Welcome to todays worldwide exchange. He im kelly evans and these are your headlines from around the world. Social democrats take control of the house and the eu is forced out of power in lower saxony. Plus, optimism by the u. S. As republicans attempt to break the budget stalemate in congress. Investors pulling back in japan as the boj begins its twoday meeting thats widely expected to back more easing and a new 2 inflation target. And heavy snow bringing travel across northern europe. Hundreds of Flights Canceled here in the uk. France and germany, too, with disruptions expected to continue for several days. Yes. Welcome to worldwide exchange. Ross westgate is away. He will be back later in the week from davos and along with plenty of other people and a lot of great guests. Its a threehour program. The first three hours, i think the third youll have to flip over to cnbc to catch. We will be heading out to washington as the capital prepares for the inauguration of president barack obama. But will he spend the next four years at the mercy of republicans . Well explore that. Plus, well assess if israel could be medicining for a right coalition as Benjamin Netanyahu says he is prepared to work with the naturalist home. And well take a look at travel chaos across the continent as snow and freezing conditions cause plenty of disruption in the air and on the road. Now, germanys social democrats are celebrating a stunning victory in lower saxony secured with the victory of just one seat. Support for Angela Merkels christian democrats fell by 657 percentage points, but the chance ler herself continues to ride high on opinion polls. For more on what all of this means, Silvia Wadhwa is here to join us on set. Good morning to you. I guess, is this this is being presented as a blow to Angela Merkel or at least to her party. But given theres just a oneseat differential in the outcome, is that too strong . Yes, it is. I think that there are two trends here. One trend is that both major parties, the social democrats and Angela Merkel are not really on a winning streak. They both have problems. The social democratic contender, the federal elections, is thinking fast or has been over the past two weeks of the popularity threshold and Angela Merkel has been riding and both of their parties are dithering. The sbc slightly inching higher and the sdu inching lower and theyre both losing ground in a grander scale. Its the small parties that are the winners, definitely the green wes a record high of over 13 . Theyre the ones that won the election and lost it for the cdu, not stoeshl democrats themselves. And the liberals, the sdp, many had counted them out and there was an expectation or there was a fear for some that they couldnt even make the century hurdle that you need to get into parliament. They beat that. About you also for the personality ratings and the criticism on a federal scale, but that was his home turf so there was a lot of sympathy vote going in there. The big parties will have to look carefully for Coalition Partners. The social democrats will try to align themselves with the green that might not be enough. The stronger the greens get, the more the social democrats usually lose and something similar you have on the other side with Angela Merkel, cdu and her Coalition Partner. So at the end of the day, the relative strength of the small parties might push two big parties into a grand coalition again. And thats giving some comfort to markets again. Silvia wadhwa, we appreciate your time this morning. Allen capper is here on set for the first hour. What do you make of the situation there . How important is it for investors . I think the main thing investors should focus on are those deteriorating numbers. Does that change the german Political Economic . Im not convinced the population will be that concerned yet. But either from a political perspective or economic perspective, if these numbers deteriorate, well have issues. And this is a point on, whether things are starting to rebound. Does it seems as the though the numbers are coming in heavier than expected . The market is looking at what was said last july and says the tail riske is diminished significantly and as a result, we see a great rally, we see it in equities or we see it in credit. Theyre looking at the normal markets getting worse. And, of course, the focus on the german political election is much more about policy response generally to the European Union, the euro project, i should say. We have the euro group separately meeting. We have this little issue of cypress. In terms of gdp, its little. Politically, though, it could be much more significant. Tie this altogether for us. How important is an essential change of power in germany to these continued effort to resolve the crisis in cypress or other Member States . I think the key issue is that germany is a big importer from spain, italy and the periphery. If the german numbers weaken, well see that later in a periphery. Especially through spain. Ultimately, this is really an economic story. The periphery are a lagging indicator of whats going on in germany. My concern is sooner or later, these peripheral equity may start to be under pressure again. What are your positions on debt . I think at this stage were still comfortable with the core. The reason, theres probably another risk off take his. Whatever the reason behind it, it tends to protect the periphery, not the core. For example, france continues to perform very, very well. Again, germany, it performs very well, yet the underlying fiscal issues remain quite acute. Why . Think back to the 1990s. Japan, the fiscal situation degraded. What happens to jgb . They went down. So for the time being, im okay with the core, but soonerer on later, this is the risk the market has to focus on. Allan, stay with us. Well get plenty or thoughts from him. We want to check in on markets and look a little bit at equity these morning first. The stoxx europe 600 is opening down 0. 2 . Were roughly split between decliners and advancers. Asian trade overnight, the nikkei was giving back some of its gains as the yen strengthened there. That didnt necessarily help sentiment, but european bourses doing okay on. The ftse 100 up about. 1 . About. 25 for the xetra dax. The cac 40 is the laggard. Lets take a look at bond rates. We were speaking to allen about some of these. Down across the board. Were seeing yields drift up a little bit everywhere. The bund yield, moving up to 1. 75 . We were below 5 , though, last week. Italy moving up 4. 116 and the 10year yields still staying above 2 . So an interesting differentiated trades higher there this morning. Quick look at forex. The dollar yen, down. 7. 5 . After juvenile oomphing above 90, failing to hold some of those levels and giving up some of the yen strengthening a bit. For more on how markets traded overnight, lets get straight out to will i sixuan. Thank you, kelly. Its a mixed picture for asian bourses. The nikkei pulled back ahead of the boj announcement tomorrow. Investors are expecting bull easing, including a 2 inflation target. But after hit ago new low, the yen has paired back some of its weakness against the greenback. Exporters were broadly weaker on profit taking. In china, the shanghai composite ended higher by. 5 . B shares also poured a hope for programs at a premium. Elsewhere, the hang seng finished a touch weaker. Bp shares fell over 1 today after the countrys largest profitmaker issued a warning. Also a flat session for south koreas kospi ending. 05 . And down under, australia ended marginally in the green. Shares of National Australia bank rose nearly 2 today after reports that it may get an offer to offload its loss make uk wrench. Indias sensex is now trading higher by about. 25 . Kelly. Thanks very much for that. Well have more on trading in india elsewhere in just a little bit. U. S. Republicans indicated on friday, some willingness to vote in favorite of federal Borrowing Authority by three months. Meanwhile, speaking of nbcs meet the press yesterday, Charles Schumer says the senate will pass the budget for the first time in three years, but he stressed the plan will include opposition by new revenue. It would seem as though the markets are reading this favorably. Talking about pushing this issue three months down the line, how positive of an outcome is that . I dont feel comfortable about that. My concern is you keep on pushing it back, the market feels good for the first couple of months, but then it knows it has the problem coming for june and then september. So i think this would be a very, very dangerous outcome. But probably lurking in the background for the u. S. , as it lurk he in the background for the eurozone, as well, its not just about the debt ceiling, they have to get the debt down. The debt ceiling may get raised, but its not being tackled longterm. It seems every single time consistently we get the opposite outcome. Which means some areas are consistent and it raises debt levels going forward. It seems to me as though we cant fix this one because democratically its not possible. Why . Because there are so many verses who are automatically vote to increase the debt because the number of people who own entitlements or benefits is relatively high. And i think youre seeing this failure both in the u. S. , in germany and to an extent in the uk. The trouble is for all of those economies maybe some of the european ones are under pressure by the government. But the problem is, if you look at issues in the u. S. , theyre just so low. Theres no ability to cut in the longterm. How do you push through entitlement reform and address those issues, especially if theres no market pressure right now . My sense is that you dont. I dont understand how that can be achieved and, therefore, i suppose what i struggle with is what solution can the government find . The bank of japan, if you monetize the debt in a low inflationary environment, is this a free lunch . Right. In the uk, it has turned out to be a free lunch. Would it in japan . Possibly, yes, and, therefore, i wonder if these issues ever will be addressed. And whats so interesting, youre seeing these bizarre rates happening in a Monetary Policy. We feel like were in a whole new regime where people feel like it doesnt matter at all. Wondering if it matters at all how much you spend and borrow in these situations. How does it change, if at all your strategy from here . It makes having a longterm strategy really, really tough. And you can see that in the markets right now. What people see by more investment, it gets pushed into treasuries, into eks, and we see markets trading at very elevated levels. Relative to fundamentals appears to become the norm. And i would argue that were now in a world where its very difficult to recruit any decent returns. As a result, as investors, were going to have to live with that. And a lot of people are just closing up shop and saying, i dont see the runs. Well, i think the trouble is, the money has to go somewhere. The key issue is now where do i put the cash where its going to be safe and where ill at least get it back. Its now about minimizing risk. And pull forward, that seems to be a lot of the concern. Well get into a little more of this and well talk about just what weve seen with president obamas first return to office and what weve might see for the next four years. And with more people looking to move their money out of bonds and maybe into equities, is it time to look at european stocks . Theres plenty more of is that discussion on our website, cnbc. Com. German chancellor Angela Merkel lost a key regional vote in lower saxony. The bellwether for germanys Upcoming National election. You can read about that over on our website and the World Economic forum, davos kicks office later this week as global leaderes and politicians descend on switzerland to discuss world affairs. Cnbc asks is davos the place for responsible capitalism or is it snow polo for the super rich . What do you think . I think we have to give them the benefit of the doubt. At least for the time being. Lets talk again later in the week. Are you going . No, no, but ill be watching you. Excellent. Good answer. Theres plenty more at cnbc. Com if you want to see more for that coverage. And coming up, a 2 inflation target in japan. Is that Wishful Thinking or a credible goal . It might depend on just how low you think the yen will go. Well be right back. What are you doing . Nothing. Are you stealing our Daughters School supplies and taking them to work . No, i was just looking for my stapler and my. This thing. I save money by using fedex ground and buy my own supplies. Thats a great idea. Im going to go. We got clients in today. [ male announcer ] save on ground shipping at fedex office. [ male announcer ] save on ground shipping itbut sleep trains huge foryeais ending soon. Models for a short time, save hundreds on tempurpedic mattresses. Get the most highlyrecommended bed in america at closeout prices. Plus, get interestfree financing and free sameday delivery. Why wait for the new models . Sleep trains year end clearance is ending soon. Superior service, best selection, lowest price, guaranteed. Sleep train your ticket to a better nights sleep welcome back to the program. The yen hit its 2 1 2 year high against the dollar before bouncing back today. Under publish pressure to pull the country out of inflation, the bank is expected to pull a policy of quantitative easing and a much hiked 2 inflation target. For more on what we think is going to happen here, jeffrey from ubs joins us right now. Good morning. Morning. This meeting has been talked about for months going back to the election of shinzo abe in november. How important is it . Whats at stake . Is it all about 2 target . Its very important, but i think its more about the 2 market, especially for the fx market. Were looking for another expansion in the region of 10 trillion. But the question really, right now, is what more can the boj do to consolidate this dollar yen rally. Theyve been told from japanese officials they like to see dollar yen near 100. Further setting an fx floor along the lines of what they have been been doing. Its a bit hard to see what theyve been doing. There are probably expectations a bit scaled back and thats why were seeing some profit taking and nonpositions among dollar yen. We are, jeffrey, hearing that there will be some joint press conference in 2010. Are they using as much as the eurozone or the u. S. Has in symbols and rhetoric and speech to talk the yen down . Clearly, you need a coordination right now between the government in japan and the central bank to help drive market expectations. But right annoy, its more about the government guiding expectations and the central bank listening. Having that press conference, having any sort of symbolic move and weve been counting on symbolic moves and symbolic rhetoric over the past few weeks now to drive the yen lower. But the market really needs to see something substantial, needs to see maybe an openended commitment to asset purchases or maybe even a drop in the interest on reserve rates to zero. I think that could send dollar yen higher. But on the note of Japans National partners, we need to be a bit careful here. There have been commentary suggesting that theyre a bit upset with what the japanese are doing right now, more talk about currency wars. So maybe with japans International Partners in mind, they need to be a bit careful about exchange rates. Right. One of the things that ive been struggling with for a long time, if i go back to economics 101, it would seem to me that you print more yen, the value of the yen goes down. Why is this time any different . Why would it be this Time Printing more yen will drive the currency in a meaningful way lower . Thats a great question. This question, a lot of them have been asking. It just seems theres a lot of change in expectations, the expectation that this will be different for month apparent reason. But the other matter is positioning. I think right now this more in dollar yen is a lot more position driven than fundamentals driven, whether you believe and whether the boj can do anything or not, youve been in this risk on environment in the First Quarter over the last few weeks, certainly, and theres a need for the carry trade to be put on. Theres a hunt for yield. Were seeing it in the euro, were seeing it in the hunt for markets. They probably need to go with these right now. Whether they believe it or not, given the momentum going, probably need to pick up some carry while we still can. Are we back to that world where the yen is the carry trade . We might be halfway there, but the rest will gend on what the boj can achieve and the global environment. But then the carry trade should be able to do well. And that is one of the views right now. We think the u. S. Yields will be high, we think u. S. Yields will be stronger. All of that could be derailed by a nasty shock out of the emerging markets or the eurozone. Or a shock out of the u. S. Itself. Jeffrey, thanks very much. Thank you. U. S. President barack obama began his second term at the white house. Everyone decked out in blue pretty much and obama put his hand on the bible to a. I barack obama do solemnly swear. That i feel faithfully execute. The office of the president of the United States. The office of president of the United States. Now today, president obama will attend his public inauguration in washington. The reason why that ceremony happened yesterday is the president thats be sworn in by i think its noon on the 20th. That was the private sayre mope. The private one takes place today. As many as 800,000 people are expected to attend the swearingin in washington. The president will repeat his swearing in and give the traditional speech. If youre wondering how markets have done since president obama took office, 10 5 return for the nasdaq, 65 for the dow. Were not necessarily attributing this to president obama himself, but you can look at how oil markets have traded over the last four years. The recovery from the credit crisis had pretty much most to do with the trends