then that Prime Minister will continue. If there is a party hostile to him in majority, they can put in their own government. Were not done yet. Greg the parliament matters. Tom i have one more question for you. Beating on our interviews about the 35 hour work week. How much of france works a 35 hour work week . Greg i dont have the figures, its not everyone. Most jobs the days you dont count it. If you work in a factory floor, you count the 35 hours. Most service jobs, you dont really count your hours the same way. Cities, very few people work only 35 hours. Worke countryside, farmers 35 hours before wednesday. Tom i think its a stereotype. I make jokes about it with francine. A very small part of frances doing the 35 hour week. It is negotiate with different industries. We do much longer hours and banking. You do get extra days of holidays. Weekis how that 35 hour been conformed worried conformed. Tom they are not working a 35 hour week. Negotiated been branch by branch. It is not applied everywhere. Guy they are probably drinking it in the other hours that exist. If he cant get a majority, when does the market start to price in bad news for the eurozone . I think there is too much focus on the eurozone. Its only one piece of the puzzle. We think he can execute policy. Policy, we execute are just marking time for the next five years. Priced inket has only how high the price protection was a few weeks ago. That has disappeared and stocks of rallied. They are cheaper than ever thing else. I dont think the market has priced in all the consequences. Greece gets a solution, france gets reform. Italy remains the only Company Without country without reform. I think these are the consequences. Tom how do i make money in the next four days . I think people look at these consequences. Europe is generally doing well. Greece is getting closer to a solution. These are trans. Some bubbles are coming under the magnifier. Are we going to start to see spreads coming in . Will they blowout again . Is this a short term window the we see tightening . , when the ecb tapirs and we see that happen in september, the environment will not be as good. Now, you want to look at the flows, where the japanese are going to come back to the market. If they do, that has narrowing pressure and the benefits. Bcp has lagged in that move. That continues because the focus has shifted from france to italy. Its a bit premature. The action may not be coming before next year. They are pushing more about the political situation in italy. Guy thank you very much indeed for your time. Tom thank you. Guy up next, we continue. We will talk to the rbs chairman about a bunch of things. They can talk what was happening in europe and in the u. K. We will have a phone firm focus on the financials as well. This is bloomberg. Tom the party at the louvre is over. This morning, president elect macron must consider the labor laws that this hour. Macronsidentelect make people in london moved to paris at this hour from rbs, Howard Davies. Over. Rty is still way of germany, he says so. This is bloomberg surveillance with guy johnson in for francine lacqua. Guy you are such a party pooper. Tom you just said it three times. Tom the honeymoon is over. They did the big, long walk. Was it long enough . Guy its urgently stretched a lot of peoples enthusiasm. Lets get the bloomberg first word news update. President trump is blasting the Senate Hearing on his former National Security adviser and his ties to russia. The president tweeted that the russiatrump collusion story is a hoax and asked, when will this taxpayerfunded charade end. During the hearing, sally yates says she won the white houses top lawyer that Michael Flynn was potentially subject to blackmail by russia. In south korea, voters are selecting a new president after months of turmoil. The former president was ousted corruption of a scandal. This could end nine years of conservative role. Asias warns that rapidly aging population means they are shifting from being the biggest contributor to the Global Workforce to subtracting hundreds of millions of people from it. The imf estimates the population growth rate will fall 20 by 2050. The on the move party will now be called republic on the move. Macron is preparing for the National Assembly next month. His candidates will include people from the republican and socialist parties. Global news 24 hours a day, powered by 2600 journalists and analysts in more than 120 countries around the world. This is bloomberg. Tom, guy . Tom that is maybe what President Trump needs, to change the name of the republican party. As bonds and currencies come out of the save havens, disappearing. You saw the dow yesterday. The eurodollar 1. 0908. And oil, a little bit of a bid, but we were looking at commodity charts this morning. A stunning vix, number 9. 80 and there is your set of safe havens migrating away. Weaker yen, weaker renminbi down below. Guy the cac came off yesterday a little bit, around 1 . Today, up by 0. 5 . The cable rate, reasonably flat. In so many ways we are seeing the markets be calmed at the moment, despite the political noise look at what is happening with gilt. The aussidollar, there is the commodity story in that, and also the retail sales data. The ironore, bouncing back. Tom i dont know if bouncing is the right word. Over to the bloomberg right now, the euroswiss, and this is taken from brexit over on the less side with a stronger swiss s,anc over the ensuing month lets call that the macron spike. A weaker swiss franc, one of the indicators of the celebration of this election that is ongoing. Guy Pay Attention to what the ecb is doing and saying because it is about to get interesting, folks. This is the german five year. It has had a couple of attempts to break higher, and that is what you are seeing. You are now saying that bouncing up. It is right on that level. It has tried and failed, tried and failed. Now that we are through it, is there an indication . Tom and you see that with of the swiss 20 year as well. It even shows the same feel. Guy movement is happening. And you heard what we heard from mr. Weber. You are mentioning it, the vix on the move. Sinces its lowest close 1993, amongst other things, amongst the aftermath of the macron election. This sent south korean and Japanese Equities a little higher. Joining us now, Howard Davies, the rbs chairman. The markets are calmed. The vix is lower. Mr. Macron was elected in france. Are we too complacent right now . Possibly. It is not surprising in a way, with two elections, the results so widely forecast, the French Election and the u. K. Election. It would be surprising if the markets were surprised. Guy right. Howard but of course, winning the president ial election and france is just round two of a four yround election. Then there is the difficult issue of what you do with french economic reform. After that, there is the issue of whether it is possible to engage in eurozone reform in a meaningful way. There is quite a lot of uncertainty ahead. Initially, just some relief that we dont have a worse outcome in france. But the difficult bit of labor market reform in france followed and the germans are making this clear, that unless the french do something to get therir own house in order first, they are not interested in eurozone reform. Guy these are the details that are happening in france. But the data around the world is improving. Were almost 10 years on from the start of the financial crisis. Are we finally gaining traction, and is that what is really being priced in here . Howard yes, i think so. But the moment the imf tells you to sign, that is the moment to start worrying. Undoubtedly, the World Economy is better than people thought it would be six months ago. Not radically better. It would be alarming if we were racing away. But we will look at Global Growth of 4 or so, which is a reasonable background against which europe has a lot to do sitll. Still. Guy if we are talking complacency, a quiet in the market, isnt that a great time themselves . Heal not so much the carnage of rbs. The for european banking in general, is this the perfect time to make the house solid. Howard i think that is absolutely right in i think that is what you are seeing. We have seen banks where the Capital Markets are open to them. We have seen that with credit suisse. We have seen u. K. Banks building their core tier one ratios. I think that is what is happening. Oof whileairing the oor the sun is shining. Tom are there too many banks in europe . Howard in some parts of europe, that has got to be us. If you look at the entire continental europe, the concentrations are lower than they are in the u. K. Tom what about within two kilometers of the sainsburys square . [laughter] the u. K. Market is very different because it is heavily concentrated. Here, the challenge is to get the banks to take a bit more pressure. Guy it does feel a bit different. When you think about how risk is bounced right now, we have politics being a big factor. Does that they . Does that fade . How does the market focus on what is going to happen next question mark if the fed tightens how does the market focus what is going to happen next . If the fed tightens rates, is that what we should be focusing on . Hee ecb is getting in on t process. Where does the risk lie there . Howard i hope we will not see policy risk in an aggressive sense. The banks have gotten better at signaling their intentions in advance. Is phrase Forward Guidance not fashionable because it did not work terribly here when it was called bev. The fed has been saying to anybody who wanted to hear the intention for the next three or four quarters. The ecb similarly has been talking about its intentions. Ecb is going to make a change. The fed is not detailed with what it is going to do with the Balance Sheet yet. Howard but it has given us an indication of where it thinks rates are going. I think they have been as clear about that as they can. And i think the ecb will be clearer. They will say a lot more. They will signal their intentions. I dont see a big shock coming out of central things. One thing we have learned about central banking is managing expectations, doing that to a greater extent with more transparency. Was adamant about this when i spoke to him 10 days ago. We are going to come back with mr. Howard davies of rbs. We have a wonderful set of gue sts. From howardin us davies London School. Then, we have jonathan on his france. Guy johnson and tom in london. This is bloomberg. This is bloomberg surveillance. Lets get the Bloomberg Business flash. In germany, commerzbank posted firstquarter income that beat estimates. The bank benefited from a rise in income from trading securities. Commerzbank has ruled out a turnaround strategy that includes 9600 job cuts by the end of 2020. Also plans to sell the equity markets and commodities units. Coming up around 6 00, we will speak with the cfo of commerzbank, stephan angles. Toshiba is morning the u. S. Partner not to derail the sale of the chip unit. Have sent letters to the company, warning of potential legal action. They say they have the right to sell the chip units. Toshiba has limited the list of possible buyers from digital rivals. That is your Bloomberg Business flash. Guy mark carney will be pressed for the timing for the banks next rate rise this thursday. This will be the First Insight in weeks into the bank of englands thinking. We like to call these days super thursday here. Still with us, Howard Davies, the rbs chairman. The government just needs to turn on its head. Howard i think so. I think the committee has shown a little bit of division with one or two of them thinking rates should rise. I would have thought the data we have seen recently, particularly on retail sales, is such that a bit of waiting to see is probably right. That is what i would expect. Guy how long can we have very negative rates in the u. K. Is that sustainable . Howard in the long run, i do not see how that could be. We cannot have negative rates indefinitely. We are still unfortunately, in a recovery phase in the crisis where the rules have been suspended. Most people in banks would say they hope summer malaise asian of Interest Rates would occur would say they hope that summer malaise nation of Interest Rates would occur. Would say they hope that a normalization of Interest Rates would occur. Tom on june 24, june 25, june 26, it was all about capital flows and goods and services flows. Give us an update on your interpretation as to how flows would be to the United Kingdom. Is a deficit still a great worry in an ever greater deficit . Howard i am still concerned about the deficit and that might be an oldfashioned mindset , because i was brought up when we had a constant sterling crisis. I hope we have offset that deficit by significant capital inflows, a lot of them property related. You can only sell London Property to foreigners once. Tom this is a critical issue. Howard i am concerned. We are seeing some signs of rebalancing in the economy. I think that is what we need. Tom how do you respond, and guy asked this question, about the return to the empire . We will do trade in what ever the right language is guy knows the language better than me. How do you respond to that . Howard i hope nobody asks me about it because i dont think it makes a great deal of sense. Maybe there are some things where you can reopen some trading for example, when we entered the agricultural policy, we cut off cheap food imports from new zealand. I think that would be reestablished, that trade would be reestablished. So, that might happen. But there is a gravity effect on trade. Tom hold on, i counted this is critical. I counted the sheep on theyearoleuro star yesterday. Guy they come at different times. It is a seasonal fact. This is complicated stuff, tom. In the southern hemisphere, spring is at a different time. Howard i know this is a bit technical for bloomberg. Guy is missing a round in the Energy Market a good idea . Is messing around in the Energy Market a good idea . Howard i would prefer messing around in the Energy Market. We are seeing that there must be something wrong with the Regulatory Framework if the government must intervene and i would prefer they work on that. Tom Howard Davies will continue, hopefully not in number of sheep between paris and london. Coming up, Martin Sorrell of wp p. And then to speak to mir. Martin on the state of Facebook Google worldwide. I think the ecb is clearly on the path to normalization, yet they are following the fed with some delay. And like the fed, they are data driven, so if anything were to go wrong in the economy, they might change their course. Given this data, i think it is likely they would follow this course. Guy that was the ubs chairman, axel weber speaking with bloomberg. He expects the ecb to continue the tapering program. Do you agree with that . Howard i think that is a reasonable forecast, though there are still potential rocks in the road in europe. The italian election, it never know when that will happen or the result. That could be a difficult moment for europe. And tom has said, the party is already over for macron. Im not sure if that is right, but if he cannot get a majority and nothing is happening in france in autumn and the political system is blocked, that could be a negative indicator. Assuming things go reasonably well in france and germany, i would think that axels forecast is good. Guy do you think he is being german in terms of his approach . Would i think germans not bes saying that. Tom to move to rbs, and the recovery you have provided leadership to, every chairman, every ceo has to face dissident shareholders. I believe you have shareholders right now saying there needs to be more representation of women, and there is a usual argument about competition. How do you deal with this debate . Howard well, as far as the diversity on the board is concerned, we currently are in line with the broadly in line davishe guidelines from a report, which says you have to have 25 on the board. We have one or two people going on and one or two coming off in the next month or two, but we will meet the guidelines. Tom i am fascinated with this. Do you deal with this internally within the bank, or do you bring in consultants . What is the machinery of making these tough decisions . Howard the shareholder pressure has been minimal. I have not had a single letter on the subject from anybody. Tom we could write that after the show. Howard if you like. Like everybody else, we have headhunters that are helping us. Aveh a board you have to h rotation. We are moving upwards in a general way with our representation of women and we will meet the aspirations set by the various reports on the subject. The notion that there is a big shareholder revolt is not true. Guy you very much want to continue doing this job . Howard oh, yes. Guy is banking a fun place to be right now . Not say it was fun, but we might be getting into difficult psychological questions. I think the job i have is fascinating and extremely worthwhile, i think, because we need to get this bank turned around so the taxpayer can get his or her money back. That is what i am say, to be focused on and the actual core business is doing well in the prospects of the taxpayers getting their money back. It is a very, very worthwhile activity in general i think. Guy this is why i asked the question. Danger, according to a number of reports there is one from the World Society of suffering an inability to recruit the right talent. And that is only going to get worse. Is that something you see . And to bring it back to the question tom asked, is it tomething that you see it ar r rbs, and at an economy level . Howard at rbs, not so much. But that is because the bank is cutting its workforce overall to resize the business appropriately. I think for us to say that we are desperately there are probably pockets in certain i. T. Functions where we are struggling maybe, but overall, i could not say that. As for the economy as a whole, i have heard people say they are nervous about particular skills and particularly, if our immigration becomes much tighter. I hear that a lot tom we will come back with sir howard, and his wisdom across the channel. Joining us as well with Howard Davies, it is wonderful to have Jonathan Fenby with us. He has definitive, modern analysis of mr. Macron. We do that next. This is bloomberg. Guy i am guy johnson in london with tom king. President trump senior advisers are calling for major strategy shift in military. Trategy in afghanistan according to the washington post, it would expand the militarys role in fighting the taliban. The pentagon would set true numbers in afghanistan and would be more freedom to use airstrikes to hit taliban targets. The organization of american states says venezuela does not need a new constitution, and he said new leader. Sayingeeds a new leader Nicolas Maduro has gone too far. Telling bloomberg that venezuela is drowning in a financial and he manager in crisis. Harvard university is trying to sell 2. 5 billion in assets from the Worlds Largest college endowment. According to a person familiar with the matter, harvard is shopping leverage or Capital Real Estate investment. Changes. Jor global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. This is bloomberg. Tom thank you so much. This is a real joy, a high point for this trip. A conversation with sir Howard Davies of rbs and Jonathan Fenby of ds lombard ts lombard. Macklin is mr. Macron mentioned in your book . He is only come on for the political rapid form. Tom what did you think of the celebration and that long walk . It wasnt something i think Jonathan Fenby would approve. I thought it was tremendous. I sat there watching it on television. I thought, hey, he has the drama right. Tom he is walking in the palace of the 16th century kings. Was there a symbolism of a museum we all go to or is it the symbolism of royalty from another time and place . Is a kind of modern monarch. When you look at the replay, his shadow followed behind on the gateway as he came through with absolutely out of a first rate film. He was looking for the carousel as well. You think of napoleon. When you think about what happens next, we heard it described earlier as a fourpart story. We are through two of them. Is the easy bit over four mr. Macron . In retrospect, he yes. In retrospect, yes. He is such luck. This was handed him on his overplayed. Anybody up against le pen was going to win. Yes. Five asked to come. The two rounds of the parliamentary election on june 11 in june 18, and then i would guess there will be a lot of street theater after that from the hard left with le pen approving. Were probably into a longrunning saga. Guy what kind of a person does he need to appoint as Prime Minister . I think it depends on what kind of majority there is in parliament. I think there will be an interim. Is a shortterm prime and mr. Now. There is a on shortterm Prime Minister dell. Who might stay on. Tom i was going into the hotel drivers ed, madame lagarde should be helping out. Should Christine Lagarde come back to france and assist macron . The difficulty is, there was a legal case which where she was kind of convicted, but then not sentenced. Whereas that is forgotten about in washington and elsewhere, and france, it still resonates. It is not completely straightforward for Christine Lagarde to take a senior position in france. Somebody from the International World more likely to come in tom interesting. Much more straightforward person. Madame le pen did when 35 of the vote saying antiglobalization. There is nobody more globalization and Christine Lagarde. I am not sure you would want to go there with macronlagarde. Tom what is the audacity the new french president needs . I think he needs to do some quite symbolic things on labor market reform because otherwise, i think the rest of the world will not believe that anything has changed in france. Some of those things you can argue up and down about 35 hour week and how significant it is, but internationally, it has achieved atomic status and yet the do something about that. Otherwise, i think your rhetoric about reopening france for business and attracting investment will not work. Guy arent you just charging headlong into unions doing that . Isnt there a smarter way . The unions dont have much membership. It is more of the street. The street and the union is more nuanced than used to be. The reformist union now has more members than the hardline but isnt the point Still Standing that dont work against it. Everything macron would do on the working week, on cutting Corporate Tax which is the all of the eu these will be seen by the left and the street as proof that, yes, he is the puppet of international globalized finance. Jonathanndlay fenbys book, you have a beautiful writing skill. One of the amendments, eni gmas. To, he didgo back not have a parliamentary majority in the beginning. Thinguld have the same with the republicans, being the main force in parliament after june 18 and macron dependent on them. That could work because a lot of their ideas are similar. The republicans are going to want to preserve their own identity. Tom sir howard, does france needed for euro that germany . What are the relative valuations . Ro . Far part is a good eu i dont think theres much difference between germany and france. Theres a different argument if youre talking about italy. French productivity has actually matched german productivity reasonably well over quite a long period. The french problem is more they do have slow erotic labor labor markets i do high taxation. I dont think it is a competitiveness of the french trading sector, which is highly competitive. I dont think the answer for france is a decline in the euro. The answer is our rebalancing of the economy away from the Public Sector. U. K. Leaves the relationship between germany and france, becomes closer. And probably in favor of france as a result of the threeway split changing. How does mr. Macron take germany along for the ride . And is he the guy to do it . He is very proeurope. We are for the music and see me flags. Is he going to be changing europe in a meaningful way and will the germans be on board for it . I think it is the best chance of something meaningful happening in the next two years. Years. He next few i was in berlin a couple of weeks ago and they are very anxious to work with macron. I think they may cut him a bit of use on the budget and the deficit ease on the budget in the deficit. As long as he delivers reforms. Tom sir howard, a final question for you, what do you need from janet yellen right now . We have not talked about the american central bank. What does she need to do in the coming weeks . What she said shes going to do, and that would be fine, i think. Also, i think the fed does need about how itlarity is going to reduce the size of its Balance Sheet. My own view is in the mediumterm and longterm, the Balance Sheets will be bigger than they used to be, but not as big as they are now. I think they need to find a way of edging that Balance Sheet down. That is the big conundrum. Tom thank you so much for a thisous set of time morning. Star Howard Davies, chairman of rbs. We will continue with Jonathan Fenby. Hoping it will be aired nilsson of unicredit. Eric nielsen of unicredit. This is bloomberg. Stay with us. Taylor this is bloomberg surveillance. Investor fight the latest shot in the battle. Etween akzo noble and ppg breached its duty by rejecting tbg pbg takeover offer. The firm has asked a dutch court to clear the way for a vote to oust the chairman. Akzo as of the offer is flawed and still with risk. Surprising Earnings Report from the german utility that missed estimates inverse report it is free of the cost of fossil fuel business. It split from it last year. It was heard by Higher Energy costs in the yukon. A Nuclear Reactor when offline. A former bond trader says he was trained to lie to customers to boost the firms commissions. He testified in the connecticut courtroom that he learned to lie about where they bought or sold bonds and misrepresented the price it has a. Three of the former colleagues are accused of lying to customers about the prices of mortgagebacked securities. That is your Bloomberg Business flash. You. Thank self grids are voting right now in a special election to replace the ousted leader South Koreans are voting right now in a special election to replace the ousted leader. The bulls are still open, sore limited to what we can say. Give us the background on why we are here. And where we are. Why were here is the former president was impeached in a Corruption Scandal that has roiled the country for the past six months. Today is bringing a bit of closure to that. Were not allowed to report on specific opinion polls, but the has been leading all of the polls up until now in a pretty comfortable margin. That represents a change to essentially end nine years of conservative rule. Tom thank you so much this morning. Greatly appreciate it. A quick look into the elections in south korea. We are more than limited on what we can say with the polls still open. Us. Than fenby is with we havent talking france. I will be blunt, i read his book cover to cover and he made me smarter. You can do that with his view on china as well. If you were to write and afterwards on your books, what would they say . Jinping is the most powerful since mao. Handson leader. He is coming to the point where he has got to show what his power is for. I think we might well get some changes and some surprises into this year. Tom do they have the ability from a high standpoint to clear markets . Is there a financial structure, a new maturity where they can clear mistakes . No. That is the problem. The Financial Sector has not been developed sufficiently in accordance with the strength and size of economy and the amount of money that is floating about in china. What has been interesting over the last few months, the role of the regulators has been considerably strengthened. They put in the chief Financial Market regulator who is a big man and he seems to have xi jinping behind him. The chinese president says he wants Financial Markets to be strengthened and cleaned up. Guy globally, Financial Markets have ignored china for the past year. The last few weeks, that has started to change. China fear is something you have started to discuss. Is that correct . It is correct in the sense you will have Slower Growth rate in tightening, undoubtedly. But it is incorrect in this is number,ificially high 6. 0 , in the First Quarter. You could take some slowing down and still end up with the medical 6. 5 for the year mythical 6. 5 for the year. We start getting tightening and greater revelatory control, people start getting nervous this will affect the golden eggs. Guy a businessman, the other day business has stopped. The private business is grinding to a halt right now. That may be true or a bit of an exaggeration. Tom, weve had this conversation many times. s idea of reform and modernization is not to help the private sector. It is doubt the Public Sector and strengthen the Public Sector to make the state for china in court for efficiently and no doubt in some areas private enterprise is been squeezed out. I was in eastern china a few months ago speaking to the chief risk officer of one of the state banks and she said, yet, they have started to stop lending. Tom we have talked about mr. Trump. Tic is china . Is is still has to keep up the trade surplus for the reserves, which have gone up. Tom do we give them a pass . I think we do so long as the increasedvelops in value added, increased technological way. If it is just to reproduce the 1980s model, no. Guy we will be back with Jonathan Fenby very shortly. Become a Bloomberg Technology is live in boston. Caroline hyde is taking an indepth look at regional tech. Look for that live 5 00 p. M. In new york, 10 00 p. M. In london. Fascinating series of conversations. This is bloomberg. Tom good morning, everyone. Look for our conversation with sir howard they visit Jonathan Fenby on france out on all of our digital platforms including itunes podcast. We will do that in the coming hours out of new york. John fenby with us. Talking about President Trump and his certitude, that he can speak to the leader of north korea. As guy johnson mentioned, we cannot talk about south korea because of the election. The president of the United States is going to have a dialogue with this guy . I was hearing from wellplaced sources last week in the u. S. That he does think he can cut a deal with north korea. That partly explains why he has been talking about he would be honored to meet kim, this savvy young man, and so on. We will see. Guy how does that compare . To youre dealing with a lot of different moving parts. Is a multinational situation. He feels he can do a bilateral that is what i was hearing. It is money from missiles, to put it crudely. Not very happy. They feel happy if kim stopped his program. But i would say, you do a deal with kim and he goes by common sense building again. Tom i got in enough from a guy in greece. He was talking about the pivot to asia. That was a major concept of president obama. Forgetting about north korea. I dont detect from secretary tillerson and a president a pivot. Will it be there . I dont think so. I dont think they want to prevent anywhere. The trump style, i would guess, you would know better than i, is to leave himself free to do any kind of deal he wants to do and take any kind of position he wants to do. But those very from tweet to tweet. Tom what are the consequences . Searchting a book image of my books again about the construction of the post world war. We are the demolition of that world. Important. S really youre going to write that book, fabulous, well needed. The fact is, it is about the Atlanta Charter five years before him. Im going to assume the president of the United States thinks the Atlantic Charter is about a golf course in scotland. How are we going to educate this guy on the history youre writing about right now . I think the two of us should go into the oval office. No . Tom what about the world order . It is dangerous to break up the world order. It had a lot of faults with it, but basically gave a kind of global stability guy his view is the world order rests on the United States shoulders. Therefore, the u. S. Can do what it wants an act in its own interest. The trouble is, it does not work in both the political world, the strategic world, and above all, the economic world. Whatever he did of globalization, it is interlinked. Guy wide using nato is a good idea now . Because of it he told him, probably. Tom is it cynical tuesday . Yes. But in all seriousness, as he has worked his way into what is turning out to be a more tricky job than he first assumed, he is slowly but incrementally beginning to appreciate the structure that existed in the architecture both from a security trade in Central Point of view is worth keeping. We have seen him roll back on nafta, making positive a positive noises about nato. Does he roll back . He will want to keep the freedom of movement because that is what his base likes and that is his character. He does not want to be fenced in, if you like, by all of these organizations. Been anathan, this has spectacular moment. Were done anything but talk about the United Kingdom. There is a train under the channel. Can the United Kingdom ever be detached from a continent . Is it even feasible that england and scotland to be detached from europe . I would say no, beer speaking no, thet in the eu brits like to think of themselves as being different. We look west and so on. Weve always been connected very, very closely with europe. John fenby, thank you so much. Author with a new book coming out. I cant say enough about his one volume on france. Particularly the point on readjustment of Charles De Gaulle and what you think about Charles De Gaulle. And with his previous books as well. Lets get some data. We have been datafree this hour. Commodities just are not happening. Guy johnson mentioning iron or earlier. Oil up. All in all, risk on feel, still looking for a global bid on commodities. Guy johnson and tom keene in london. Wonderful guest in our next hour, including on europes fiscal thrust. London, stay with us. This is bloomberg. Tom the party is over this morning. Mustdentelect macron consider have to deal with france is broken labor law. In this hour, erik nielsen of unicredit. Stillrty at the louvre is so over. Can president elect macron make people in london, will they moved to paris . In this hour, sir Martin Sorrell. The party at the louvre is way over. Good morning, this is bloomberg surveillance. We are live from london. I am tom keene with guy johnson in for francine lacqua. What was your thought coming on the train from paris . What did you learn . France has witnessed an incredible transformation that has rebirth its political system in the form of mr. Macron. Does the rest of the political system except that or does it fight back . Tom i was taken aback by standing looking at the celebration, realizing nobody in those cars really wanted mr. Macron to win. I find it fascinating. Some, maybe. I did not see any maseratis former sadies going through there. What a celebration it was. Maseratis or were sadies. President trump is blasting the Senate Hearing on his former National Security adviser and his ties with russia. The president tweeted collusion story is a total hoax and asks what will be a taxpayer funded charade end . Warned the said she white house top lawyer the National Security advisor at the time, Michael Flynn, was potentially subject to blackmail by russia. In south korea, voters are selecting a new president after months of turmoil. The former president was ousted as a result of the Corruption Scandal. It set the stage for a special election. The runnerup five years ago is the favorite to win and ended nine years of conservative rule. On yours of conservative rule. In the report says asia is rapidly aging population means the region is shifting from being the biggest contributor to the Global Workforce to subtracting hundreds of minds of people from it. The imf estimates asias population growth rate will fall to zero by 2015. In france, the part of the french president ial does president elect macron is changing its name. The on the move party will now because republic on the move. Macrons party is preparing for the nationalism we next month. Its candidates will include people from the republican and socialist party. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you so much. Andave sir Howard Davies Jonathan Fenby with his last hour, lets begin with a terrific set of people. Paul de grauwe is with the London School of economics and has given us wisdom on the strategic view forward for europe and particularly on the challenges of their fiscal structure. Joining us as well from berlin, erik nielsen of unicredit. One of the great optimist on europe. The me begin with you. You have always been optimistic on europe. We get better gdp data. Is mr. Draghi behind the curve . Too early to say that, tom. The economy is looking pretty good. Were running now for six months, running about 2 annualized growth, which is above tranquil. Inflation is behind the target. I dont think he is behind the curve yet. Tom what do you need to see from mario draghi in the coming weeks . Guy johnson was talking earlier about what their Balance Sheet will do, this, that, and the other thing. What does he need to do in the coming weeks . I think he really needs to keep the ship rolling exactly as he has been doing. The communication is pretty clear. The thing i think most people worry about is whether they prematurely start to tighten because of the german election coming up in september. If i had the opportunity to advise draghi in the ecb would be to keep rolling along until we get through the political stuff and then have a look at whether we need to taper some next year. Political risk has been massive in europe. A big piece of the puzzle was solved with the election of mr. Macron. How big of a change have we witnessed . Certainly not all clear. There are other elections coming. But, surely, much less uncertainty. There was a lot of Political Uncertainty about the direction. Systemic changes that were possible. Now it becomes clear that surprisingly, western europe has chosen for open, liberal societies. In contrast with america, right . Who would have predicted that ,merica, the liberal country would have turned nationalist and western europe is now showing the way to maintain liberal society . I dont want to exaggerate. There are still many hurdles. Tom it is television. Youre about to exaggerate. It is very important in western europe we seem to have come to guy is this because the economy is finally getting back on its feet . Point 6 Million People still voted for Marine Le Pen. Lets put that aside. The european economy is beginning to gain traction. Is that the best defense against populism . An important factor. The economy is going down. You will have very unhappy voters who will turn extreme right or extreme left. This is much weaker. That is a factor. But i also think people in france and also in the fewerlands, the election a months ago, have come to the idea that, well, probably the unified europe is the better answer to many of our problems. And we have seen that popularity of the European Union is on the rise. Erik nielsen, your with unicredit. Hurdle and canxt you be optimistic about italy as you are about europe . Market hasmean, the to worry about something i know frances out of the way, so we have to worry about something and italy is something for political reasons you could worry about. I am reasonably content things will work out ok. It is too early to call it a crisis. It is a long wait until the next election. The government is doing what it needs to do right now. Yeah, keep an eye on it but i am not too worried. Erik to hold that thought. It is interesting unicredit has raised its euro target this morning. We will talk about that a little bit later. Erik nielsen joining us out of berlin. Paul de grauwe sticking around. Were going to figure out exactly what is going on and european banking as well as the grid the cfo of commerzbank coming up. This is bloomberg. Taylor this is bloomberg surveillance. Activist investor elliott advisor fired the latest shot in the battle between akzo noble and ppg industries. Elliott says akzo has breached his duty to investors by takeover offer. The firm has asked a dutch court to clear the way for a vote to oust akzo chairman. Akzo says the offer is flawed and filled with risk. In germany, commerzbank posted firstquarter that beat estimates. They benefited from a rise in income from trading securities post up one of the business as it plans to shrink, commerzbank has ruled out a turnaround strategy that includes 9600 job cuts by the end of 2020. It also plans to sell its equity market and commodities unit. That is your Bloomberg Business flash. You, taylor. Commerzbank on the rise. Thesession looks strong for german lender. Lets get more details on exactly what is happening. Matt miller, over to you in frankfurt. Matt thank you. Im here with the steel so Stephen Engle cfo Stephen Engle. The stock has been up more than 30 yeartodate, outperforming the stoxx 600 bank index by at least one third. What do you think is behind that . Is this turnaround really kicking in now . I think the basic believe is that the strategy that we have announced at the end of last year is the right thing to do. I think q1 was a good start into the year. The strategy, at least, is on track so far and that obviously is convincing. Matt the result you put out levelsit beat on some the highest estimate of the range. Not just beating the street, but convincingly beating the street. A lot of that due to growth in the trading business, which is something youre looking to scale back in the restructuring. Would you rethink that scaling back decision, or does it just make this unit look better in a possible sale . I do agree to a certain extent, but it is obvious that andmillion operating profit net profit are well above estimates. But that is mainly driven by. Valuation that we have seen even if you take that off and compare it with the cree desk clean revenue of last are, you can see we are definitely growing. That is the key good news. Minds, trading commerce lines, trading is up. Our business returned to its normal performance, so it was nominal average weve seen historically. Selling the business was less a discussion of profitability. It was more toward our business model. Does require well on the rig which reside as well as the process side, some pretty specific investments and processes we deemed that it might give leeway to shareholders that can fit better to that kind of business model. Matt nonetheless, todays results were a great advertisement, at least, for that business. Do you have any more do you have any more details in your plan to exit the business . The plan is, were set to set up a new legal entity for the end of the year, and apply for the necessary licenses and then start into the process and bring it to the market in 2018. So far, we are well in progress in organizing the set up as well as the idea process side. Matt lets talk about the cost side. You brought cost down in the quarter. You reduced headcount substantially are, i think over 1000 positions. That does not count as part of you9500 or 9600 positions want to reduce by the end of the decade. How are you progressing on those discussions . We had start of discussions with workers council. We have already had first a partially early Retirement Plan that will kick in basically as of now. Ftese reduced 1650 between a1 last year and this year. A good part of that is already paying into the goal of the 9600. Matt you also added more clients than you expected or that you need to come i should say, jimmy your goal. You want to add 2 million customers by the end of the decade. You have said in the past m a would be another way to add more clients. Have you got any interesting targets . First of all, im very pleased with net new customer growth. It is slightly at a plan, which is also true, by the way, for us in our private and Small Business clients. Yes, we have said in the past we would focus on organic growth, but would not exclude inorganic growth. But in terms of something imminently on the horizon, i would not say matt when there is, please, tell me. Thank you so much for your time. Tom, back to you. Tom thank you so much. Eric nissan erik nielsen with us and Paul De Grauwe. Erik nielsen come on the yield curve, do we need a normalization off negative rates to say all clear . Were getting a better swiss 20. Germany still negative, but less negative. Do you need to see that to go through zero to say all clear . Would not say so necessarily. The curve is sort of being twisted and turned in a way. The ecb is buying a little bit more on the shorter end. We of the american curve on the long and taking the bund higher. There was a nervousness and the longer end with france and italy. I think we have selloff in a funny state right now where some of the key uncertainties have been messing around with the curve. Were probably going to a bit of normalization with it now, which would see it steepen a bit. On raising the target eurodollar, does a stronger euro become selfdefeating for the single currency . Yeah, in the one state it does. It is an issue. It is not a forecast change we like to make. The fact is, in our opinion, the risk in europe has gone down a lot. , particularlyies financials, are very cheap compared to the u. S. Money is flowing into the real sector and that will drive the euro stronger. Fair value, in our view, is closer to 1. 20. I dont think that is a big problem. Personally, i would rather see a weaker euro, but will that is not what were going to get. Tom i want to talk to Paul De Grauwe about the fiscal workout. Also joining us, sir Martin Sorrell on a hard brexit. The hard reality of facebook and google and advertising. Stay with us. This is bloomberg. A terrific series of guests in london, but we must i digress. It is the nations capital. Washington, d. C. For your entertainment, we have kevin cirilli, our chief washington correspondent running us this morning. Kevin, it is absolutely remarkable. The back and forth, the political divide. In a woman named yates. Did she win yesterday . Avin i think this was political win simply because she went in and dominated the headlines. Yesterday, the big headline coming out of this is that former president barack obama had advised President Trump, then candidate donald trump, to not deal with Michael Flynn. We all know what happened with that situation. Tom you are too young to remember this, but theres something called watergate where we went through the ballet they after day after day. Then there was the bombshell. What are you looking for in the coming weeks where this whole conversation adjusts . Kevin you have to remember there are several ongoing and open investigations into the russia meddling of the u. S. Election. The results of those investigations, we dont know when theyre going to come out. We dont know the timeline of that. We also dont fully know nor understand the scope. Arel those investigations closed and released, these questions are going to continue. Guy how does the administration divert attention away from this . Kevin look, they are saying they can walk and chew gum at the same time, so to speak. I think from the notion of where we are from the policy standpoint, i spoke with sources on capitol hill yesterday who told me the discussions on tax reform are well underway in the house of representatives. The senate has begun taking a look at health care. But so much going on. Then the president S International trip starting next week. The Fourth Circuit court of the United States of america. There are doing hearings right now on immigration. Why is the Maryland Court so important . Seven this could be the ground zero, so to speak, for an appeal. I think when you look at the immigration situation as a whole, we could start to see more of that boiling over. Tom thank you so much, kevin. Erik nielsen is an berlin and Paul De Grauwe with us at the does. The trump ballet in the United States of america is hinged on economic growth. One of our themes in paris was better emerging market growth. Do you buy the idea that international gdp will pick up . For sure. There is no doubt in our mind. We revised our growth forecast like the imf did, so we have a little bit more than 3. 5 . Emerging markets mostly and by the trade that looks like it is picking up, and the eurozone. The u. S. Had a weak First Quarter, but we think that is a bit technical. The u. S. Probably picks up in the present quarter. Tom we appreciate your attendance, aaron nelson. With us, Paul De Grauwe. Youre been way out front on a need for a workout of european debt. I think mr. Macron would like that. Izzy finally going to see a workout of european debt . I dont think he was to go too all kinds of formulas fiddle around with the debts. Is problem of europe today we have in fact been too much focusing on trying to balance the budget. The economy was not ready to do so. Has led to, that problems in the past. Now the economy is picking up again. I do think the debt problem will fade away. The Government Debt is in fact declining as a percent of gdp. So were on the right track. We should be less obsessed by all of this. When i compare the eurozone with the u. S. A new k, since the and u. K. Since the financial crisis, Government Debt regulation in the u. S. And u. K. Has been faster. Guy we have a chart we can put up. Tom you have a chart . Guy i have a chart. The u. S. , we are worried about the wrong thing, are we . Yes. Guy i agree. The blue line is the United States. This is the problem. The u. S. Has got a debt problem. Thats right. It is strange. We continue to be obsessed with the debt problem. We submit to do terrible things to bring that down. I believe we should in fact be more relaxed and allow governments to invest and finance by issuing bonds. Tom professor, im going to steal that chart from guy johnson. It was so good. It is one for the republican party. A data check. It is a safe haven data check as well. Right in the middle all clear for mr. Macron. From london, this is bloomberg. Were going to but tom keene on the train. That is where we find the leader of the later labour party. Germanybyn saying corbyn saying he will not quit if labor falls in this election. Tom for the many, not the few . Didnt the tories just kill it in the United Kingdom . Guy we dont know yet. We have not had it. Tom but the midterms or whatever. Guy the local elections, surly, there was a strong showing. We will wait and see. He will focus on housing. Says anyway, we will come back to brexit later in the program. In the u. S. , President Trumps senior advisers are calling for a major shift in initary strategy afghanistan. According to the washington post, it would expand the u. S. Militarys role in fighting the taliban. The pentagon, not the white house, would set to numbers in afghanistan and the would be more freedom to use airstrikes to hit taliban targets. In the k, companies are finding it harder and harder to find the u. K. , in companies are finding a harder and harder to find workers and brexit may make it worse. The group says the availability of workers fell last month at the fastest pace in 16 months. Its report warns the lack of clarity about immigration rules is putting off some eu nationals from taking jobs in the u. K. In south korea, the voters are selecting a new president after months of turmoil. The former president was ousted as a result of a Corruption Scandal, setting the stage for a special election. The runnerup five years ago is the favorite to win an and nine years of conservative rule. Harvard university is trying to sell 2. 5 billion dollars in assets from the Worlds Largest college endowment. According to a person familiar with the matter, harvard shopping private equity, venture capital, and real estate investment. The schools endowment is in the midst of major changes after years of producing returns that trails its peers. Global news 24 hours a day powered by more than 2600 journalists and analysts in more than 120 countries. I am taylor riggs. This is bloomberg. Tom thank you so much. Our de grauwe with us on london said. And joining us now from boston, sir Martin Sorrell. On thespeak Technology Future of his United Kingdom. Amthe only problem, tom, i not in boston, i am in new york. It is being routed through boston. Tom ok. Very good. We in new york and boston and london. We want to hear from certain Martin Sorrell. We have a hard brexit post up sir martin, are we going to have a hard frexit . I dont not about a hard france, but surly, i think macron has been generally welcomed. The alternative was less welcome , i think. Having said that, he now has the job and has to get it done. We will have to see what happens with the elections around the assembly and whether he gets a majority there or has to form some form of coalition. Certainly, his economic plans france is our six largest market after the u. S. , the u. K. , australia, new zealand. Italy and spain are number nine and 10. Germany, france, italy, and spain are very important to us, despite brexit. As a result of brexit, probably will be putting more emphasis on it. Mr. Macron, the new president , probably will take a harder line, a tougher line in those negotiations. The good news is that macron wins. The bad news, if i can put it like that, i think will be a tougher negotiation for our Prime Minister. Futurethin that is the of the United Kingdom. There is been any number of ways to take it. Would you suggest that london will remain supreme . There have been so gloom articles on my trip about the world leaving london. It was suggest sir Martin Sorrell would not buy that for a second. Exaggerated. N i think new york will gain, where i am now. I think generally, Investment Bankers and others are saying new york will gain as a result of a brexit, whether it is hard or soft. London will lose some of its primacy, but not all of it. Obviously, the new french president wants to encourage bankers to flood paris. He has been very keen on that. There will also be some issues , this border controls agreement we have had in between u. K. And france in terms of border controls may change. There are going to be some significant changes. Mr. Macron has some very firm views. Obviously, they have proven popular at the election. Although, they were 25 abstentions, which i think was extremely high in the context of french president ial elections. Guy sir martin, he created a brand out of nothing. He created a party out of nothing. He took it to the french people. They liked what they saw. When you look at this with the expertise that you have, is it style over substance, or do believe there is substance . I think there is substance. The question is whether he gained get it done, whether he will have, as i said before, a small majority, which is possible, or will have to form some alliance or coalition with the republicans. There were some shifts in voting from the socialist and from the pen, which wase a bit surprising. If you look at the distribution of le pens votes, surprisingly, she seemed to appeal to Younger Voters and less to older voters. Or as you would have thought it would probably have been the reverse. Certainly when you look at what happened on brexit and with trump in america. Guy who is the leader of the opposition in france now do you think . Good question. I guess le pen. People will coalesce around le pen. She got one third of the president ial vote, less than what she wanted. She and gotten over 40 ive been in america for a few weeks and americans were predicting she might get 45 . Here as much as 40 or i think that is been somewhat disappointing for her support. But she will try and coalesce the support that she got from the left and the right and some in the center to try and form a decent opposition. Does not have a Political Party it has to form one. Most of his candidate, he has said, will come from the legislative assembly, will come m those who do not have his choice of Prime Minister will be critical. I think it will be looking for somebody fresh and different. Tom sir martin, i spoke with maurice levy yesterday. You may know him. I have no idea who youre talking about. I thought he retired, tom. Tom he is working toward that. You will never retire. You thisn, let me ask in question i asked levy yesterday. How do you adapt and adjust to facebook and google, the dominance becomes ever more so what is a server Martin Sorrell to recalculate or recalibrate how you deal with these two behemoths . Digital is 40 of our revenue. 16 billion of net sales. 40 of that is coming from digital. If you look at our media portfolio, it is 75 billion. That is the amount of media we place around the world. Number one in terms of investment by our clients or by google, just under 5 billion last year. Number two is the murdoch next at 2. 59. S facebook number three at 1. 7 billion. The First Quarter of this year, facebook is over. Google a little less. Theyre more effective by currency and the strength of the dollar. This simple answer is numbers one and three in terms of where we invest the money of our clients in the media has shifted to google and facebook. So we have made that transition. We will see how that pans out in time. Theres a third force coming along, amazon, which not only heavilys or influences cloud computing, but also search. So it is a threat to google. And also advertising. It is a threat in a way to both amazon to both facebook and google. Theanswer to your question, simple answer, we have adapted as an industry. The duopoly of google and facebook in digital, they think about 100 of incremental digital ad you cheer, 75 of the total digital market, which is about 30 of the world market. We have adapted to it. Whether we can continue to adapt to it is another question. I think we can. Then we will have to adapt to amazon. We will be announcing shortly a little bit of an initiative in relation to amazon, too. Tom i want to talk about mr. Bezos and amazon and touch on facebook as well. Sir Martin Sorrell today. We will continue with Paul De Grauwe of the London School of economics. He has set patiently. On bloomberg, it is timely with asset management. No other phrase for it, and relative chaos, a good time to think of Martin Gilbert of aberdeen. This is bloomberg. Guy this is surveillance. Coming up, daybreak. Jonathan a bromance, together in paris and london. Im enjoying things so far. Train . Tom different car. Jonathan coming up, citigroup. The s p 500, record high. Accountable calm uncomfortable calm. Guy looking forward to that. Pictures coming to us from manchester where we have got Jeremy Corbyn shaking hands. Friends standing next to him. It has been an interesting event for her, an interesting few weeks. Corbyn laying out how he thinks the labour party can win the next general election. U. K. , some would say this is going to be a correlation of theresa may. Do you think a bigger majority actually give certain advantage, that actually allows her maybe to tack a different course than she has taken thus far . The as is important for to have it is import and fired have a bigger majority so she is not being blackmailed by whatever extreme in the conservative party. But she will certainly have to change her tone. On inr plan issue goes the direction of a hard and maintains this idea of full of the elimination European Court of justice in the u. K. , then i think she will have a hard brexit. Whatever the outcome of the election today in june. I do think it is important for her that she takes a different approach. Otherwise, she will create a selfinflicted problem, right . The city can survive, but if she goes on in the direction of full sovereignty without control from elsewhere, she will fail. And the city will be hurt by all of this. So i think she has the possibility if she has a large majority that creates for her more flexibility to move in the direction of a softer brexit. And i think that is what she will do. A largeyou think majority will allow theresa may to change course when it comes to brexit . Is that the ultimate aim of this . Or do think it allows her to do the opposite . It gives her more wiggle room. We dont really know, do we . The Prime Minister has kept her cards close to her chest. We dont know whether she is hard or soft or somewhere in the middle. I think this gives her more wiggle room for whichever way she wishes to go. I would like to see a soft or brexit quickly. But it looks like we will probably end up with a harder ofxit over a longer period time. To some extent, is the worst of both worlds. We are referring to president macron, who will have his inauguration on sunday. We will have to see what influence he has. He will probably hard , will be keen to bring france and germany closer together and form an alliance, whether the germans will go along with that we will have to see. It depends to some extent what macron can do internally in france. He has almost a trumpian agenda in terms of investment in improving efficiency and reducing public debt maybe that is not so trumpian. Having said that, there are a lot of unknowns. The Prime Minister will have more room to maneuver. Whether she will go the direction that paul wants or not is another question. Guy sir martin, doesnt it give the European Union more room . We are in a position where we have mr. Macron and they end up with mr. Scholz or angela merkel. It is clear if we have that relationship, were going to see a drive for further europe. The u. K. Is out of the way. Isnt the best of both worlds for everybody . You did not mention italy. I think that is the elephant in the room or the thing that is coming over the horizon. It looks like it might be sorted stuff even if it wasnt sorted, for the eu. E issue the extrand that minister renzi is pushing for an election. It will have to have one by early next year. We may have to have a coalition between renzi and berlusconi. Then theres the question about the fivestar. The movement whether that is a populist movement. That has about 30 , 35 of the polls in italy. We will have to see what happens. It is too early to call. There are the uncertainties around macrons implementation in france. The big question is, what happens in italy . The potential bankruptcy of al i talia does that happen help on the jobs front. Final question if we could, professor, do you bundle italy into your challenged economies, in the need for a debt workout . I certainly do, yes. Italy is the problem country. More so than greece now. When you look at the takeover come easy italy is the country that has become poorer. All of the others have seen their income increase. Tom is it therefore or germanys fault does is it their fault or germanys fault . It is seen as being the result of the euro. Let italy on the road of becoming poorer. Everything is worse in italy. Their lack of competitiveness the other countries have done what theyre calling internal wishon, bringing back there waged in prices. Italy has failed to do so. As a result, very uncompetitive. Also, problems with exports. Oorer country. You dont a much more to create extreme parties that promise something much better. , thank youe grauwe so much, with the London School of economics. We will continue with sir Martin Sorrell as well. Guy johnson and tom keene in london. Today, the data right now is a risk on feel. , 46. 56. Worldwide, this is bloomberg. Tom good morning. Single best chart. This is apple and the success and the courage to state in apple. Guy johnson, what a juggernaut. We saw the report in the british newspapers this morning of a 1 trillion apple, the direction of some analysts. Guy lets bring back and sir Martin Sorrell. If tim cook is able to repatriate all of the money he has overseas, there is talk teammate i disney. He may by netflix. What media asset do you think he should spend that money on . What was the one after disney . Guy netflix. I mean, content, which i guess is what disney and netflix would be about is one option. But i think continuous innovation is critically important. He is honestly spending 1 billion obviously spending 1 billion on jobs. He announced 250 billion sitting on his Balance Sheet . I think he had to borrow that 1 billion because you cannot bring it back because of the penal tax that he had to pay on it. I actually think continuous innovation, having a very interesting conversation in omaha over the weekend because ,t was Berkshire Hathaways agm a number of people congregate in omaha for that. You are thinking about the juggernauts, whether the apple or or amazon or google or facebook, theyre all at some point in time going to come into collision with one another. If you look at the device is now, alexa and the google look, these was activated cameras that area, agents for the consumer, tom and guy, i think are going to becoming increasing tom sir martin become critical. Tom we have to leave it there. Were going to lose our satellite coverage. Thank you so much, sir Martin Sorrell. To switch over to asia. Guy johnson, we are still in an embargo on our discussion of this important election. Guy in south korea. I think the polls close in six minutes time. Were slightly limited in what we can talk about. Nevertheless, interesting time for that election to take place. We have not nation spoken about so far is the idea of japan. Japan is wrapped around all of this discussion with china and with the two koreas. Guy it will be interesting to , if itetary policy changes direction over there. How about a forex report . We can do that here. Euroswiss is quite important. The second one down. Showing the ultimate risk on, safe haven becomes less important. Again, you really have to contribute this to macron and commodity has been a little soggy as well. Guy johnson and tom keene and london. We will continue year over the next number of days. A lot of different information. Stay with bloomberg across all of our digital platforms on the korean results. It is a beautiful new york yankee new york. The new york yankees on fire in the american baseball league. Guy, it is like cricket but it is a little guy different. Tom more interesting. Marching gilbert later. Marching gilbert later. I us stocks on equity. Chinas clamped down on leverage ripples through markets. Futures come under pressure once again. Good morning. Good morning. A warm welcome to bloomberg daybreak, im Jonathan Ferrell alongside jonathan ferro. Alix steel is on assignment today. Euro dollar grinding low for a second straight day. And crews finding a little bit of stability. 6 and 60 on w. T. I. David fed president speaks at the minnesota hightech conference and we will hear from dallas fed president. And then the jolts report may give us a sense of what was