Transcripts For BLOOMBERG Bloomberg Surveillance 20180220

This is what i am looking at, the 10 year yield. We are a little bit thin in terms of Economic Data this week, so a lot of focus will be on this mega auction sale. The first one kicks off today. That may actually hurt, or change the 10 year yield. Above 3 . About 3 600 the stoxx 600 basically unchanged. Coming up on bloomberg surveillance. , we talk the business of private jets with start up. We have an exclusive conversation with bp ceo bob dudley. Lets get straight to the bloomberg first word news. Isra the u. K. Government said to have plans to withhold billions of dollars if the eu does not give the u. K. The deal that they want. In a speech later today, brexit secretariat will reassure the European Union will not try to undercut the bloc by tearing up regulations. Signalhas sent a strong about her preferred successor as german chancellor by appointing a close ally. Critics on the right have called for more conservative policies as a way to win back voters. The unexcited move is a signal that merkel tends to keep the c. D. U. In germanys political center. Indias central bank is said to be tightening its approvals process for allowing companies to raise money overseas. The r. B. I. Is concerned that any increase in rupee volatility may hurt borrowers ability to repay debt. Bank of England Governor Mark carney says he is already preparing for the uks next financial crisis. He says it no central bank can limit all risk, but says the boe is creating a more secure defense by providing extra liquidity, and ensuring higher capital levels. He says excepting that a crisis will happen is the best way to prepare for it. Donald trump has endorsed mitt romney for the u. S. Senate seat in utah. The move sets aside longstanding differences as the gop looks to preserve its narrow majority in the chamber. Romney announced on friday that he would run for the seat left open by orrin hatch. The latvian Prime Minister says he will try to prevent European Central Bank Governing Council member Ilmars Rimsevics from returning to his post after he was caught up in a bribery probe thats rocked the baltic nation, the countrys Prime Minister said in an interview. Rimsevics, whos led the Latvian Central Bank since 2001, faces suspension from his job as a security measure following his detention. He rejects the allegations and says he plans to hold a News Conference tuesday. The head of opec says the rebalancing of the oil market is gaining traction. The uaes minister says the cartel, russia and other producers are looking at to continue production. He says he does not want to return the market volatility in the downturn experienced between 2014 and 2016. Global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine lets kick it off with the markets. Treasuries are back online after the president s day holiday. The dollar is rising as investors get ready for bond auctions. This is also what markets are waiting for. I think we hear from Jerome Powell next week. What will happen to u. S. Rates and assets . We are joined by the head of g10 fx research at Credit Agricole and our executive editor for economics. Thank you both are joining us. We are a little bit thin in terms of Economic Data. How much will the bond auctions actually steer us in what yields will do next. It istely is about about supply and demand. Most of the correction that we have seen so far is due to the pricing and inflation reliving high in the u. S. Down the road high in theing u. S. Down the road. Ultimately i think i will be really watching what is going to happen with the term premium as a longerterm driver of treasury yields. My expectation is that normalization of those term premiums should drive treasury yields higher. Francine i want to talk about financial conditions. Within your reporting and your editorial duties, what will you look out for in the next 10 days . There is a great story on the bloomberg looking at the fed minutes. Ther has appeared in the fed minutes. People whot the watch the Federal Reserve wondering what this means. Does it mean that the fed thinks that the neutral rate gap between boom and bust interestrate and whether that has moved tire . There is going to be a lot of time spent trying to work out what that means. Francine what do think it means . We stick with our three rate hikes at the time being. Moving that way. Expectations plus the term premium, all that seems to point to higher treasury yields. Francine they bring you over to my chart. This is a beautiful chart. It is u. S. 10 year yield. We brought it back to the 1980s. Of the last couple of days it has risen above its channel downtrend. What does that mean . Or 4 because of what we see here . Where going to see more investors betting on higher treasury yields from here. At the moment the part that is driving treasury yields is the repricing of inflation risk. What does not seem to be in the price is the changing them balance between supply and demand of treasuries. The Trump Administration is bound to issue more debt down the road. At the momentum is negative. Normalization back to those levels could drive treasury yields higher. Francine we need to look at financial conditions, right . If you look at the fact that the dollar has been weakening somewhat, this kind of ads a next her layer of stimulus. Absolutely. The weaker dollar will actually boost global trade this year basically by three percentage points. Certainly another element of stimulus that your sing on top of the tax cuts that you are seeing on top of the tax cuts. Francine if something happens with the auctions, could actually bring back some volatility could it actually bring back some volatility . The jury is still out. If we get higher yields on the back of those options, and if you think of measures of fair value for global stocks, these are still well below treasury yields. This will highlight that stocks still look a bit overvalued. I think the big risk going into the next few days would be indeed a potential correction in risk again on the back of evidence of higher yields in the u. S. Stocks still look relatively rich given where treasury yields are. Francine do we need to look at possible u. S. Assets overheating . If there are signs of overheating, where would you look . Certainly that Inflation Report that we saw last week. Very few of these things that people have expected have actually met the pregame billing. We are going to be looking at inflation, then the Unemployment Rate, and also whether those wage growth that hasnt been here will start to be issued. That will be the real focus on markets. Francine were still waiting for the vice chair. When will that come . Different deadlines have come and gone. The Trump Administration never meets the deadline. Others seen various discussed. Until there is a nomination, there is no name. Francine we will be back with both of our guests. Stay with bloomberg surveillance. Will hsbcs chief executive hand over to the rains to his successor after a rare earnings miss . Plus, theresa mays cash grab. Up next and this is bloomberg. Economics, finance, politics, this is bloomberg surveillance. I am Francine Lacqua here in london. Hsbc is about a doubt our biggest corporate story of the day. Is givingship of hsbc some news in a Conference Call to reporters right now. Shareholder returns under his tenure are satisfactory is what you think is what he is saying. The incoming chief executive officer saying that gulliver strategy is working. He has ended his tenure at hsbc on it low note on a low note. Returns wereer sent lower. It is a rare miss for gulliver. Bloomberg data has shown that he has delivered higher profit in six of the last seven quarters. Ian mckay highlighted areas of weakness. The Fourth Quarter from our perspective and the industrys was a little bit weaker industries was a little bit weaker. We also took a couple of provisions part significant corporate exposures provisions for significant corporate exposures in the Fourth Quarter. Francine our guests are still with us. This was one of the rare misses. It is a shame that he is leaving out now. Will he be remembered for this . They took to very large impairments 2 very large impairments on steinhoff, the south african conglomerate, and carillion, a u. K. Contractor and builder which also kind of collapsed at the beginning of the year. There was a general trend down in the markets businesses, fixed income trading, bonded trading, that type of thing bond trading, that type of thing. Gullivers ruin legacy, but it tarnishes it. There was a little bit of disappointment on the top line growth, the Revenue Growth. Francine this is europes largest bank. Can you say without a doubt that Stuart Gulliver is leaving the bank in a better place than he found it . Absolutely. He said he was going to shift 150 billion asia and couple of asia a couple of years ago. Asia is now about 77 of its profit. This really is a bank that is transitioning from back to its traditional homebased in hong kong towards markets out there, trade finance, the type of thing. Francine over the years i imagine that they have had to shrink the bank. Now they are ready for growth. What are the main challenges for the new ceo, john flint . The new ceo says that he can build on that. He has to show that he has more to say than just exiting countries, cutting costs, and show that he actually has something more to say. This will probably be heavily digitalization, automation, probably because on cutting costsly on that. Asset management is an area where lots of banks want to expand. It has got low capital cost, it is a complementary business. We might see some action and m a, organic growth in the coming year. Francine i want to ask you about banks and hsbc, but also spoke to the leader of Credit Suisse last week. That always is certain 2018 is a pivot point to where Central Banks start normalizing and volatility is back in the market . Fixed income trading should definitely pick up. It had been dormant in some places for quite some time, and that is now changing. Especially if treasury yields had higher from here, that could have some repercussions for the mobile income Market Global fixedincome market. To the extent to which that also triggers flattening of the yield curves around the globe, that may catch of the ability cap the ability of the banks to produce profit. The big risk for the u. K. Banks apart from brexit is that if there is a flatter yield curve should result in less revenue from them for them down the road. Francine thank you. Brexit, theresa mays backup plan. Could the Prime Minister withhold billions of pounds in payments if the eu does not give the u. K. The trade deal that it wants . We will have answer next. This is bloomberg have the answer next. This is bloomberg. Good morning, everyone. This is bloomberg surveillance. Theresa mays team is said to have secret plans to withhold billions of pounds in brexit payments if the eu does not give the u. K. The trade deal that it wants. Brexit, we have Simon Kennedy and a guest from Credit Agricole. What do we know and what do not know do we not know . It kind of fits within this idea that you are starting to see her vision come together for just what brexit requires. In some ways it is that cherry picking approach. She hopes that she has got some muscle in this warning of backing away from commitments. We will see if that comes to fruition. Obviously there have been countless threats made to rub this process, some have not. It will be a test of her meddle to see if she can accomplish this. Francine who do you listen to . I had a guest kaman on and say of course we are leaving the Customs Union i had a guest come on and say of course were leaving the Customs Union. I think it is definitely theresa may. She certainly keeps her cards very close to her chest. She does not tell you much. The decision has to be made, but ultimately it is brexit that i think would prevail. Both parties, the eu and the u. K. Will agree to the softer deal, which will benefit both sides. It will not be as disruptive as it is apparent at the moment appearing at the moment. Francine what does this chart tell us . There will be some noise especially going into the eu summit in march. Brexit willd a soft receive some support. Curve volatility curve we have in the pound, i think it becomes more inverted in the coming days. We are ultimately moving volatility curve lower from her. Francine thank you very much. Were back in five minutes. This is bloomberg. Francine economics, finance and politics. This is bloomberg surveillance , and im Francine Lacqua in london. We are getting breaking news out of germany. We understand Angela Merkel could be voted in the second week of march with of course, the supporting vote of the spb. Its not moving any german bunds for the moment. That will be at the pleasure of the ecb to do. Lets get to nejra cehic. Nejra the u. K. Government has plans to withhold billions of does not giveeu the country the trade deal it wants. The move is not the preferred option, but some believe it could be necessary if the eu tries to renege on a future commitment to the deal. Meanwhile, frances secretary david davis will reassure the European Union will not try to undercut the block by pairing up regulations after the separation takes place. Indias central bank is said to be tightening the approvals process for allowing companies to raise money overseas. They are concerned that any increase could hurt the borrowers ability to repay debt. Governor markd carney says he is already bracing for the next financial crisis. While admitting no central bank can eliminate all risks, you says the boe is grading a more secure risk. Accepting a crisis will happen is the best way to prepare. Donald trump has endorsed mitt romney fo ra u. S. Senate seat in utah. Longstandinge differences as the gop looks to preserve the majority in the c hamber. Romney announced on friday that he would run to succeed orrin hatch. Ecbould try to prevent the returning. Ember from he has led the Latvian Central Bank since 2001, but faces a suspended from his job as a security member. He rejects the allegations and says he plans to hold a News Conference today. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. Francine thank you. He has won the backing to become the ecbs president. On decision puts spain back the board after a sixyear absence and marks the start of a shakeup that will end in late of mario the seat draghi expires. This comes at a crucial time for the central bank as it prepares to unwind unprecedented monetary stimulus after a decade of crisis. For more, we are joined by our economic reporter from brussels and paul gordon, our European Central banks editor from frankfurt. Good morning. He was very heavily criticized for not having the experience of central banking because he comes from the finance ministry in spain. How does he placate the criticism . Good morning. He is very aware of this. We spoke to him last night and people doe that some not like this transition from politics into the central bank. For that same reason, we understand he will resign from the Spanish Government in the coming days. Thats his plan, to leave the government as soon as possible. That is one thing. Secondly, he did tell us there is no conditionality to this job. There is speculation that this is part of a bigger deal to get germany, the ecb, to replace draghi. Now he says there are no conditions. Of course, when you talk to people here in brussels, some are still very concerned about this idea that a politician will now sit at the bank. Francine paul what do we know about de guindos Monetary Policy . Paul not much, partly because he has been in government and has refrained on commenting on Monetary Policy. He does not have much of an academic track record with economics. We do not know much about where he is coming from. But in his testimony to the European Parliament he was relatively reserved. He did point out that quantitative easing and negative Interest Rates are temporary, but anyone in the European Central bank would agree with that. The feeling is generally that he will be more hawkish than his predecessor. He might be coming from spain, which has taken an ultradovish position on the governing council until now. Some say he is too much in line with the germans, if you believe it. Francine two questions. What do we know about de guindos and his relationship with banks and npls and all of that . And does the de guindos appointment make it more likely that a german takes over the ecb . That is a tricky one to say. Supposedly, no backroom deals have been done over this. You could take that at face value or not. But draghis position is coming up in october of 2019. The money at the moment is on the german, who have never had a position at the top of the ecb. This could mean we get a northerner at the top. Youve got two southern european nations in those positions at the moment. A lot depends on the environment. If we are in a tightening cycle. If the ecb is coming out of the extraordinary monetary stimulus. Then somebody like him could be warranted. Francine thank you, and for more on the future of the ecb and the euro, we will hear from the executive editor of our economics team, still with us. No horsetrading. Do we still he believe that . Do we really believe that . Ultimately, it remains uncertain who will be leading the ecb done the road. I have to say that all clients we have spoken with literally expect them to be the new president on the road. From that point, just judging from evidence from talking to clients. So, any pickup in uncertainty about the future leadership of the ecb may not really reflect well on the euro. Francine do we at the moment, we dont know. What would a german at the head of the ecb look like . As the current president said, he was the president wants. It is very hard at this point to be talking about favorites. Was backed bye the bluebird survey last week. Again, the same group of economist were picking john taylor for the fed. What is a german mean for the ecb . I think certainly a more hawkish bench. Says the economy is booming. This is not necessarily a backdrop where you will get a dovish northerner. Francine you also need to find a replacement. How do these things work and how much are the political appointments . And how much do you look at the split between doves and hawks . I think it is all political. They might try to rise above politics, but at the entrylevel at the ecb, it is all about politics and nationality. Even once you are in the ecb, you dont get identified as the country you are from. We went to that was spain or ireland. Francine this is my eurodollar chart. We put a line at 1. 20, where do we go from here . The longerterm outlook is certainly bullish. A big part of that is the convergence and the policy outlook with the ecb and fed. I think the euro could play a role in driving the speed with which the ecb drives toward the euro. Any further aggression could lead to unwarranted tightening. Ultimately, it may delay any ex its beyond 2018. We are only looking at a gradual uptrend from here. But the outlook is quite positive still. Francine is there a concern that the volatility spread to the credit market and im particularly interested in german bunds. If there is a setting correction, what does that mean for the rest of the market . That will not help sentiment. It is the case that one of the bedrocks os of the stock market rally, and the Central Banks liquidity sloshing around, will be easier to stay. When you turn that off, people ask, are the valuations justified . That is the big risk. The bund yields move higher, Global Financial conditions could trigger a risk aversion spike, at the taper tantrum we had in 2013. So, the latest selloff in equities, however you want to explain it, maybe just an indication of how things might play out once we get needless to say, the Central Banks are aware of that. If anything, quite a few clients were saying, Central Banks are targeting risk sentiment. The moment they see risk sentiment is selling off, they turn more dovish. I think at the moment, it is the case that we can say enough is enough. Those very supportive liquidity positions are coming to an end still amately, there is risk. We have to see the repricing of that risk. Francine if you look at major Central Banks, the boe, the fed, theecb, and boj, is biggest risk to the market coming from the ecb . Absolutely. We have already got that debate underway about house and they moved to the Interest Rate increase and how soon they put an end to that quantitive easing which is. Set to run until september. , or is it set to run until september . Francine thank you both for joining us, Valentin Marinov and Simon Kennedy. Up next, bhp fights back. The activist investor profits his three year highs. This is bloomberg. Francine this is bloomberg surveillance, and im Francine Lacqua in london. Lets talk to one of our reporters and editors, on to one of our top corporate stories. Bhp has rejected the activist call for a corporate overhaul. First half profit rose to a threeyear high. The worlds biggest miner raise dividend payouts by 38 , but shares are lower. The bloomberg managing editor now joins us. Welcome to the program. First of all, did they feel under significant pressure to increase dividends because the rivals are doing so . Reporter that is why this is a story for the whole sector. The sector has had a remarkable turnaround. Investors want that cash back. So, we have seen dividends higher and bhp followed suit. Worth saying, is the shares are down a bit this morning and one reason for that may be, reading what analysts are saying, yes, they raced dividends, but they did not go as high as rio tinto, which did a buy back. So, its good. They are making progress, doing the things they should, but the feeling in the market is they are behind their biggest rival. Francine do investors worry that is money not being put to good use through growing the company, investments, and possible acquisitions . Reporter yes, there is particular concern in todays numbers that the cash flow might not be as strong as they had hoped. But you are right. The real question they are asking is, can we have the money, please . They have invested in profitable mines. They have done mma deals that seemed to be questionable. Francine now, bhp also has investors on their tail. The ceo says they will meet with activist elliot. What is elliott demanding . Reporter there was a slight difference in linkage between the statement at the start of the day and what mckenzie, the bhp ceo, said on the call. In the statement, they rebuffed this key demand that elliott avent, that they and this dualisti focus and australia. On but he did say they would meet management, and take the temperature of the shareholders. It does seem there will be a shift there. They have already exceeded one of elliotts key demand, to sell the shale business in the u. S. Francine thank you, will kennedy. Up next, flying high. If you have ever wanted a private plane, we hear why now might be the time to buy. This is bloomberg. Francine economics, markets and finance and politics. This is bloomberg surveillance and i am Francine Lacqua in lonodon. Heres nejra cehic. Nejra hsbc has adjusted fourthquarter pretax profit of 3. 6 billion, missing the surveyedamong analysts by bloomberg. It was a rare failure to live up to the analyst earnings estimate. The chief executives rain comes to an end. This relates to a couple clients and reported narrowing lending margins. Speaking to bloomberg about impairments, the finance director says they go into 2018 with a clean slate. We have always taken a somewhat conservative stance when dealing with troublesome credit. S so, we have dealt with this we believe largely in the Fourth Quarter of the year. So, expect to go to 2018 with a fairly clean slate with respect to that exposure. Nejra the Continental Hotels 674 million, meeting analyst estimates. The group is looking to acquire small luxury plans that it can grow and it plans to use 125 million of annual savings by 2024 reinvestment. Ihg says no Additional Capital return will be paid during the coming year. The ceo told bloomberg that he expects further consolidation across the industry. I think what will be challenging for the Smaller Hotel companies is their ability to invest in technology. So, we are launching a cloudbased Technology Platform this year and a Revenue Management system that is cutting edge. Small companies cannot afford to do that. I think youll see more consolidation throughout the industry as this progresses. Nejra that is the Bloomberg Business flash. Francine have you ever fancied owning your own private jet . Now might be the time to buy with the Global Economy picking up. Supply is back to prerecession level. The u. S. Tax cuts will benefit buyers worldwide. Joining us now is the coowner of jet craft. The company has facilitated more than 550 transactions with 10 billion. Any have recently opened office in london. Thank you for joining us. Of what you sell our aircrafts. Whats the lifeline of a lot of these jets . You can fly these airplanes for 20 years. It really depends on what people want to do with their airplanes. But you can buy them new and fly them for 20 years. Most of the airplanes we sell will be between three and five years old. So, if i purchase a secondhand plane, how much of a discount do i get after three years, as opposed to purchasing it new . When you purchase a new plan, it is like buying a new car, as soon as it leaves the garage you take a big hit. Francine how much, 30 . The first hit is 10 to 15 . The average depreciation will be 10 over the next 10 years. Francine you have private clients. Where are they coming from . Is it the u. S. . We have private clients from everywhere in the world. 60 of our sales are from north america. The u. S. Is still the biggest market. In the emerging markets, we have a lot of growth and our growth is coming from asia right now. China is picking up again. In the last five years, it was a bit slow. We have seen a lot of growth in china. We are focusing worldwide in that is why we have a worldwide organization. Have worldwide offices and 50 people serving our clients. Francine how much does it cost to have an airplane . So, i buy it, but how much do i pay for aircraft, midrange . Our average transaction is 20 million. Francine how much do i have to pay each year for a p, licenses and airport fees . Each year for a planes upkeep, licenses and airport fees . Your fixed cost would be in the 1 million to 1. 5 million range. And then between 3000 and 6,000 an hour to fly your plane every hour. Francine and people buy or rent these because it saves time . Or is it also showing off . It is mostly time. At the end, people by jets to save time. If you are a ceo or an entrepreneur, and you can do three or four things in one day that you could not do if you did not have a private jet, it is the main reason why you would purchase a jet. Of course, there is also the luxury part of it. Some people would buy it because they are wealthy and what their own planes. But the majority of our clients are business people. Francine what is your best seller . Is it different if you are a chinese buyer and a u. S. Buyer . Yes, it is different because it depends on your needs. If you are an international buyer, like china or africa, you tend to buy longerrange airplanes. The u. S. Market is more of a midsize market because it is mostly transcontinental. You would buy a plane that has itht to 10 passengers and would fly transcontinental. Depending on your needs, you would have to choose which plane is the best. Francine and your growth market, you think china will surpass the u. S. In the next five to 10 years . I think it is too soon to tell. In the next 10 years we are forecasting that the u. S. Will still take 60 of the units delivered from the manufacturer and 40 will go around to the rest of the world. So, the growth rate in china and the emerging markets is higher than the u. S. , but as far as the volume is concerned, the u. S. Is still the biggest market for us. Francine thank you for coming on, jahid fazalkarim. I am very glad you came in. Bloomberg surveillance continues in the next hour. Tom keene will be joining me from new york. E talking about oilo price. This is bloomberg. Francine treasuries reopened. Will tomorrows fed minutes drive the 10 year yield above 3 . The outgoing hsbc chief executive, ending his 30 years at the bank. Will his successor regain momentum . Bphear this hour from the chief executive bob dudley. Good morning. Tom is back. I am Francine Lacqua in london and tom keene is in new york. It is bloomberg surveillance and because there is a lack of Economic Data from the u. S. , all eyes will be on those options. Tom we have politics as well. I would go back to what i missed yesterday, francine. You mentioned hsbc and those continued reductions from Deutsche Bank got my attention, maybe about what we do and how we moved during the summer months. Francine yes, this is 250 Investment Bankers being cut by Deutsche Bank. It was bloombergs group we got yesterday and that has been picked off by the rest of the financial price this morning. The district to the bloomberg first word news with taylor riggs. Taylor in the u. K. , theresa help if there tradeacklight on the deal. Some believe that withholding billions of pounds from the eu could be necessary. President trump is open to tightening background checks for gun buyers. The white house says the president talked to john cornyn about his bill to improve compliance. Republicans have long opposed guncontrol bills, but the president has been discussing ways to prevent gun violence after last weeks school shooting. Puerto rico got some muchneeded help in restoring electricity five months after Hurricane Maria blacked out much of the island. A federal court has approved a 300 million loan for puerto ricos power authority. Officials warned last week that without the loan, the utility would need to impose rolling blackouts. In russia senior officials are asking putin to boost infrastructure. According to people familiar havethe matter, officials discussed borrowing as much as 266 billion dollars. Putin is widely expected to win another term. Global news 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries around the world. I am taylor riggs. This is bloomberg. Tom for the first time in 11 trading days, a quieter data check. Through that quickly. Futures, 21. Dow futures, 200. The rest of the tape is remarkably quiet, given what we have seen over the last couple weeks. Lets move to the next screen. Oil elevated. We have Important Oil interviews on surveillance today. 21. 5 comes back from the 18 level. But look where the dow is on a closed friday, over 25,000 again. 1. 40 level. The francine i am looking at global bonds and this is where the story is. They have fallen. Investors drawing the treasury of to the highest level in four years. Most of the asian equity benchmarks and u. S. Stock indexes flipped. Look at treasuries and look at the 10 year yield. We do not have that many actually, we do not have any Economic Data. It will all deman depend on theo mc minute. Tom over to the bloomberg and lets take a slap shot. Take a snapshot. Here we are at the beginning of the financial crisisd. I will put this on twitter for radio london as well. There is a break in the summer of 2014 and down we go with massive disinflation. Highly unusual disinflation. This shows a recovery and a little bit of pullback here in the last couple days. That is the fiveyear forward in the u. S. , showing that thermometer of inflation. Francine yeah, and we push toms graphic out on social media. Mine as well. These are the u. S. 10 year yields, and we have put it back to 1980. If you look at the u. S. Treasury 10 year yield, it has risen above the channel down tread, back to 1987. This means there is a little bit of resistance, 3 has been a resistance dating back to 2013. , i do not know what this means for where we go next, certainly an important thing to look at. The dollar has risen for a third day. 10 year yields creeping towards 3 ahead of u. S. Bond auctions. In total, 250 billion. Minutes tomorrow. Investors will try to go where yields go next. We are looking for language clues after the central bank tried twice to make further gradual adjustments in rates. Foley. Us now is jane jane, i think we looked at this in the fomc language and this was a new word in january. What does this mean, more rates than expected . Jane this is a big debate. Treasury yields, where will they go . Inflation, is the genie out of the bottle or not . Right now we are still debating how far it will go. I think it is quite interesting. The number of economies, not just the u. S. You could look at the u. K. And a whole bundle. There is the six nation, is Wage Inflation going to be the result of a tight labor market and will that feed consumption demand and cpi inflation . Is different it from previous Economic Cycles. We do not have the same mechanism coming through. Tot is what we are trying come to grips with. How far will the inflation go . And how is the dollar reacting as well. Francine youre feeling at the moment is what . We might be looking at more Interest Rate hikes and what is priced into the market . I think the key issue is still inflation. Theres no doubt. The market fear is, will there be an Inflection Point . Theres no evidence of that happening. Is it gradual inflation . We see that in the euro area. You take germany. They are better than last year, but it is not something massive. Costs, increasing by 1. 7 . Thats still below longterm inflation needs for the ecb. So, if you look at that, it is better. So, i think growth is really good. That means probably four hikes this year. Area, wero believe they will try to gradually remove negative rates. That is a little bit more aggressive than we had priced in, but still, the end point is nowhere. Tom lets bring up the dollar chart, and this global litmus paper. We do this with the bloomberg dollar index. This is a beautiful remarkably elegant chart with a little bit of a Dollar Strength here. Down we go with this new, new dollar weakness. Jane foley, what is your call on the eurodollar . 1. 4 well the 12 month is 8. So we still see a stronger euro. The whole dollar story is being viewed through this prism of what the market has seen. So, what we have since the start of last year is this Growth Outlook in the eurozone, which most had not expected at the start of last year. On top of that, we have the approved budget deficits. That has been compared and contrasted to the u. S. , where we have the story of worsening budget deficits, the huge card account deficit. So, i think thiese two large ratings explains how the dollar has been rating. Tom are bonds correlated right now . Jane that is interesting because i suppose if you go back to some textbooks, you could say higher yields in the u. S. , surely that means a stronger dollar and that is not necessarily what we have seen. Yields are, located. Yields are clearly very complicated. Liquidity is not just confined to the u. S. But i think what we are seeing right now, certainly over the last couple weeks is the dollar is behaving with some respect to what is going on in the equity market. We go back a couple weeks ago when the equity markets were falling. Behaving awas little bit better. Perhaps the market was a little more spooked with liquidity. And we saw the strong market liquidity and the dollar was suffering again. You have this environment when the market has a greater Risk Appetite, well, there is still a big appetite for highyielding currencies. As the dollar is not doing so well. But i think ultimately, we will have a position at some point this year, if Risk Appetite does worsen, we have higher bond yields and at that point, the dollar has the potential to recover. Francine jane and antonio, t hanhank you. Coming up, a conversation with the chief investment officer. We will ask him about treasuries. We will have to ask him about these currency moves as well. That is coming up at 6 00 a. M. I n new york. This is bloomberg. Taylor this is bloomberg surveillance and i am taylor riggs. Profit rose to a threeyear high for bhp. Still, it was less than expected. Meanwhile, bhp rejected demands by lh management for a corporate overhaul. Sony is getting into the ridehailing business. They will form a joint venture with six patsy operators in japan this spring. The service will you sonys payment and demand production technology. The Worlds Largest ridehailing start up, uber, is in talks with another cab hailing company to increase presence in japan. Earnings for Fourth Quarter missed estimates. This was the less that of results before john flint takes over. That is your Bloomberg Business flash. Francine thank you. Of, as theresa mays vision a postbrexit world emerges, pound traders are becoming increasingly worried about the immediate prospects after one month volatility exceeded the foreseeable measure. Still with us, antonio gardia foley. And it didn jane we will get onto pound levels in the second, but this is volatility. What does this chart tell us . Jane i think you can relate that chart back to the politics and particularly the middle of december. In the middle of december we finally have that agreement on the legacy issues. And the legacy issues and to rephrase using the bank of englands minutes, appears to reduce the perceived risk of a hard brexit. It seemed to calm fears down. At that time, we had through the spot market of sterling through december and into january we had more confidence. Perhaps the agreement on the legacy issue appeared to smooth the way for the trade talks. Over the last couple of weeks, there is the realization that actually, these are still very far apart on both the transition and the trade talks. Again, is facing that reality. Francine what does that mean for the economy . Is it too soon to say . It is still kind of a political machination. What does this mean for the blueprint for the u. K. Economy in five to 10 years . Antonio it is difficult to say. We are still waiting to hear this very important speech where somebody will articulate the vision of what they really want the u. K. To be after brexit. That will set the town. That will set the tone. It will decide the possibilities the u. K. Has, Single Market access or not. Critical because if that Single Market access remains or it does not in the transition years, there could be quite a bit of an impact, in terms of services. We are yet to make a proper assessment. Before this critical summit of march, wer 23rd of do not have clarity on what the u. K. Wntants. And then you will decide if they can deliver. Foley, what is fair value on sterling . Can you come up with a fair value on sterling . Jane if you look at cable and look over the last 30 or 40 years, it never really most that far outside of the one and two levels. Maybe you have some movement around 1. 50 or 1. 60 as an average. I suppose you could hang your hat on those levels, but to have it where it is now, around 1. 40, is not particularly unusual. I do not suppose you could really argue that it is massively undervalued or massively overvalued from those levels. Francine what about the europo und . Jane it is far more interesting. If we look at cable, we see a lot of dollar activity. If we look at the eurost erling, we see a lot more brexit. We have the market beginning to worry about the trade deal not perhaps being there in time. It could fall further against the euro. The assumption that we do get some sort of trade deal, we could have a possibility for a really sharp fall back with sterling is a trade deal is eventually found. Francine that is the kind of chart you put a red line. We will put that on social media. And june of 2017, when we were heading to parity, and then that faded. Jane yes, that faded because the market became a little more confident after theresa mays speech. There is this little aspect. We were talking about brexit. But there is also what would happen to the u. K. s political scene. Are we going to potentially have a general election . Will we have Jeremy Corbyn . What does that mean for the u. K. Economy . There are some aspects within the u. K. Political outlook which have the capacity to really knock the pound. It could go the other way as well. Francine jane foley and antonio gardia pascual stay with us. Coming up, a conversation with the uae Energy Minister. We will be talking about supply cuts, especially from russia and saudi arabia. This is bloomberg. Not as some in Continental Europe seem to see it. Francine david davis giving his speech in vienna. I was going through what is expected, when we were briefed by his team. Something along the lines of, britain will not be plunged into a mad max style word, borrowed from dystopian fiction the lawless film a lot of us have seen. Ee was also discussing th there was a fear for workers rights, which were based on nothing. Live, if you would like to follow it. Just type tv and follow the comments from david davis. Interesting, very quickly, Stephanie Baker here this morning, with us. Antonio gardia pascual and a jane foley. Stephanie baker with her important work on Paul Manafort and cyprus dynamics here as well. In the news during the threeday holiday in america, stephanie, was mr. Gates an assistant to mr. Manafort . I guess mr. Gates will turn within the drive of perry mason states witness. Why is mr. Gates, mr. Manafort and even the president s Worst Nightmare . Stephanie we know that gates has been under financial pressure. He has a young family. He was facing difficulty meeting bail, his bail terms. It looks like he has agreed to testify against Paul Manafort. Why he is important is because he stayed on after Paul Manafort left and step down as Trumps Campaign chairman in august of 2016. He stayed on and he was part of trumps inaugural committee. He joined a trump pac, called america versus policies. He was there for much longer. He could have seen possible collusion with russia. Brad,ked with fred pa who did trumps voter data work. He has more than just additional evidence to take down Paul Manafort. But it does pile the pressure on manafort and it looks to me like this is Robert Muellers attempt to get manafort to flip and testify against trump. Tom we showed the ai image there of mrs. Kushner. Can you discuss the discussion of Jared Kushner . Can you link those two together, or are they discrete . Stephanie as i understand it, gates did work with kushner post august 2016 on the campaign. What exactly the relationship was, how close they were is unclear, but they did Work Together on a voter data issue. So, he potentially could have information thats valuable and interesting for Robert Mueller on kushner. Tom Stephanie Baker, too short today. I appreciate your quick visit, an expert on what we are hearing about the linkage of washington. Coming up, robert doludley of bp. Prater markets today, dow futures, 205. This is bloomberg. Retail. Under pressure like never before. And its connected technology thats moving companies forward fast. Ecommerce. Real time inventory. Virtual changing rooms. Thats why retailers rely on comcast business to deliver consistent Network Speed across multiple locations. Every corporate office, warehouse and store near or far covered. Leaving every competitor, threat and challenge outmaneuvered. Comcast business outmaneuver. Tom bloomberg surveillance. In london and new york, im tom keene and Francine Lacqua in london. Conversation of smart economic finance and investment and he will do a conversation on oil and a bit as well. Right now to our first word news. Here is taylor riggs. Taylor President Trump set aside longstanding differences with former republican candidate mitt romney. Has been critical of the president , but republicans are trying to hold on to their majority in the senate. Special counsel Robert Mueller has expanded his interest in president ial soninlaw cherish kushner Jared Kushner. They are investigating efforts for Jared Kushner to secure financing for Foreign Investors during his campaign. Robert mueller is looking at talks that Jared Kushner had with chinese investors. The u. S. Has find european banks billions of dollars for helping iran during sanctions. Former Treasury Department officials says the focus is turning toward asian banks. Lenders in the region may have played a part in helping iran bypassed the sanctions that were in place before the landmark nuclear deal. The u. K. Is promising not to touch European Union regulations in the post brexit britain. David davis will reassure the eu in a speech today in vienna. He says cars built an approved for sale on one side of the English Channel should still be approved for sale on the other. Global news 20 for hours a day powered by 2700 journalists and analysts in over 120 countries, im taylor riggs. This is bloomberg. Francine thank you so much. Oil heading toward two week highs after the opec secretarygeneral says the markets journey seems to be getting traction. Bp has emerged from the downturn and profits more than doubled, powered by higher prices and output. Bob dudley joins manus cranny here in london. Good morning and over to you. Manus bob, good to see you this morning. 10 days ago, we had the good news with your results. The big words in the corridors around here is transition. You just cannot the podium talking about it. My question is this. This big oil running too quickly to the exit on big oil . Is there just too much of a focus on transition . Bob no, i dont think so. Its all about a balance and we are certainly investing the majority of our capital in what we do well today and transitioning overtime. This is going to be a slow transition. Theres going to be a need for oil and gas come all forms of energy. 2 billion more people and the planet and huge growth in asia and africa for electric power alone. No, we need to be prudent and involved. We know a lot about these new technologies and have to be economic for our shareholders. You will see all of it. Manus i read with interest what you are doing. Forgive me if i paraphrase here you are doing smaller deals. You are not blowing the bank on a 2 billion deal. You are choosing projects in a very different way. Bob what shell may be doing is right. We cannot afford to do that right now given our financial framework. We did invest 10 billion in renewables in the late 1990s and 2000. It was ahead of its time. Why was it ahead of its time . The Company Expected policies and markets to develop differently and government making that happen. We kept all the expertise and we are going to go wide to make sure we understand all the different technologies out there and at the right point and at the right time we can make bigger bets. Manus can i challenge that slightly . The proposition for that would be why would i pick up bps stock when i can go by utilities . Why should i risk that with you . Bob its a really great natural combination of renewables and gas. We invested in the great Solar Development company right here in the u. K. How does that fit . We take that company and work with them in places like oman and trinidad and egypt, where we ns fore making electro the power grid and put it down to use. Its good for the economic model and the country. It also happens with wind. Manus the proposition is this. Tom keene ran the numbers for us. 6. 3 as your average utility return over 10 years. His proposition to you is this. You are traded like an utility. Your responsibility as a ceo is to up the dividend and turn yourself into a became the beginning behemoth again. I know youre still paying the cost of crisis years by. What do you say to that . Bob we are not the only ones with that level of dividend in the industry. We are coming off high prices and a complete collapse in Energy Prices for a while. We as an industry have had an experience of overspending, being late with big projects. We need the confidence back of our investors. Last year when we did our strategy presentation, the investors said we really like your strategy. We just dont believe you. It wasnt personal. It wasnt only about bp. Oil companies are just spending too much capital. Stick to your discipline and develop your project on time and under budget and that will attract more investment. Manus as part of that critique, part of the questioning, you end up with stranded assets. How do you manage that . How do you go back to the shareholders and say im absolutely confident this time around . Its different. How do you reassure the investor roster that there is no risk or the risk is mitigated on stranded assets . Bob theres always risk. You take a company like bp and you turn over the production every 10 years. People say you get stranded for 40 or 50 years. Actually we dont turn on a dime. We turn over the whole company in response to market conditions. Im not worried about the stranded assets. We know will have economic long lives for a long time. Whether its natural gas or oil, its decades. Manus you are squeezing those costs lower again. We are 50 in terms of your cost . Bob 50 and some of the obligations with the gulf of by 2021, we, but will be in the 35 to 40 range. Manus here we are. It was bullish. You were in the studio couple weeks ago and your work changes constantly. You can give me a price of oil if you want to, but wheres the bandwidth for you . Where do you see the longerterm trajectory given the challenges from the u. S. As an exporter . Bob the key is the responsiveness of the shales. They are shockers absorber on the upside in the low side of the price because its such a response of market in north america. To 65, that is probably the band we will drift within. Manus you and him can have a hedge together. You have a very specialist knowledge. The toxicity between United States of america and russia, in my opinion, is hitting the levels. You have a substantial holding and knowledge of this. Square this away for me. Are the risks rising . How do you look at the geopolitical landscape right now . Workobviously we within the boundary of the sanctions all the time. We have a successful business. We do have a role. Business builds bridges and the more ridges that can be built between countries and the u. S. And russia and communication channels, i think thats healthy. The world needs more of that, but weve got to be careful. We have very good po partners. We have partners in other places outside of russia. Manus donald trump was in davos. If he invited you to lunch and said im trying to wrestle with the geopolitics of russia, from the businessman angle, what advice would you give to trump on how best to deal with the situation . Bob it feels like it has been taken over. In the media and politics, its probably hard for him to deal with it. Anything that can be done to create some discussion somewhere between governments is always healthy, but i probably dont have the advice for him. Like you say, almost any discussion of it raises all kinds of response. Manus the Russian Arctic is somewhere where many people of said this is going to be multibillion investment. Lets deal with the pure nuts and bolts of business. To what extent is the Russian Arctic somewhere that you want to push for more want to be present in . Bob it has a future in the energy mix. I think its higher cost oil by definition so its not where we are focusing. Manus peak oil. Sitting with energy team before we came over and we have not hit peak oil or peak chatter. Theres more peaks in there, but where are we with that debate . Are weak oil meaning going to run out of oil . And now its peaked demand. I think its overdone. People are trying to pick a date here. 2 billion people on the planet with all forms of energy going to be needed. The exact point that we peaked oil is out there. We will release our projections up to 2040. When it does get out there, it will be a gradual plateau for a long time. Manus great to see you today. Thank you for taking the time to come speak to us so shortly after the results. We wish you well. Bob dudley, the ceo of bp. Two different markets desk a lovely perfect hedge. Simply offered a 40 to 50 bid. Francine the chief executive of bp telling manus cranny that rosneft is a good partner. In the meantime, we also have some comments coming in from the u. K. Brexit secretary david davis. He is speaking in the end and you can follow that speech live and in full if you are a bloomberg customer using the live go function. Theres a mutual recognition of regulators in postbrexit and that he believes its key. Theu. K. Already goes beyond regulations. He is basically trying to say that i imagine if you mirror some of the regulations the u. K. Could get an easier time. We will get to what mr. Davis is saying next and we will have plenty more on brexit and his comments coming from vienna. This is bloomberg. We simply have to escape the dead hand of eu regulation and red tape. Francine this is bloomberg surveillance. Comment francine from london and new york. Tom and francine from london and new york. While the results from hsbc were not the swan song that he hoped for as he hands over the rain to his successor. Bloomberg daybreak asia spoke with the banks finance director following the results. Despite the disappointing Fourth Quarter, they say hsbc is optimistic for 2018. Weve always taken a somewhat conservative stance in dealing with troublesome credit. Weve dealt with this and believe largely in the Fourth Quarter of the year. Expect to go into 2018 with a purely clean slate with respect to those exposures. Francine joining us now is our managing editor for finance. Thank you so much for joining us. Legacy of th goal ulliver or will he be remembered for turning around the company . Much more focused and in control of the empire. Thatis probably a blip investors were not hoping to see. This did not come through in the Fourth Quarter. There were a number of reasons, including the hits on the two corporate failures, which we believe were steinhoff and carillion. Francine this is more streamlined. I believe the challenge is to get revenue in and make it grow. Elisa thats right. What we are seeing so far in terms of their pivot to asia, thats definitely paying off. In 2017, three quarters of their pretax profit came from asia. That is definitely yielding the results they were hoping for. More focusedl be on costs Going Forward and investors are pointing to a very disappointing return on equity, which is well short of the 10 target. Francine this is your largest bank and it has the heat exposure to china and emerging markets in asia. Where does it find it . Elisa there will be a lot more on that in the first half when the new ceo will put together his Strategic Plan for the company. There has been talked about potential other areas of growth after shrinking, but we are still going to be listening for those details. Tom i love francines question about where hsbc fits in. We had the bloomberg story yesterday on the termination to come at Deutsche Bank. Maybe takes it out to 500 employees. Heres the chart of Deutsche Bank and i will put this out on twitter for radio london as well. That is a chart of failure. What is the urgency that mr. Cryan has . The we are ine control told that we are getting out of Deutsche Bank. What is the immediacy into the summer of 2018 for mr. Cryan . Elisa he has to deliver on the return to Revenue Growth that he had pointed to as being a possibility in 2017 and just did not come through. You will see that as a result of having lost market share, particularly in Investment Banking and trading side of things. That is where they really need to be building up again. They are obviously doing what they can on the bonus front. Infighting inome the bank to make sure those bonuses can be paid so they can retain the staff to grow those revenues. Tom i totally agree with that, but what i find fascinating and why your perspective is so important is that american banks have 230,000 employees. Deutsche bank has maybe 97,000 employees. To francines question on hsbc, where does Deutsche Bank strategically fit in . Aisa they have laid out o view of more germany integration and the potential rise in Interest Rates will be of great help in making the consumer businesses in germany stronger, which has obviously been a real drawdown on the bank. Francine it will help a lot of the banks but not all the banks if markets were a little more volatile because it means they can go back to doing their business, which is trading markets and trying to make a buck. Are we going to see much more volatility like we did the last few weeks . When we come back to look on these q1 results, that is really the answer to your question. Certainly some Asset Classes have been been benefiting from the increase in volatility. Some of them have been caught by the mifid ii regulations. I think q1 will be really quite interesting. Francine how do you look at the Banking Sector . This is a way of transmitting Monetary Policy as a global print. Does it impact the way ecb policy gets passed down . Theres the issue of possibility and revenue. I think moving away from negative rates will be a great help. And guidance on what the path will be as well. Moving away from those rates is something that the ecb wants to deliver. They will have to have low cash because theres a liquidity buffer. They are yielding 40 basis points or there about to start yielding close to zero. Want to go to stop picking up, it will be another great help as well. Francine thank you, antonio and jane. Both are with us. Thank you to our managing editor for finance. Coming up, we have more of a conversation on euro and what the ecb has announced, which is we do have a new Vice President , but he does not come from the central banking world. He comes from the politics side of things. We will talk more about that next. This is bloomberg. Francine this is bloomberg surveillance. Tom and francine from london and new york. Lets go to your levels for your next trip to france and lets get to the ecb. Spain is back on the executive board of the central bank. He is replacing the ecb Vice President. Still with us is antonio and jane foley. First of all, what do we know idnos what mr. De gu wants . He did not have the support a parliamentarians because a lot of people think the job should of gone to a central banker or at least an academic. Its a difficult decision and obviously politics are involved. Countries want to sit on the main counsel or otherwise we would not be talking nationalities. We would offer that a proper theied europe would be on council, but if you look back at the appointment, obviously he is not an economist by training and growing through the ranks with the ministry of finance. Initially as a deputy finance minister and then the private sector and back to finance minister. It probably makes sense to have different experiences within the governing council. Some expertise in structural reform and more Monetary Policy so longer to have a governing council that i think it brings that breath of expertise. I think you are ok. Is it the first time that somebody comes from the ministry no, andreasury . Probably not the last either. Its important that independence is preserved. It is within the status of the ecb and that is what is key. You should have varied experiences. We will be willing to see how he performs. Francine how will he perform . Does his appointment make it more likely that we see a german as head of the ecb . Jane possibly and this is all part of the chess game. Now its thought that he will go for the chief economist job, which is something that suits his backdrop. Given the course of the next few months, we will work out exactly who will get those jobs. I do agree its really important that we get a more diverse backdrop within the board. I think we could see that within the fed with a lawyer now leading the fed. The speech from carney yesterday with employees into the bank of england, hes talking about a much more diverse background at more levels for that job. I think thats important and i would agree with that. Tom jane, thank you so much. Antonio with barclays as well. Coming up, we will turn to the quieter markets with features 20. Jack is with us and we will talk to him about the equity markets s kurds to get out of cash. Courage to get out of cash. Stay with us. This is bloomberg. Tom this morning, finally after 11 trading days of volatility, it is a quiet tuesday. The Dollar Strengthens and bonds suggest risk on. In search of courage amid the new volatility, we consider cash earns nothing. And again and suddenly, mr. Mueller will act. This is bloomberg surveillance. We are live from our World Headquarters in new york. In the banking news, hsbc with some adjustments and that bloomberg story yesterday about Deutsche Bank wishart layoffs and Investment Banking. What is the mood of london making . Francine the mood is very different if you look at Deutsche Bank because as a german bank. We know the concerns over torture bank over the last couple of years and the travails of the chief executive at the top. Hsbc is very different with a change in leadership. This was meant to be the last swansong for circle over gulliver. He did turnaround a pretty difficult and sizable bank. Tom i predict a sporting six months for mr. Cryan to see the list say the least. First word news, heres taylor riggs. President trump has set aside longstanding differences with former republican president ial candidate mitt romney. The president endorsed romneys run for a u. S. Senate seat in utah. Of thehas been critical president , but the republicans are trying to hold on to their majority in the senate. President trump is open to tightening background checks for gun buyers. Says the house president talked with republican senator john cornyn about his bill to improve compliance with background checks. Republicans have long opposed guncontrol bills, but the president has been discussing ways to prevent gun violence after last weeks will shooting. School shooting. Prime minister theresa mays team has a plan to halt brexit payment if the European Union backslide on the trade deal. Thats according to a people familiar with the matter. Maple leafs withholding billions of pounds from the eu may be necessary. Mucho rico ma got some needed help understory electricity after Hurricane Maria. The federal government has approved a loan for order because bankrupt power authority. Officials warned last week that without the loan, the utility would be to impose rolling blackouts. News 24 hours a day powered by 2700 journalists and analysts in more than 120 countries, im taylor riggs. This is bloomberg. Tom equities, bonds, currencies, commodities. Equities south today with features 19. Other than that, its almost a first calm day in 11 or 12 trading days. Thanks to manus cranny for that report interview with Robert Dudley of bp. Theres the dow closing 25,000. That is friday. President s day is a celebration of the first and 16th president of the United States. , ie Foreign Exchange numbers just put them in there. Francine reading up on day,ntday president s George Washingtons birthday was on the 22nd. Investors driving the treasury mark. Thats what im looking at. We have a lot of bond auctions with dollars advancing all futures. European shares, you can see seemingly we are racing some of the earlier gains. Tom those are some of the important headlines breaking right now. Big stillswith a of 7. 5 sales number versus 6. 5 . That reminds me of honeywell about five or six months ago when honeywell showed another big figure move up. Thats an optimistic sign off a consumer bellwether. Let me go to the bloomberg right now to a snapshot of inflation. Inflation in the old days that from the crisis up to 2014. It has barely come back. Nevertheless, there is where we sit as we go to that march 21 said made it fed meeting. Francine im looking at the treasury yields rising above its trend. We will push it out on social media and you can see there is a potential resistance levels own between the 2. 94 and a 3 and you can see that breaking away in the last couple of days. Tom very good. Im thrilled to bring in our guest this morning from chicago. Jack ablin. Far more than that, the legacy of his Intelligence Research reports. You do that when you work at Boston University for a good amount of time. He does charts like nobody in the industry. Jack, whats the most important chart right now . You show the dynamics of housing and manufacturing. Which one is the number one to you . Jack im looking for capacity. Im looking to see if there is any indication that pricing pressure is pushing higher. Now that we are running a little bit hot to potential gdp, we are starting to eat into that capacity. Tom i want to go back to all of your work in Corporate Finance, linking Corporate Finance into market. Is it a new jack a ablin regime . Jack its nothing new unless they prove me otherwise. We are looking for may be a special dividend from apple or some of the other reinvestment from some of the stranded cash overseas. Right now, nothing unusual somes we can start to see redeployment in research and the velvet Capital Expenditures and the like. Francine what would be the trigger of that . Is that something unusual triggered by redeployment . Jack part of it is cap x for example. Fixed assets are among the oldest in our nations history. There will be a need to reinvest in that. And we are just watching. Its really more of a dashboard item then it is anything that we are predicting. If we do start to see this cash redeployed back into businesses and back into cap x and so forth, thats a good sign. Is maybe weggests will see some productivity increased and then our potential gdp will rise. We are stuck at around 2 . Francine if this does not get reinvested now, is it symptomatically something sinister out there . Jack potentially. It could just be incentives. As we all know, management is driven by incentives nearterm and the like. As long as they have got options and as long as they have got incentives to boost stock prices and earnings, perhaps they are motivated to buybacks and dividends and not necessarily the longterm health of their company necessarily. I think it is problematic. Tom i want to go to the foundational issue, which is financial repression and low real rates and low nominal rates. What happened to retirees . That comes back to the artificiality of the riskfree rate could w. Well have a clue where the riskfree rate is. When i we going to know that . When are we going to know that . Jack just to put it simply there has been this long time tugofwar between stocks and bonds. Ever since the fed and other Central Banks have entered the market, the bond market has been pulling on the road with one arm tied behind its back. As a result of that come equity premiums is sort of like the only child of the financial world. They command a premium and get what they want. Slowly we are starting to see bond yields trend back, but it is a function of policy and what these Central Banks articulated. Right now, the u. S. Is darling it back, but the ecb is talking a good game. They are not doing anything. The bank of japan is still pedal to the metal. Tom bring up this chart if you would. Up we go and we have a correction on the blue line. The 1929 drop in percentage terms is the yellow circle. 1987 is the red circle. You deploy cash to ownership shares . Would you buy this morning . Jack i would not. After market that was maybe 15 overvalued, we are now about 5 overvalued. Call that statistical noise. I would call that neutral. No, im not looking at that. Im looking at this market as more of a technical downdraft and not anything more sinister than that. Francine what if it and sex and sex credit . In fects credit . Jack the next more serious downturn i would say is a cyclical downturn. That would be accompanied by tightening Credit Conditions and perhaps a rolling over of the business cycle. Something that would lead me to a 20, 30,at we have 30 plus percent downdraft that would last two or three years. Right now im thankfully see no evidence of that. We start to see credit spreads changes. Perhaps our right now Credit Conditions still seem very robust. Tom jack is with us. We will continue this discussion. Its a really timely discussion as we got on friday really after those, where do we go from here . A conversation this morning after the news on hsbc and the news of the layoffs and firings at Deutsche Bank. Its a good time to speak to the leadership of pariss societe generale. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. Lets get the Bloomberg Business flash. Qualcomm may raise its bid for semi conductors to around 127 and . 50 ashares. This is according to people familiar with the matter. It would bring the bid to 44 billion. Shares of qualcomm are down half of 1 in premarket on the news. Rose to a profit threeyear high at the Worlds Largest minor. Still it was less than expected. Bhp rejected demands but activist investor Elliott Management for corporate overhaul. Stuart gullivers seven years as hsbc ceo ended on a down note. They missed estimates and loan charges related to two clients. It was the last set of results before the hsbc veteran john flynn takes over. That is your Bloomberg Business flash. Tom thank you so much. Theres any number of ways to stagger to Kevin Cirilli on a Tuesday Morning after a threeday and on political weekend in washington. He is an exceptionally smart morning mustread. Whatever your thoughts on history, the always controversial tennis star was neil patel. This is on robert port. A forgotten part of the watergate story which came in the way of nixons socalled saturday night mexico and in this massacre and this is bork. The special prosecutor to be terminated only for extraordinary improprieties, and even then, president nixon could only do it with a consensus. Lets call it washington consensus of the house and Senate Majority and minority leaders and the chairman and ranking members of the chamberss judiciary committees. Nuancedan exceptionally essay for republicans and democrats. How do we get back to what bork and others invented with a special counsel that evaporated x number of years later . Kevin Kenneth Starr is back. Thats a name we have not heard in a while. The bombshell report that came out from the Mueller Investigation on friday really signaled the intensity of which this is moving. We should note some developments in the sense that President Trump releasing a statement on friday saying that americans needed to come together as a result of the 13 russians that have been indicted on this as well as the three russian businesses for this carefully orchestrated attempt to metal in the election. That said come over the weekend, the president tweeting criticism of some of his own administration for not criticizing enough. Later today, hes going to be meeting with secretary mattis as well as Vice President pence presumably and this will come up. Tom where is congress on protecting mr. Mueller as mr. Bork did long ago and far away when he set up the body of regulation . Kevin i want to bring it back to that column because he specifically points out the Senate Judiciary committee. Over the weekend, Senate Judiciary Committee Chairman chuck grassley, a republican from iowa, a conservative and of i love a present ally President Trump, tweeting out over the weekend, mr. President , do something. Respond to russia. Make sure they will not pull the same thing they did in the 2016 election in 2018 and 2020. Ive not seen it yet based on my reporting that cybersecurity and better protecting not only the also thec process but financial and Silicon Valley institutions, ive not seen that be a key tenet of the white houses messaging. What do we know about the Mueller Investigation . Where does it fall next . Kevin i think what was so remarkable about friday is that ed what hadcho happened both at the end of the Obama Administration when he issued that report on cybersecurity and the russian involvement and put aside whether or not present obama couldve done more on that front. As well as in the early first few months of the Trump Administration in which every National Security and Intelligence Community official testified publicly in Congress Making the same case. Now the Mueller Probe has made the same case. Republicans ive spoken with seized on the word unwittingly in the sense that they feel no Trump Campaign official willingly aided these folks. The second point that they raised is that this was going as far back as 2014. On the flipside, i talked to democratic strategists who say not so fast. This is going to continue on. We dont have a timeline. There is no deadline for when the Mueller Probe has to complete. I talked to some people who say it is nearing an end and others that say this will drag on. Tom i want to go to gossip right now. House mr. Kushner doing with general kelly . Its not pretty. Kevin im not hearing that things are well between members of the first family as well as Jared Kushner as well as the chief of staff. I will leave it there. Tom that would be the good employ thing to do. The always polite Kevin Cirilli. Jack, do you ignore all this stuff does it full to confidence full into confidence and the equity space . Jack these little dribs and drabs are hard to latch onto and ascertain some kind of value. Attack againart to the administration and it looks people will see key indicted and the equity market problem. Tom he does speak about the five challenges that mr. Mueller has. The first one is that mr. Mueller will move fast. Francine weve not even talk about john kelly. We need to figure out exactly the future of the white house chief of staff. Jack ablin is staying with us. Also coming up that little bit later on, well be joined by the ster talkingni about supply cuts. This is bloomberg. Tom good morning, everyone. Tom keene new york and Francine Lacqua and london. We are waiting for an important conversation on oil. N as we lookack abli at volatility. Bring up the chart here. The vix with the red circle and that 50 blowout the other day and down we go back to average. Tell me the volatility. Jack i cannot say volatility is your friend. I do say we want normal volatility of around 15 to 20. When we get spikes like that, it certainly creates obviously a lot of uncertainty and dislocation. I do think that as long as the Economic Data was the lowest volatility on record, i suppose it makes sense for the equity market volatility to follow along. In 3 gdp . Believe jack no, i believe beating a 2 donkey and a 3 racehorse can last for a little while. Now that we are centrally into our Third Quarter of higher than potential gdp and Federal Reserve of atlantas arguing for 5 in the first quarter, what that suggests is we are running a little too hot. That means we are taking up Spare Capacity much faster than we normally would. That could push inflation. Tom is it time for jay powell to be bold and really make history on march 21 . Jack its interesting that we havent heard anything from powell. One of the things that created uncertainty was did chairwoman yellen pass the fed put to powell . There nothing to suggest that she did. I think that is creating a little uncertainty. I think powell is right to not necessarily assuage investors here. We do have to get Interest Rates back to fair value at some point and that is going to be difficult for equity investors. Francine jack, thank you so much. And heading toward two week after opec secretarygeneral said the markets journey toward equilibrium is gaining traction. Meanwhile come opecs compliance with caps off reached a record level while the Energy Minister says we saw a remarkable 2017 for the market. Bloomberg at the International Petroleum week in london. Over to you. Thanks, francine. Im joined by the oil minister. Thank you so much for joining bloomberg for this exclusive interview. I want to start by asking you, is it just too much oil in the world . Forecast where they overtake saudi arabia and russia. Done the optics and the inventories have been declining. Removed from last year to today around 266 million barrels, which means that there working and we also are removing from the inventories, which means there is not lots of oil in the market. Attempt a correction and it has been working very well thanks to the opec and nonopec group. The market is reaching hopefully this year balance and stability. Annmarie do you think the cuts will need to extend into 2019 . Suhail mohamed i think it is premature to jump to a decision beyond what we have done. We have met in november last year and we have decided to roll over the deal for a full year. We are monitoring the different factors affecting the world demand. Adequatensure we have measures to balance the market within this year. I think the deal has been remarkably working very well. The compliance of it has been beyond the 100 for the year 2017. Fourth quarter we have seen more to in december we released 129 . Annmarie one you think we will see a rebalance . Suhail mohamed we are expecting it to happen this year. It is very difficult to predict exactly which quarter. Like i said earlier, the Shale Oil Production had been increasing and we are expecting this year it is going to be higher than obviously 2017. That is thefactor production coming outside the opec and nonopec group alliance. We need to monitor everything and that will decide what exactly the time for a full balance of the market. Annmarie what is the plan for this opec nonopec i know some people have called it a supergroup . Suhail mohamed i dont want to collect names yet. It is opec and nonopec alliance. This group of responsible producers have delivered and over delivered on their promise for the year 2017. Myself and ther secretariat is to try to draft a charter of how are we going to continue working together for the sake of better Economic Growth of the world and for the sake of ensuring that we have adequate supply to the world demand and oil . As you know, we are moving rapidly to the delivery of 100 million barrel demand per day. There are very limited areas where we can see that supply to come. As well, we have some declining oil fields that need replacement. There are many issues to the supply side as there are issues on the demand side as well. Tomsuhail mohamed annmarie venezuela says cooperation for five years. Suhail mohamed my hope is for it to last forever. Annmarie do you think russia could join opec . Suhail mohamed i would not call just a country. I the group together are making a contribution to the supply and demand balance and its a critical command to the group as well as many other countries. The understanding between the Different Countries participating in this group have increased significantly from where we started last year. I think every country is responsible and has seen benefits from this understanding. Nd i think together we can expedite the balance and we can in the future prepare for any unforeseen surprises in the market to avoid any glut or any shortages of supply in the future. Annmarie tom keene had a question, you as the president of opec and the biggest producer, weve seen a lot of political upheaval in the country. How do you work with saudi arabia and their dynamic to keep stability within the mark. Schail i think saudi arabia has done remarkably well. First of all, theyre all of the saudi minister and in the ar 2017 and actually for him personally and the country in putting together this group of 24 countries. The saudi arabia role in reaching out to russia and ensuring that russia and the countries from outside opec get together. I think this has been a great effort from saudi arabia to balance the market, aso pecks largest producer, saudi arabia, historically, has been a critical member and responsible member that keeps us together. And i think saudi arabia, the positive things happening in saudi arabia in terms of reforms are to the better of the opec group and the larger 24 groups and also to the world economy. So im confident that saudi arabia is always going to be responsible and responsibilitiesive to what this group of 24 are trying to do. Annmarie 70 is now a sufficient price for crude its thought and the Iranian Oil Minister saying 60. What is a fair price to trade at . Schail i wouldnt comment on a price and dont think any minister within opec has a means to comment on a price. We all agree that aso pep members that the market will decide the right price. Our role is to ensure that there is the supply and demand balance, the market fundamentals are there and to ensure we have enough investles in our country and in the world to ensure that we dont have a shortage supply. Annmarie are you happy with where its at now . Schail im not yet happy because we still have room to improve the overstorage, the overhang in the market. E have still around 70plus, 75 million to be removed and i think we are focused on achieving the market balance. When it is going to happen, i think it is going to happen this year, and once until we are there, im still not yet see our job has finished. Our job is still to ensure we reach the market balance. Annmarie thank you so much, your excellency. Tom, that was the u. A. E. Minister with an exclusive interview at bloomberg. Tom we appreciate that. Walmart out with earnings and always interesting and a bellwether for the nature. We get a little bit of a revenue path but theres some other real questions here. Buried in the press release they talk about the 24 month rebound in the last eight years and doesnt say all that much in the financial at crisis. The stock trade is off now a solid 4, down 2. 6 as well. Francine, walmart is such a bellwether for the nation, i dont know if theres a british equivalent but we forget the sheer scale of the company. Francine it is. In the past it would have been tesco or Something Like that but theyve been in a spot of trouble, tom. I think walmart is extremely significant when you look at the e commerce because theyre the only ones that went after amazon directly by buying in 2016 jet. Com which is the american e commerce firm. So it is a bellwether to see exactly how many people shop online in the u. S. Tom of course we can fold into it right now the economics of the nation in its phenomenal g. D. P. Proxy. I saw honeywell with a pop two or three, four months ago and home depot with the animal spirit today. Is that model within the crescent bleve theres an animal spirit well see revenues pick up. Guest that is part of the plan and what i call this upside opportunity and that is as our foreign trading partners like france and germany look at the u. S. And our new tax plan as rolling out the red carpet to business, there is a sense that perhaps they will roll out a red carpet to their business feeling threatened we could then attract some of those businesses here. Om lets go to a jack welch r edux. You believe in Pricing Power in corporations. If revenue is made up of Union Dynamics which walmart rakes out and price dynamics as well. Jack i do think companies are starting to regain some Pricing Power. Of course we have these secular dynamics going on in the background with amazon really not caring about what their price is. But all in all, i think a lot of that has played out. Of course theyre going to roll in the health care and roll into other things but by and large we are starting to see animal spirits as you described and Pricing Power on the corporate side. And well see if that flows through to some inflation later this year. Francine do you worry about the downturn, or overheating of the u. S. Economy around the corner we dont have the tools yet to deal with . Jack i do worry about perhaps a mismatch between equity violations and earnings and dividends, particularly if we do start to see Interest Rates creep up. In terms of the business cycle, as long as we continue to run at potential g. D. P. Which is about 2 , we have about 7 for Labor Force Growth, 1. 5 for productivity. And since the recovery weve been growing it around. The last few quarters were growing it three and the Federal Reserve of atlanta is arguing for a fivehandle in the first quarter. So if we do start to heat up, then of course the downturn risk is higher. But, you know, i would love to see potential g. D. P. Rise. Right now we cant open our borders and bring workers in. Thats just not part of the plan. So we cant get that Labor Force Growth to improve but can get productivity to ramp up and that of course goes to our early discussion with Capital Expenditures and research and development and business spending. Francine jack, you worry about the deficit, the fact it could potentially come at the wrong time in the Economic Cycle . Jack i worry about deficits to the extent it wakes up bond market vigilantes. Right now were not seeing that. There is such a glut of capital flowing around the world and even at these low interest , not a problem. Yes, its a longterm problem and one we have to address but unless the bond market vigilantes come out with pitchforks and torches, my sense is the deficit wont an problem at least near term. The other thing is we can look at japan running a tet to g. D. P. 2 1 2 times that of the u. S. And the yen is still that flight to quality currency. Tom jack albin with us as we look at walmart and nice to you to link in walmart. With your first word news in new york city, heres taylor rigs. Taylor President Trump set aside longstanding differences with former president ial candidate mitch romney and he endorsed his run for a senate seat in utah and romney has been critical of him but the republicans are trying to hold on to their majority in the senate. Robert muler is said to have, banded his in interest . Jerod kushner and are investigating his efforts to supply fpsing from Foreign Investors during the campaign. Hes looking at talks kushner had with chinese investors. The u. S. Fined european banks billions for helping iran avoid economic sanctions. Now a official says the focus is turning towards asian banks. Lenders in taiwan and elsewhere in the region may have played a part in passing a landmark nuclear deal. The u. K. Is promising not to touch european regulations in the post brexit elections. Davis will reassure the e. U. In a speech today in vienna and say cars built and approved for sales on one side of the English Channel should be approved for sale on the other. Global news 24 hours a day, powered by more than 2,700 analysts in more than 120 countries. Im taylor riggs. Tom thank you. Well continue with jack alblin of cresset alliance. And we look at the map with greg. Stay with us. This is bloomberg. Taylor this is bloomberg surveillance. Im taylor riggs. Now to the business flash. Qualcomm boosted the offer price for semiconductor to 127. 50 a share in cash and shares. Its lowered the minimum threshold to 70 of shares outstanding. The offer expiration time has been extended to march 5. Johnson johnson keep looking to sell off noncore assets according to people familiar with the matter. J j is seeking buyers for the sterilization Product Division which could bring inasmuch as 2 billion. The unit is said to be attracting interest from strategic buyers as well as private equity firms. Thats your Bloomberg Business flash. Tom Greg Valliere is the political strategist of horizon investments. For our global audience, theres a phrase, back to mr. Jerry of salem, massachusetts, even before gregs time called gerrymandering and were dimbing into it. The Pennsylvania Congressional district map of 2011 and the courts have said no, no, no, its a geographic mess. Reilly, bring up the new map creating an uproar. Greg, you go to pittsburgh on the left side of the map and you go to connor lamb marine officer. Why does connor lamb matter in this National Debate over gerrymandering . Greg it matters because the house definitely is in play this fall. The senate maybe not. I think the senate stays republican but the house definitely is in play. Even a pickup of one or two seats could tip the balance. Tom going in a republican district why someone won by 10 to 20 , is it correct the courts are intruding on this . The republicans are livid this weekend over the announcement and democrats are going yeah, yeah, yeah. Are the courts becoming the decisionmaker of who will run he house of representatives . Greg both parties are complicit in creating gerrymandering in some districts looking like a large intestine. Recently the republicans since they control both statehouses have been more involved with this gerrymandering so it does take the courts and this court ruling in pennsylvania most efinitely helps the democrats. Francine talk to me about the midterms and the tweets by the president , 14 tweets, 24 hours over the weekend and inviting everyone, the democrats and the f. B. I. And said he won fair and square. Does that talk to his base and get him more popularity among his base . Greg i suppose. But i talked to a lot of republicans who ask the question increasingly. Donald trump criticizes everyone, including his own National Security director except russia. He wont criticize russia for blatantly interfering in our election. Even republicans are embarrassed by this. Francine ok. But what does that mean . Does that hurt his base . Do people care about this kind of stuff, greg, or is it just a Media Obsession . Greg a lot of the base thinks its a host. The biggest available being right now, its a deadly serious issue. I think these young people may prevail and get some change. Maybe not a ban on assault weapons but maybe some kind of background check. I think its that potent a movement. In the long term, fran seen, francine, peoples paychecks and by labor day the economy will look so strong the republicans still have a chance to keep the senate and maybe have a chance to keep the house. Tom well rip up the script, greg, even further and bring in jack ablin and talk about normal politics in illinois and chicago as well. How fractious is the politics of your illinois . Jack it is. And because we have going on in the background this fiscal mess that doesnt appear to be sal valuable. And right now we have a gubernatorial primary coming up in a few weeks. We have obviously an election. And you know, were still not havent solved the fiscal problem. Tom Greg Valliere, where is the swing state, is it illinois or a state i dont know . Greg the rust belt. As jack knows illinois is the most dysfunctional state in america and dont think it will change any time soon but there are a lot of states in the rust state, ohio, pennsylvania, that i think are in play. I do think everyone is saying the republicans are in terrible shape. Lets talk around labor day how the economy is looking with people having more money in their pockets. Thats the one wild card we cant game out right now. Tom who is the most dysfunctional Baseball Team in chicago, the Chicago White sox or the chicago cubs . Jack the cubs are there. The cubs are pretty competitive. Well have to see how it plays out. Tom would you like to defend the people of illinois here . Jack one of the things i will say thats remarkable is most major cities if you look at kay schiller, housing prices have exceeded peaks no. The education in chicago. Were trading 12 to 15 below precrisis peaks largely because property taxes are crowding out home prices. Well see if that ultimately pays a political price for that. Francine greg, back to the sorry, go ahead. Greg could we get reform in illinois or reform in guns . If norway can win the olympics, anything can happen. Francine ok. Im glad im not norwegian and dont know how to take that. Greg, if we go back to what were talking about, the Mueller Investigation, how fast is Robert Mueller going to go . Greg i think quickly. I think kushner and donald trump jr. Are vulnerable to an indictment. The president s assertion hes been indicated is ridiculous. This is really getting deadly serious. I think the issue of trump firing mueller is still on the table. Tom Greg Valliere, thanks you ery much and mr. Jack albin. Walmart has broken off a new weakness off an interesting earnest report. This is the 15day chart, the ugliness of the market. You see weve given it up and back to february 14, back to a valentines day pricing, walmart blowing out all those valentines i didnt buy. Stay with us. This is bloomberg. Tom good morning, everyone, bloomberg surveillance. Im tom keene in new york. Weve avoided fiscal. Lets talk with jack albin, hes old enough to remember teaching twin deficits at Boston University a few years ago. Are we back to twin deficits. Bring up the chart, the chart simple deficit to g. D. P. And well run it out at some point to twitter. Good morning radio london. Deficits to g. D. P. Its said we get back to 5 or 6 deficit to g. D. P. , do you care . Jack it is concerning given that our economy is running as well as it can be. Normally youd like to see certainly a much smaller deficit when were running at a sub 5 Unemployment Rate and running at a threeplus percent g. G. D. P. Tom isnt the heart of the matter our debt to g. D. P. Is double the conversation point, double what it was under president reagan . Were starting at an ugly point. Jack it is. And the fact is i think that one of the concerns i have is that policymakers some enamored by the use of debt. I think as long as investors and as long as voters arent concerned about it, you know, the fact is lawmakers are near term thinkers. Congress thinks in twoyear cycles and the senate thinks in sixyear cycles and as long as its not a problem on their watch, theyre going to keep at it. Francine jack, talk about the psychology, what happens, the markets freak out or are concerned about it and then it has ripple effects . Jack yeah, again, i think that ultimately its going to be the bond investors. But, you know, you have to keep in mind. While even though the Federal Reserve is pretty much ended its Quantitative Easing Program in 2014, more than 2 trillion of printed money found its way in the Financial Markets over the last 12 months. Some of it from reinvestments at the fed but mostly of course the European Central bank and the bank of japan. So even if the bond market vigilantes decided to get up off the couch and stomp their feet, there isnt much they can do with that kind of buying in the background. Tom greatly appreciated with cresset advisors. Well continue worldwide on bloomberg radio. I believe ill do that with john farrell this morning. Foreign exchange, the dollar yen comes back a little bit, it was at 105, 106, weaker yen at 107. Ill call a churn to the Foreign Exchange market this morning. Please stay with us through the day across all our platforms. This is bloomberg. Taylor walmarts warning signs, the Worlds Largest retailer delivers a disappointing outlook. Shares fall in free market. Plus, rare miss, deutsche diss. Missed estimates and Deutsche Bank plans to cut more staff again. And its only the appetizer. Morgan stanley says the real selloff in stock is yet to come. Welcome to bloomberg daybreak, im david westen here with alyx steele. It felt like it was a year, the long weekend. Heres where we stack up and look to be pointed to a lower open in the u. S. S p futures up by 18 points and off by triple digits. Its a broader, stronger garr dollar against currencies, 123 for the dollar and Morgan Stanley upgrading their forecast to 130 and a high target for Morgan Stanley. The bond selloff continues, 258 billion of supply coming on this week and felt in the tenure 2. 9 is how we trade in