Transcripts For BLOOMBERG Bloomberg Surveillance 20180222

These are your markets. We see a little pressure on the stoxx 600. In treasuries,. 0297. We will delve into that deeper and what that means for kuroda. We are getting breaking news. The conference number a touch below estimates. Look at the markets and it is not having them a seven impact. Coming up, the chairman of geo group joins us. We also speak with jeffrey you. , imtle bit later today excited about this interview. Conversation with the latvia governor. First, heres nejra cehic. Theresa may and colleagues will try to thrush out an agreement on what kind of trade deal they wont the European Union. It comes with just over 30 months until brexit day with may urgently needing to spell her blueprint. Meanwhile, the u. K. Has asked the eu for flexibility on the length of the brexit transition with a longer bridging face that phase. Bank of america is the first to commit his longterm future to the u. K. Even as the country depressor brexit. They have extended the lease in the london headquarters. Is owned by norway sovereign wealth fund. The new South African president is yelling on a tax hike. Its the First Time Since the end of apartheid that south africa has raised the tax. Finance minister spoke to bloomberg after presenting his budget. A a focused ate , stay away from downgrade and beginning to improve the outlook on the countryside so we can regain the Interest Rate. Nejra President Trump has promised to act quickly to prevent more School Shootings. Planning what he called a very strong action on background checks for gun purchases. Trump also endorsed the idea of arming schoolteachers. Global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Francine lets kick it off with markets in the fed. That they areow more positive on the economy, with saying that it is in the best shape since the crisis. The state of growth is expected to increase estimates. The 10year yield hit fouryear highs after the meeting. U. S. Stocks fell on the prospect of accelerating rate hikes. Now is the head of european strategy at credit suisse. Thank you for joining us. Bob, what do you did going from the minutes . Bob i think they got it right. They acknowledge with the rest of us see. There is pretty good growth. Theres pickup in inflation. You have an norm is policy stimulus coming through. Living witho get it rates and do three, probably for hikes this year. Francine are you expecting three or more . William it may be personal to me, but i hate this band. Somenk it will go at point. If they keep it, i would go more for four. I have started to hear for the first time. The conversation of five, a 50 half its a 50basis point. But that is getting extreme. But we are getting the conversation on the right page. Francine which is the worry of the u. S. Overheating. Do we risk having an economy that is too hot . You have a lot of growth, some inflation coming through. Yet you have a fed funds rate that is at a negative real yield. That seems outdated. Try to move it to something that is more realistic. They may have to lean in to a if of growth in inflation some of these policies come out of the administration. Francine what does that mean for the dollar . William one of the great mysteries of the markets this year so far has been the weak dollar. I suspect that will start to be resolved. The way i look at the world is that the fed is later in the cycle and the u. S. Cycle the us economy is later in the cycle them thought. So theres a catch a process and i think the dollar weakness is a part of that. We can get comfortable with a fed that is going up once a quarter, which has been the case or will have been for a couple of years by the end of this year. The problem is a market is now struggling with the end rates. That will drive the valuation of the 10year note and so on. One of the rates went one of the reasons is, even if you dont understand what the fed is doing, was a quarter, it is not where the year ends. Francine where do you see the dollar . The secretary and douglas has bob we do expect the dollar to eurodollarnd the looks good. You are going to have a tremendous amount of deficit funding coming out of the treasury. First of all, for tax reform. Secondly, with the fiscal spend. You will have to back up real yields to attract the marginal buyer in. I think that is problematic for the dollar. The second thing that is a problem for the dollar is the euro looks pretty good. It looks under owned to us. People over the last four or five years have thrown in the dot the tall the towel on the euro. Things that the central bank has done and policymakers have done and they are making the currency again. Francine the weaker dollars what we see in the next six month, will that push the fed into hike 4 or five times . Bob we think there is enough growth and inflation for them to do that. I dont think they are too concerned about where the dollar is. I think they have a host of other worries to deal with. Francine when do you expect the 10year yield to touch 3 . We like this chart because it makes reference to what Jeff Gundlach said. As soon as the u. S. 10year then it starts hurting equities significantly. William my colleague david said puts things at the technical. 305. At i suspect that we will touch that little. But there has been such a dramatic change in sentiment, particularly in the euro area, which we can get to the rollover the data can i think the market is beginning to run out of steam. I suspect we will not go through this im certain to hear the 4 conversations coming out now. Past the we will get. 305 level. Francine are you shaking your head because you are not expecting 4 . Bob im expecting 4 a year from now. A looks very extended to the downside. It looks like positions are step are stressed. Feels like the back of from september has gone about a hundred basis points. It has gone far enough. It is time for a bit of consolidation. Francine are you expect in that delete to more volatility in the market . Bob i think things stabilize. As we get into the back half of 2018 and you have Balance Sheet expansion of the Central Banks moving to contraction, thats when we would expect to see more consistent and durable volatility markets. Francine what about you . Volatility or no volatility . A little bit . William cowan it is a bad habit of mine to want to zoom out. We hit the zero bound in 2007. We sat there for 10 years. Last time i was on, i talked about the need to adjust to that. Longer the market no being at zero bound. That is inherently a volatile process. You suddenly you realize you dont know. Part of the reason that markets get into trouble is they think they know and they dont get now you know you dont know. That is putting a bit underrates. To see how that resolves and a short period of time because you have to keep going out there and going quarter to quarter until perhaps something breaks. Thats traditionally the economic cycles end. The volatility we see is semipermanent. Francine thanks so much. We will get back to that. Stay with us. Plenty coming up. Live ahead of the exclusive interview of the secretary from latvia. After 2017. Oking up this is bloomberg. Francine markets, economic finance, politics, this is bloomberg surveillance. There is no chain ridge. Nejra shares in barclays surged this morning after the ceo said buybacks are on the table for the first time in more than 20 years. Income from dealing stocks, bonds, and currencies dropped 18 according to its Fourth Quarter earnings report. That beat the averages wifi percent drop in markets revenue posted by wall street firms in the final premonths three months. An optimistic note about the coming year. Hopefully, our shareholders will take comfort from the fact that we are increasing our dividend as planned in 2018. T is significant amount we are also talking about, as we access capital, the bank for the first time will start to look at buybacks. That is months down the road, but something on the table. That is after the Global Mining giant adjusted earnings per share for the full year of 2. 67. The company says and improving global Macro Economy remains supportive to earnings. Speaking in to us earlier, the company had delivered early on its promise of dividends. That is the most important priority and we have work to do. 93 reduction last year, we made good ground. ,econdly, retain the dividend we delivered on that promise six much early. Dividend, wehe delivered on that promise six months early. Yes, we have opportunities inside the portfolio. We need to look outside the portfolio for significant opportunities. That is where our focus is at the moment. Nejra shares in the Company Behind angry birds plummeted this morning. A decline in revenue for this year and set adjusted profit will be only about 9 to 11 in sales. That is the Bloomberg Business flash. Francine the head of latvias central bank has denied it is seeking bribes. The anchor of european open is in a nexus of conversation. 48 hours later, he was asked to step aside. This is the interview of the day. If not the week. How difficult will it be for the ecb to move swiftly to ensure they are Holding Everyone to account and the standards are high . The issue of credibility is what were talking about, both for the Latvia Central Bank effort ecb. Member of thes a ecb. Therefore, the line is a very strong one between the two. Ecb and forlem for latvia. The question to the governor, why, if he claims he is innocent, is he not standing aside on a temporary basis to let the rule of law work and maintain the credibility of the institution which he has worked for for 25 years . To bolsterue process that . He says that he is innocent. He says the claims against him are not substantiated. Therefore, why would he not step aside . Why has he decided to remain in post . Thats really the question we need an answer to. Im curious to find out whether or not he has been in contact with the ecb. That connection is really important, particularly on a day that we will hear from the ecb later on. Francine how is the ecb and how has mario draghi reacted so far . Guy havent said very much. We will potentially get a statement today. And hands seem to be. That the statement will not be strongly worded. I think the ecb finds itself in a very difficult position. It knows that it needs to maintain its credibility. It regulates some of the banks here in latvia. There is another issue, that there are other countries that are attempting to join the eurozone. There is a question as to whether or not the situation here in latvia will ultimately and up affecting the chances and the portability of those countries being allowed to join. The ecb is guarding its credibility incredibly gesso incredibly jealously. They ecb finds itself in a very difficult situation here. Im fascinated to hear from the governor here in latvia whether he had that conversation with mario draghi, whether he tried to explain to anybody at the ecb what is happening here. Francine without a doubt, the interviewer the week. The russian involvement, what we know . Guy not very much, to be honest. The suggestion that came from the defense ministry, they did not mention russia by name. It was at the had been some russian involvement. The russians, as a suggestion goes from the other countries, is trying to destabilize latvia ahead of elections. The suggestion from the former defense ministry. Russia was not named. The russians have said they had no involvement in the situation and that finger should not be pointed at them. Given what is happening in the United States with the president of the United States, given what is happening in europe and the elections taking place in europe, obviously, this fits a pattern. Much of what so is happening here, there are credible shadows around all of these issues. Yes, there is a suggestion, but that is as far as it goes. Francine thank you so much. You can see his exclusive interview with the bank of latvia governor at 1 30 p. M. London time this afternoon. Lets continue the conversation here in europe. We get the account of the ecb last meeting today. William, you asked me to bring up a chart, which i like very much, a spread between the u. S. 10year yield and german bunds. We brought it back to 2005. What does that tell us . Out a note this morning saying that we have reached at our yield targets in the euro area. Therefore, and i touched on this a moment ago, gotten a bit more cautious in the markets. Had broughtclarke at this point that i had not paid attention to, the enormous spread between the u. S. And the euro area. This is something that traditionally is bounded at about current levels. So the point is we cant look data,osely at the euro which has started to roll over a little bit, without understanding what is going on in the u. S. It would be a gravitational pull higher if the u. S. Yields a higher than this. The idea that we can stop the is very important. If we dont, we need to change our minds. Francine bob, you are expecting a higher euro . Does that hurt ecb policy Going Forward . Do you estimate a repricing and german bunds . Fed has raised rates five times. They will do three or four more hikes. Ecb is still printing 30 billion euros a month and buying government bonds. The fed is running down its Balance Sheet. This will keep lightning until the ecb keep widening until the ecb says they will stop qe at the end of the year and start raising rates next year. Im not too concerned about the strength of the euro at this point. I think it is more of the normalization process. What is more interesting to us is not so much when the ecb finishes its of Balance Sheet right off, but when they begin to raise rates and when they cross the threshold into euro positive rates. 2019. Francine first half . Weldon absolutely. Bob absolutely. Therene at some point, is a euro danger for exports, isnt it . William the argument is that the strength of the euro is being driven by economic strengthen the euro area up to this point. There is a certain amount of dollar weakness, but the euro is androgynous leave strong. Think anyone seriously thinks the euro area is growing at 4 . I dont think the euro can be taken as an exile just shock. It is just part of the world recovery. This is a new phenomenon. This is something the euro area is not used to, pacing the growth of the world like this. Going back to the ecb, im on the more bearish side of this. Im looking for a cliff taper at the end of september. They may put something in just to avoid disorder, but basically a cliff taper. Past. Blem is it is well they will not write hakes hikes from negative levels until well past. The market has taken that. It is a highly compressible timeframe. We could get to a stage at the end of the year, the fed hike a four times, the ecb looks massively behind the curve. Francine but then you could have a german interns, right . Bob absolutely. Francine what does the yield curve look like for a periphery . Is the expectation normalizations happen more quickly. I agree with william get it will be priced in a lesson or more aggressively. What is interesting about this chart that we did not touch on is, if you did this in jgbs versus treasuries, it would be more dramatic. One of the things we are seeing is money exported out of europe and out of japan into the u. S. Bond market. Certainly, with a recent backup annuals, that will drive more flows into the u. S. Thats another thing that will help cushion yields at around 3 . Francine we were just talking to guy johnson. It kind of raises questions about the ecbs ability to do its job. If we dont get a resolve in the next week or so, does that change her expectation of what the ecb can do in this murky story in latvia . Of this and beauty this touches on brexit, you cant look at these monolithic players. This is a reminder that the ecb is the had body of the european system of Central Banks or the euro system in the euro area, which is 19 national Central Banks. To be honest, what is going on in latvia, relevant to politics of the ecb governing council, no. Does it illustrate that monetary extends right to the front line . Yes. Francine but there are standards, or their . We start with the stress are there not . We start with the stress tests. William cowan yes, this is a deeply subtle system. We need to because we need to be careful and we think of the ecb as mario draghi. In my view, it does not stand up against the subtleties. Francine thank you both. Stay with us. Boosting Sustainable Development and Frontier Markets in Frontier Markets. This is bloomberg. Show me the olympic winter games like ive never seen before. Xfinity x1, yeah, i always know the scor. Triple corks in 4k. Lookin so sick. Stream live on every screen, every win, every trick. 2000 hours of coverage, get your mind blown. 50 olympic channels, yup, youre in the zone. And if theres something that you want to see, pick up that voice remote and just say show me. Experience nbcuniversals coverage of the olympic winter games like never before with xfinity. Proud partner of team usa. 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. Economic, finance, and politics. This is bloomberg surveillance. Lets get to first word news. Nejra theresa may and her senior cabinet colleagues will try to thrash out an agreement all a kind of trade deal they want with the European Union. Comes with just over 13 months before present day, with may urgently needing to spell out her blueprint. For ak. Has asked the eu longer bridging phase. Bank of america is the latest overseas bank to commit its u. K. ,erm future to the even as the country prepares for brexit. It has extended the lease on its run at headquarters by 10 years to 2032. By norway is owned sovereign wealth fund. President trump has promised to act quickly to avoid more School Shootings. Planning what he calls very strong actions on background checks for gun purchases, trump also and ors idea of arming schoolteachers to confront attackers. Global news 24 hours a day, powered by more than 2700 journalists and analysts in over 120 countries. This is bloomberg. Francine thank you so much. Getting breaking news out of the u. K. 1. 4 is gdp year on year of , instead of the 1. 5 expected. Consumption private a touch below Government Spending quarter on quarter. That is much stronger than expected. Exports lagging. Imports better than expected. To help us go through the picture, lets have a look at the pound. , the delmarat chart spread here in the u. K. Lets go back to our guests. If you look at the u. K. , how much do you look at quarter on quarter figures to figure out what it means for investments and how much do you wait to have an idea of what the transition figure brings . Bob thats a difficult question. Cowan the big phenomenon in the u. K. That i think the boe has been caught asleep at the switch on is the move in the currency surrounding the referendum. Just as we were leaving the zero bound, i think they felt, because we were at the zero bound coming could ignore it. At one point, it was a 15 klein in the currency. We have been paying 15 decline in the currency. We have been paying the price. I think you have to step back and take a view of what is going on here, which is a pretty major readjustment in the economy. Francine do you agree . First of all, let me go back to my doma spread. Delmar spread. This is a fiscal stability indicator. It shows nominal gdp over longterm rates. Are you bullish are not on the u. K. . Bob from an Interest Rate perspective on that, i think there is scope for the bank to continue to normalize rates and push of towards 1 . I think the bond market will have to absorb that. I dont know that it goes much further than that. I agree with william. Theres so much uncertainty about the aftermath of brexit and how that will ripple through the economy. It is difficult to know right now until theres some agreements put in place between the eu and the u. K. Francine lets talk about one of the top u. K. Companies, barclays ended 2017 on a mix note. Trading incomes slumped 18 in the first quarter. Expectedbeat the 26 by ubs. Jes staley is more optimistic and putting his money where his mouth is, considering a Share Buyback for the first time in more than 20 years. The market has responded positively, sending the stock higher by more than 5 . We spoke about the plan for the future. Of 2017 is that we ended the restructuring. The normal assets we were looking to sell, there are no more businesses we are looking to close. We begin 2018 with a clean operating model. Thats the first time in five years for barclays. But also, we closed 2017 a very Strong Capital position, 13. 3 . The first time we have done that. That in a long time. Do, that will allow us to in 2018, we plan for a dividend 6. 5 cents for our shareholders. That is more than double than what we paid in 2016 and 2017. We feel good about that. The first parts of january and february, volatility came back. Some of us thought it might. That is good for the markets. But its way too early to really get any indication. The early start was quite positive. And terms of that market business, what are your expectations . You talk about tangible equity targets for the business as a whole in 2019 09 . Is that a challenge . Will that be a stretch . I dont think so. We generated a return equity a 5. 6 for 2017. So we have 350 basis points ago. About 150 basis points of that are really advantages we will have in front in refinance liability so the bank. We have a lot of extensive liabilities that are rolling off. We have high, really just rates in the u. S. And u. K. That will play into that number. There is improvement on the tax basis for us to play in. And encores closed. We had to spend over 600 billion pounds in 2017 that will not be there in 2019. What feedback are you getting from shareholders around her ability to close that 350 basis pointgap . Are they with you on the long haul come on this journey . Or are they are you under pressure to deliver that 350 basis point quicker . We very much appreciate the support we got from our shareholder base. Another aspect of the story is that they are looking forward to barclays getting into position where we can return it is capital. Hopefully, our shareholders will take comfort from the fact that we will increase our dividend as planned in 2018. It is significant amount. We will also be talking about, as we generate access capital, given that we are over our capital number, the bank will start to look at buybacks. That is much down the road, but something on the table. We recognize that we have an obligation to begin to return excess returns in greater numbers to our shareholders. Francine that was the berkeleys chief executive. That was the barclays chief executive. To developing economy is set reach 3. 5 this year. Can it spur Sustainable Growth. That is the question that the central bank is trying to answer. Its coreions will aid mission to end poverty. Thank you so much for joining us. Delighted to be here. Francine give us a sense of what can happen in the Frontier Markets to encourage private partnerships . Not only the world bank, by getting investors, such as these guys, to put money in project you believe are worthwhile. A number of things. First of all, multilateral agencies and Public Sector works with government to create the right environment to support the development in Frontier Markets. Second is to be the example to have skin in the game. We at the world bank have a track record of 70 years of investing in these markets. The third is what we do at world bank treasury, which is issue frontier currencies. We have a spending of 200 billion. We share about 60 billion every year. We have issued and 60 currencies, 22 currencies every year. Most of them are Frontier Markets. So being the example. The 30s to make sure that we provide products that are useful for investors and leveraging the Capital Markets more broadly to do risk markets, to do risk countries, whether having a syndication participating in transactions. Francine what are investors asking . The risk is so much bigger these Frontier Markets, because of politics or other things. I dont know if they ask about returns our longevity of projects. How do you choose whether to invest or rebuild a road in this country and not the other one . First of all, i think every investor wants to make sure that they make the money that they were determined to make. What they want to make sure is they are protected against any for. They are not pay whether it is the countries themselves, whether it is the International Community or multilateral agencies like us providing support and respect to that averment is important. Puttingl framework, skin in the game to demonstrate that these environments are not as risky. We have different tools that enable us to do that. We have our private sector and the International Corporation that invests in partnership with the private sector. We have the world bank that works with countries to make sure the environment is important. Of course, the Technical Assistance in designing this project, because the designs for this project are sometimes extremely important for success of this projects. Francine do you look at Frontier Markets are more emerging markets . Bob surely emerging markets. But there is anymore an enormous appetite by investors to invest in the Frontier Markets. Excited with the work that you are doing. The things that we look for are the proper structure, also liquidity and the regulatory environment. If things could become a bit more creative in the Frontier Markets, that could draw more capital in. I dont know if that is Code Investing with the world bank or Something Like that. I think we need to be more coinvesting with the world bank or so they like that. I think we need to be more active. We worked with chile, colombia, mexico, and perl in terms of offering protection risk. T hurricane this is very popular with pension funds, with other investors. And having the world bank as an intermediary provides covered on both sides. We are each of the late rated interest in a day. We are wellknown in the markets. We can provide the kind of cover that investors are looking for in working with Frontier Markets. I would agree with him about being creative about the solutions. Francine you have been encouraging the private sector to take on some of the risks by developing nations. Are other Development Bank some board . Absolutely banks on board . Absolutely. The regional developer banks are focused on specific regions. We at the world bank our focus globally. That wery to make sure are mobilizing the private sector to do more. We cannot do it all, even if we all do it together. There is some us to be done. We need 4 trillion to be able to tackle the Development Goals and achieve them. But there is appetite, right . Absolutely. Francine is that why you are on the roadshow, after investor appetite . It is very important to tell investors that private capital is important for Frontier Markets. The opportunities are there because theres a lot to be done in infrastructure in other sectors of the economy. And most accordingly, we are a partner. We derisk projects and the risk deriskes and the countries. William cowan the effect of rising u. S. Rates, this is driven by growth. Growth like many parts of the world is what these markets need. So its not an accident they have been outperforming this year. I expect it to continue. Francine do you get a lot of questions . Absolutely approach and absolutely important. That they are still adjusting because there is a lot of opportunity available in these markets. But also, it offers diversification for investors. 30have seen, over the last years, a lot of the Frontier Markets have taken steps from a macroeconomic point of view that support the projects in ways that have not happened in the past. Francine thank you so much for coming on today. That was a fascinating conversation. Thank you so much for coming. Exquisitelyl speak to the chair group chairman. The move into money management. This is bloomberg. Francine good morning, everyone. This is bloomberg surveillance. Theting in 1976 with acquisition of a small cannery. The company grew. Holdings include an italian newspaper as well as a leading manufacturer of car parts. Founder,e has of the the company has posted a combined revenue. Cir group joins us now for an exclusive conversation. Thank you for giving bloomberg a bit of your precious time. How worried are you about volatility rising Interest Rates . We talk about this day in and day out. Will it be easier to manage money as Interest Rates go up . Or are you worried about too much volatility . It is never too easy to manage money. [laughter] this is not a particularly easy time. That we are generally speaking quite constructive. We think this is a moment where there is synchronized Global Growth in the economies. Rethink, by and large, the corporate sector is doing very well. Corporate earnings are growing and strong. We think the bowels sheets have been restored in the financial sector, but also in the industrial sector over the last few years. We think, by a large, the fundamentals are good. We have experience growing volatility over the last few weeks. This comes from a very long period of very low volatility. We are not used to volatility and mark. I think we should get used to it a bit more. But i am not too surprised about it. Francine we talk on this program about passive versus active management. Do you feel more comfortable about fees in the future for Asset Managers and Wealth Managers . Are you concerned youre going after the big banks. You are in a position of weakness . Pressure inmargin this business. There has been for a long time. Inre is in every facet private equity, hedge funds francine everywhere. The business is growing. The asset will, the financial asset pool is growing. Day, investorshe will be ready to pay for service, for value, for performance. The question is, do you provide that are not . Clearly, if you dont provide that, you will have problems. We are a niche operator. We try to focus on niche strategies. We try to provide a tailormade service to clients. We think there is a group to do that because banks have become increasingly complex and complicated. This is not always easy for customers to interact with. Francine how much bigger do you want to become . We dont really have a set target in terms of size. For us, what is important is quality. We run our money, the partners of the firm, alongside our clients. Point where wehe are not a start up anymore in terms of p l and we have the comfort and resources to grow the business. Size. Pretty serene about we dont need to do it quickly. We want to do it well. Francine if you look at the cir group, theres health care, automotive scum and press. What is doing better . I can tell you it is doing worst. [laughter] francine does a media. That will break my heart. [laughter] you knew the answer. I think media is challenging. It has been challenging for the last 10 years. I think it will continue to stay challenging. Companies in the sector are struggling to adapt to a new market, which has been totally changed and driven by technology and consumer habits. I dont think this is stopping. This is even accelerating in terms of the face of change. It is a big challenge for every company. On the other hand, what is comforting is that the value and the demand for quality information and content, as you well know, is increasing. Complicatedsingly world, people want more information, more updated information, more quality information. If you can provide that the together the right Business Model to get paid for that, it is not necessarily a bad business. But shortterm, the dynamics are challenging. Francine does that mean that unit will change significantly . Do you have to put things online . If you see the changing landscape for media, you could argue that, through radical change, that is how you make money. I think we are forced to radically change. We dont have the choice. We are doing it ourselves. The challenge is the transition, how much you lose on your analog traditional, business, and how fast can you grow the digital part of the business, knowing that you compete against very strong competitors. If you look at the google and facebook of this world, which are competitors in the advertising space. Those are formidable competitors. Because of their Business Model, they have an inherent competitive advantage and profiling the customers and selling advertising to them. Francine will the same companies you know, the people that you sell to ultimately take parts to . Who are you talking with to see this future Transportation Business . This is one of our businesses, supplying auto opponents to cars and trucks globally. I think the changes that are happening in the Transportation Business are unprecedented. Over the last five years and probably in the next 10 or 15 years, this business will be totally different. Because of engines, because of connected cars, because of self driving cars. It is a big opportunity. It is a great opportunity for suppliers as well as carmakers and truck makers. I think our company is fairly well positioned in this business. We work with every major car or truck ready facture of globally. I think we have the chance to secure a growing added value in a business where the yields are basically shifting. Given the same size of the auto production, average this is going because we are getting a higher slice of the added value every year. Francine i also need to talk to you about the italian elections. We are 10 days away from that. Do you worry that they may be disruptive . Is that the question you get past the most . There is a contradiction that i have a hard time reconciling. On the one hand, people are rightly concerned and curious and they ask questions about italy postelection zen what that will mean. On the other hand, the Financial Markets dont seem to be worried. Vtb you look at the italian doubloons, we are at an alltime low. The stock market is one of the best in europe over the last six or nine months. There is this strange disconnect. Is nosk that we run majority. It is a difficult geography of the political split, over political votes. That look over therefore, the difficulty of having an ineffective acting, stable government. When you look at what is going on in other countries in europe, that is important. Not having it is a liability. I think it is particularly risky for a country like italy, which has a bunch of structural issues to tackle. I think we would badly need that. Francine thanks so much. Chairman of cir group. Bloomberg surveillance continues in the next hour. Tom keene joins me out of new york and we talk inflation. Chart looking at the delmar spread. Without a doubt, one of the interviews you dont want to miss, the exclusive conversation with the bank of latvia governor with murky allegations. 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. We use so why do we pay touters thave a phone connected. When were already paying for internet . Shouldnt it all just be one thing . Thats why Xfinity Mobile comes with your internet. You can get 5 lines of talk and text included at no extra cost. So all you pay for is data. Choose by the gig or unlimited. And now, get a 200 prepaid card when you buy an iphone. Its a new kind of network designed to save you money. Call, visit, or go to xfnitymobile. Com. Francine feeling good. Yellen painting a picture for growth. The inflation question remains unsolved. The Prime Minister and her top brass head to from as gets help british lender, the dividends are higher. The year has started. This is bloomberg surveillance. I am Francine Lacqua in london. Tom keene is in new york. I get the clear picture of what the fed is thinking, but not on inflation. My bowtie was straight like the stock market until 2 00 yesterday. Then we went of 300 to down 500 to keep the math simple. It was a Tipping Point today for the bond market. Francine were talking about yields at 3 . A lot of people are saying it is not if but when. British consumers and businesses are feeling the squeeze of higher prices. The u. K. Economy expanded less than previously estimated in the Fourth Quarter. Gdp was revised downward to 4 10 of 1 . The drop in the pound following vote is driving prices pastor than faster than wages. Senior ministers will be a ring today to force them to agree on a trade deal with the European Union. The Federal Reserve governor says that the u. S. Economy is in the best shape since the financial crisis. He spoke today in tokyo. He endorsed a gradual path for raising Interest Rates. President trump is promising to act quickly to prevent more School Shootings. One of his solutions is letting teachers carry guns to confront attackers. Emotionalent met an group of School Shooting survivors and the parents of victims at the white house. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Tom equities, bonds, bonds, bonds, bonds. 2 00,day new york time, maybe at a weaker level. Interesting currency dynamics. The mix, it is, remarkable how it didnt move. You wonder how that will set in an hour or two. Here are the levels of full faith and credit in the United States. The green on the screen should be read. Those are lower yields off of london trading. Down in the stocks are europe. They were down in asia. The wake of the fed minutes painted a healthy picture in the u. S. What that means is that people worry that there is going to be tighter Monetary Policy. Down zero point 2 . Look at the yen. The twoyear yield, but without a doubt the most important one is the 10 year yield. Tom let me look at the bloomberg. I want to look at a second round of the fed higher yields. The 30 year fixedrate mortgage in the United States. When was the last time that i talked about this . Were down to unimaginably low levels. This has clearly reset. Where were we . The 30 year mortgage the housing benchmark used to be 5. 5 or five point 6 . We are miles from that, but we are grinding higher. 5. 6 . or where miles from that, but we are grinding higher. Francine accustomed index was done for me. Im not that good at customs index myself. Growth that nominal gdp is what we are looking at. We will push it out for social media. Growth and nominal gdp over longterm rates. It is something that we keep an eye on as we deal with brexit. The top market story today, the reaction to the january minutes, the fed expectations. Joining us is Kallum Pickering and geoffery yu. Lets start with you, what did you learn about the fed . Markets have to steal themselves for a slightly stronger message on inflation, the same way the market was healing themselves for the january cpi numbers. I think up ahead theyre going to see that transmission from potential wage growth and the inflation and higher escape velocity. The fed does not know yet. Kallum Monetary Policy in the all the fed seems to be doing now rather than putting the brakes on the economy is higher growth and higher expectations. From your space in the foreign exchange, as you look up bonds, this move up in yields is it when your own quadratic fx on the other markets . Does it build up with a certain momentum and then hit on a point, or is it a linear grind up . Geoffrey for now, people are happy with the linear grind up. It is treated more as a stimulus than anything. The eurodollar right now, there is more action on the euro legs and the defensive position in europe. On the dollar side, a lot of it is priced in. Theres going to be a lack an upward momentum solely focused on the fed alone. An ono we focus this is the fiscal policy of the United States of america . I have an oped with Kevin Cirilli of next hour. Is this about a buildup in debt . No. Um this is a return to normal. If i take a rule of thumb i would look at the nominal gdp growth is my bench mark to a longterm yields should be. Well above is longterm yields. What i am saying is an exit out of the age of caution and excess savings into a normalization where yields go back to levels consistent with normal economic momentum. You to mylet me bring chart. What happens after 3 . Does it go back down, does it 3 and climb to 3. 5 . What is it due to volatility . Kallum i would expect yields to. O to 3. 5 or 4 it reduces the present volume of cash flows. When it comes to the underlying drivers, this is higher inflation and productivity growth with no major macroeconomic consequences. The transition from high inflation to high productivity, i dont think anyone is willing to draw the line there yet. That is something that most policymakers are struggling with. They are heading to 4 , and that is pushing it. I think there will be a pullback immediately. Comprehensive financial conditions come the yield is one part of it, yields a relatively behaved, and as the dollar will weaken in the process of the u. S. As well. We are not recording time on financial conditions yet. They will tighten, but not to that extent. Francine ive heard anything from three to five Interest Rate hikes. 4 is the base case right now. Conditions are more agreeable, maybe they can do more, but it is about communication. To dok the fed would like no harm and exercise caution as much as possible. Tom qc inflation up there . Do you see inflation out there . Kallum low unit labor costs relative to labor costs. If i look at the u. S. Unit labor costs, they are still at 1. 5 . Next year, the fiscal stimulus will create extra demand for the u. S. Economy at a time when supplies limited. There is upside inflation risks. In a way the markets right to be worried about wage inflation. Tom they are not there now. The way that we agree in the conventional sense. The transition from higher wage growth and higher income into stronger inflation by consumption and aggregate demand, the price and environment im not seeing that yet either. Francine both are staying with us. Next hour, athe conversation with kate moore. At 6 00 that interview a. M. We will be talking yields and inflation in the u. S. This is bloomberg. Taylor this is bloomberg surveillance. Shares of angry birds is plummeting today with fourthquarter earnings that messed estimates. 2018 guidance was given that one analyst called a huge disappointment. American chief left ford after an investigation. Are engaged in behavior inconsistent with the companys code of conduct. A french insurer got away from its u. S. Business last year. Higher fees from less insurance and Access Management in the u. S. Beat estimates. They plan to share a Minority Stake in the u. S. Unit as part of an ipo later this year. That is your Bloomberg Business flash. Francine thank you. 11ay for theresa may and of her most powerful colleagues, they join the u. K. Prime minister and her residence with over 13 months before brexit day. They will try to find agreement over what trade deal they want talks ineu before that brussels next month. We are joined by the London Bureau chief. We are looking at pictures of checkers. Is an away day to rally the troops. There will be very tricky. We know how divided the cabinet is. It is built optimistically as the crunch day. Of course, it never works out like that. Decision come to a with officials telling us privately up to last night that maybe we should not expect complete agreement on anything. I think they are dialing down expectations. Maybe well get some sort of broad brush aim for what the trade talks should be striving for. The detail, what about the access to the city, the specific relationship, Northern Ireland . We wont getmaybe an answer, but talks will go well into the evening. Francine where does this leave Jeremy Corbett and labour . They could meet in dialing street every day. David they could, but we havent got an answer. Maybe they need to be locked away to not be distracted. We are hearing that corbyn will make a big speech at the end of next week and it seems that themselves commit are strongly to staying in a Customs Union and closely aligned in the Single Market with the rest of the European Union. That will mark a big difference with the position of the conservative party, or at least the position we will get from the conservative party. To give voters a clear choice whenever the next election comes. Tom sir roy jenkins and his one volume on Winston Churchill has a scene when churchill loved to build brick walls and checkers. He would build them so lousy that they would have to go back and fix the brick wall so that the Prime Minister would not be killed and have this fall on him. It is hilarious. Who is helping Prime Minister andbuild her brick wall checkers . Who is on her side in this concept . David that is a good question. She is playing a balancing act with her having the euro and the antiEuropean Union members. She is trying to cut a line down the middle and it is hard for her. She has been embattled since she lost the majority in the election last year. Her biggest supporter was fired last year. She is not someone with eu to mount of allies and friends across the board. She does seem slightly isolated. Have heard more from the brexiteers side of the cabinet. It is hard to say really who her closest allies are. We will wait to see how the talks pan out. They will go late into the evening over supper. Outfully they will come with a statement with some clarity next week. Francine i am reading the churchill volume after we are on the air. Are you expecting anything from this away day . We understand that Jeremy Corbyn will deliver a speech next monday. Kallum i would focus on two issues, the u. K. Policy on migration. The more they restrict access the less the eu will provide for a trade deal. The irish question. Can you present the states quote in Northern Ireland . There has been no answer. There are broad aims that catch that dont matter. We care about migration and Northern Ireland, then we can figure out from that what the trade deal will look like and by how much brexit would reduce potential growth in markets. Those are the two key issues. I take offense they are comparing checkers to camp david. Andkers has hot water indoor plumbing . Kallum maybe maralago . Is slightly less glamorous. It is supposedly the weekend retreat for the Prime Minister. Theyre mostly staying in london. It is a useful place to invite worldies from around the and stay until they make a decision. Francine and apparently, there is a celebrated wine cellar in chequers. For americans, it is pretty fancy. There,e if you were hosting the majority of, what would you picture . David what the u. K. Can decide on, there is the eu side of the equation. Union, we know what they have been saying is that it is essential for a clean break the the customs unit or u. K. Will be hamstrung on developing bilateral trade agreements with other blocks. Talking about the u. K. Joining the tpp that you have to be a part of a separate customs agreement for that to happen. That will be a crunch point. In yen, the customs length of the transition, what you do with eu nationals, and the border with ireland. We will keep an eye on chequers and all things brexit. Stay with us. Coming up, the conversation with the Deutsche Telekom ceo. We will be asking about the business they have in the u. S. As 6 30 a. M. In london. This is bloomberg. Tom bloomberg surveillance. London, i amua in tom keene in new york. You hinge back to bonds, here are the full faith and credit paper in the United States. The twoyear yield really did not move that much yesterday. The green should be red with lower yields of this morning but a higher yield tapesty to all going on in the markets. This is a joy, not from mr. Rhodes or the oppenheimer family, but a new de beers. Centuryolde from a company. It is wonderful to have you with us. The greatest ad campaign was 1947. Movie,om a james bond diamonds are forever. We may never get married. How desperate is de beers to sell diamonds to people that may not have a diamond forever . I love the phrase, we may never get married. Modern consumer is a different consumer and that is reflected in our advertising campaign. There is still a Strong Demand for our product and everything diamonds represent in terms of marketing rare and timeless moments. That is reflecting in reflected in our results. Held on the continuing, strong consumer demand. Tom im sure that we want to get to russians about south africa. How much does the beers control the how much does de beers control the industry . Do they control the gem, the jewel the stone . Is that the case or is apply more diverse . Nimesh supply is more diverse than it used to be a, but we maintain a critical leadership position in the market. Accountse, de beers for 30 to 35 of the market. In terms of influence, what we do and market development, marketing the category or investing in new initiatives like our blockchain initiative, driving standards and ethical production, all of these are hallmarks of leadership that de beers is pushing forward. Francine im looking at prices of polished diamonds. This is the chart that we brought in 2012. Prices have been pretty rough. Is there any sign of a recovery . What can you do to improve the prices for polished diamonds . Is an area of focus for us. Polished prices have been challenged. Really, the best thing that we polished push prices is to push consumer demand. Through our campaigns, throughout jewelers, forever mark, we have embraced the new consumer. A lot of self purchase, women with careers buying for themselves. Making sure people marked be important and emotional moments in their lives with diamond purchases. Continuing to drive the consumer demand, we hopefully will see those polished prices move. In 2017 we did see a growth in consumer demand, which is really pleasing on the back of a declining 2015 and flat 2016. Pricese can you raise without affecting polished . A clearthey dont have linear relationship, but what we need to make sure is that our partners in the mid of the industry, those that manufacture jewelry are insensible returns. All of our fortunes as an industry is linked to drive in i linked rough to driving polished prices, and rough follows polished. The on south africa and asiade beers relationship, what do you need from the anc . What you need from the politicians to provide stability for business in south africa . Think that you have highlighted exactly what we need, stability of regulation. That is why we are engaged with the government through the wember of mines which participate around what is called Mining Charter three. We are investing heavily in south africa. We have a project underway moving from our operations to underground, a commitment of over 2 billion in the Mining Industry for south africa with a positive impact on local communities and the local economy. Tom not that i know anything about gemstones on fifth avenue, but you cannot find a decent ruby in new york city and less you have the wealth of a raj from another time and place. Will diamonds it up where ruby czar because of the worry about labor, abuse, where rubies are, because of the worry about labor and abuse to where you cannot find a decent ruby . The worko because of we have done in driving ethical best practice, making sure that we continue to fight for the kimberley process and how important that that is in proving to our consumers that we live their values. That our diamonds are ethically sourced. That our products are natural, highly valuable, and people can be proud to wear them. Mineine de beers plans to the most this year since 2008. What gives you that confidence . 2017 we were at 33. 5 million carats. A lot of that was the rampup of our new mind. Mine. There is a mining business in botswana that is driving production. Beyond that we have efficiencies in other operations. The most important thing looking at production Going Forward is to make sure this matched by demand. Francine is it affect your ability to raise prices if there are too many . Will affect our ability to raise prices is the polished price that we talked about. Tom we have to steal your slogan. Im taking over. You are not in charge. This is how we do it. A 2 shot of me and francine and we have to go with the new de which is so appropriate. There we go. [laughter] feel like istill have to give you a gift of a diamond or Something Like that. Thank you so much. We are saved by taylor riggs in new york. sylor President Trump promise to fix the countrys roads, bridges, and airports might get help from australia. Will minister trumbull propose using the 2 trillion Pension Savings pool to unlock funding for the official plan. Embassy in montenegro was attacked last night. Only the attacker was killed. A man threw a grenade onto the grounds of the in busy and killed himself with another explosive device. Embassy andf the killed himself with another explosive device. European regulators over the crackdown on tech companies, google, apple, and facebook are some that have run into trouble with the eu. Antitrust enforcement should not punish success. Investors at the bank of england as mayse rates as soon have gotten a boost. The long expected pickup and wages is taking root. It has risen to 83 . Global news, 24 hours a day, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. Is raisinglatvia questions about the european Central Banks ability to do its job. Their Central Bank Governor was released on bail after being detained by the nations Anticorruption Agency on suspicion of securing bribes, a charge that he denies. Guy johnson will speak with him p. M. In london. But will you ask him about why he has not said not stepped aside yet . Guy he has spent the bulk of his career building the Latvian Central Bank of where it is now, seat at the eu. He finds himself in a position where he is the story rather than the central bank. I have to wonder if it is possible if you will be able to and maintain the credibility of the institution. He denies the charges work. He is refusing to do so. The question is, why not . Why is he more important than the institution and not stepping down . That credibility also goes to the ecb as well. Francine how big of a credibility issue is this for the ecb . They are a credit supervisor. Will we see mario draghi moving to remove him, or is it not his jurisdiction . Guy that is not Mario Draghis role in the process. Im interested to hear if the governor has had a conversation with mario draghi or anyone at the ecb to explain what is happening. The ecbs credibility is on the line to a certain extent. It is important also because other countries are potentially looking to join the eurozone and this may or may not affect their ability to do so. Seewill be interesting to if the ecb wants that in twice shy baltic a different view in countries gaining seats on the ecb governing council. Surrounding what is happening, the credibility of the latvian centralbank, the latvian legal system, and the credibility of the euro area to a certain extent. Tom what is the view of the bank from the politicians in latvia . The independence of the central bank should be absolute in theory. It is operating in the eurozone. It should be an independent central bank. Of whatpart and parcel is going on. There is no difference in theory to any other bank within the eurozone. You have to see it within that context. Tom will this get fixed in the days, or go on and on. Guy i simply dont know. That is what we will try to get to today. If he steps aside and lets the process unfolds, this will move further into the background. In placeys with him and not traveling to governing council meetings, it will stay urner andont b could take some time. It is not been fully charged yet, so were waiting to see how that enfolds, but the ecb would like this to disappear further into the background of the news cycle and not at the forefront where it is now. Thank you. Guy johnson with the interview of the week. He will speak with the latvian centralbank governor on bloomberg daybreak americas. 8 30 in new york, 1 30 in london. How much focus should we have on this as to try to understand does itbs role hurt credibility or something the markets will look through . Will lookrkets through it. In the ecb they care about one thing. And whatomes to an end happens to Interest Rates. I expect we get the minutes at 12 30, look for a signal that asset push stops in september. It is hard for the ecb to switch given the strength of the euro upswing and looking at the first hike in march of next year. Geoffrey this will probably be painted as an isolated case pertaining to an individual and a country on the margins. We know that there is a lot of andn up ahead with the ecb leadership, but i think euro traders right now are focused on the italian elections and the spd vote in march. Francine lets not talk about polls, but it could be difficult to form some kind of government . Geoffrey if i had to pick between the market view on the italian election and the outcome of the spd in germany, it is er attractinglatt more attention. Unstable italian market is a given for the market views and will be sorted out in the end. It is a known unknown. But this is something a new. Whether that can prolong uncertainty and germany, that defensive nature is coming into play. Tom the political soup we are in, i guess italy is the latest focal point, do think it is all clear for europe . Do you believe in a sustained Economic Growth recovery for europe . But whenever it comes to a large group of countries having to cooperate, in a way the politics always have to come first. I think that the italian election is less of a risk and it would have been a year or two pen issue ine le france with support leaving the ,uro not gaining much traction the five star party might be flirting with the idea of having a referendum and have backed down. The chances are that the parties will be so hamstrung they will not have the power to make Major Economic or political policy changes. When it comes to the big issue, it is germany. If we get clarity that they will injure another grand coalition, i think that markets will relax and take a positive 23 year view on the upswing. Tom what is your call on euroyen . What is your call . I favor euro upside. There is an economic case that they are going back to the point of the eurozone recovery. Even when the eurozone is in recovery there will be divergence. Italy going up 1 , germany going averagef that is the that generates divergence and could be problematic if the euro continues to strengthen. Francine there 10year and a german bund, where does it go next . Theum it tells us that u. S. Cycle is more mature than cyclerman cycle, the euro more broadly. Probably by two years. What this tells us is that markets are ready for shorter and the sooner monetary tightening in the u. S. And more inflation risks because it is and mature than in germany the wider eurozone for the ecb can go slower and has more Spare Capacity to play with so they dont worry so much about inflation risks. Right now, howcs does the u. S. Yield story fold over to europe now . Kallum what we would be concerned about in europe is that our cyclical upturn will probably not reach its full maturity because the u. S. Cycle is so far ahead, two or three years. The longer end of the curve in the u. S. Suggests markets are expecting more inflation and productivity growth. That would mean ultimately that the cycle ends sooner. We worry that if anything that happens in the u. S. And i wouldnt be worried about that 2020 orould be thinking 2021, that would be it for europe. Tom so many nuances here. Next, kate moore will be with us and hans humes of greylock. Stay with us. Yields higher. This is bloomberg. Taylor this is bloomberg surveillance. Lets get to Bloomberg Business flash. Equity firm is buying a chunk of the European National gas company paying 4. 7 million for a stake in gas natural. They own 20 of gas natural. Repsol has been considering the sale as they invest in renewable energy. Teaming up on self driving cars. There are few details about how toyota and uber will collaborate, but they has been active separately. Ceo sees Better Things to come. They posted fourthquarter trading revenue that fell less than expected and they are increasing dividends and made buyback shares for the first time in more than 20 years. Is that we ended the restructuring of the bank. There are no more assets we are looking to sell or businesses were looking to close. We begin 2018 with a clean operating model for the first time in 5 years for barclays. 2017 with a Strong Capital position, the first time we have done that in a long time. Thell enable us announcement we had this morning that in 2018 we plan for a dividend more than double of what we paid in 2016 and 2017 for our shareholders. That. L good about for the first parts of january and february, volatility came back, as some of us thought it might. That is good for the markets early to but is too give any indication, but the early start is positive. Francine thank you, so much. Barclaysng at the share price. Is this on the buyback or because they are seeing a better start to 2018 . It is a combination of both. Investors have looked through the banks problems in 2017 and are looking at the outlook. The first by back in 20 years, doubling the dividend, performance being better so far this year. 2017, it was a messy year with major litigation cases going on. The ceo was caught in a scandal after trying to unmask a whistleblower, and the trading performance was quite bad for the first three quarters. On the shareslook rather than performance. Francine barclays, the 2012, it does not make a trend, but can he start focusing on growing the business . Is that thanks to volatility that we saw in the market . Stephen this has been his mission since he joined. I have to clean up mistakes in the past. Now he has the barclays that he wants, and he has to show that he can make that profitable. It is an ok start. Tom the chart that francine p d is a textbook textbook tenet. 2019 or it bear out in 2020 . Where does his barclays fit in . Big question is whether he can show sustainable improvement in the Investment Bank and get returns above 10 , the bare minimum that an Investment Bank is expected to own in todays environment. Tom i dont mean to interrupt, but new york is gaga over the fortress dimon that will be built. Every floor will have 14 bloomberg terminals. I love that. What will barclays be like when that building is done in 2024 . Stephen barclays is doing the opposite, shrinking its real across londonnt and squeezing employees into the tower on canary wharf. That will be less glamorous than jamie dimons. It will be smaller and more focused. It will probably still have an Investment Bank, but will not be competing with the jp morgan and the rest of the big players on wall street anymore. Thank you, so much. Our blackbird banking reporter in london. We will be back with kallum yu. Ering and geoffrey you log onto tv and the message tom and i threw the theen and i through screen and will put those questions to kallum and g eoffrey, this is bloomberg. Tom bloomberg surveillance. Francine lacqua in london, i am tom keene in new york. All eyes on burgeoning fiscal policy in the u. S. Chargelets bring up a of twoyear yields that shows all of that gambling in the short space, up, up we go in yields, overshooting off of 2 fed meetings is go. Do we have a point where trades are so bad that we are actually going to cover full faith and credit and see even more acceleration higher . Geoffrey i dont think we are there yet. You need to see inflation and investment growth overshoot lofty expectations. Look at the response to the cpi number. Stronger than already lofty expectations and beyond an additional dip in the futures market, wall street was more than prepared at the end of the day. It will take a lot to shock thi ngs. Tom with that in mind, where will you look for inflation . Which part of the inflation matrix will you look at . Kallum anything with domestic and Services Inflation is optimistic. I am a hawk generally, but i look at yields and general gdp low. Eel like they are too there is a high demand for saving in the Global Economy keeping yields down relatives to the inflation and productivity expectations. I worry about imbalances in the economy. Seed for imbalances to grow. Rather than yields coming up too high, i worry they dont come up enough as Global Demand strengthens. Francine what would the imbalances mean for the markets . What happened 10 to 15 years ago when you have massive accumulation of foreign account surpluses and reserves by asian Central Banks. Pickinge surpluses are up, but there is no sign that the reserve accumulation numbers are rising. That will allow yield curves to steepen, or at least you wont see the inversion that we saw. China, one of the biggest sources of imbalances, is opening its accounts more. I am less worried about the story at this point. Tom mood love to do this way we get market strategists and economists together to fold and where we are. After the yield move yesterday and the stock market plunge after 2 00 p. M. Yesterday will stop that means it is a good time to consider a conversation with Kate Moore Blackrock on the equity markets and their correlations to the other Asset Classes. Stay with us, from london and new york, this is bloomberg. This morning, yields move higher. 2 00 p. M. Yesterday, stocks plunge. In this hour, kate moore of blackrock. Your opportunity. Once yourtrump daughters french teacher to carry a smith wesson and return fire when necessary. What a day, yesterday. I am tom keene. With me, Francine Lacqua in london. Really extraordinary in washington, to see the debate on gun control get so emotional, so personal. It is a uniquely american moment. Francine it is. It does not translate in europe. There are questions in the u. K. Guns have been banned for a long time. Most Police Officers do not have guns in that is very different from france. Everyone is watching, but cannot quite figure out how you are dealing with it. Gdp revised down as consumers were hit by inflation. Tom lets get to a news update on washington with our first word news. Taylor President Trump is promising to act quickly to prevent more School Shootings. Solutions, letting teachers to letting teachers carry guns to confront attackers. He met a group of survivors and parents of victims at the white house. Spoke today in tokyo, endorsing a gradual path for raising Interest Rates. And businessesrs are feeling the squeeze of higher prices. The u. K. Economy expanded less than estimated. Gdp was revised slightly downward. The drop in the pound following the brexit vote is driving up prices faster than wages. Time forxit decision Prime Minister theresa ks cabinet theresa mays cabinet. She needs an agreement before making a speech, setting out her plan. Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. Riggs, this is bloomberg. Bonds, bonds and more bonds. The vix is not move that much. 3010. Rom 30. 10. How is the curve . Francine very similar data check. Global stocks are down, today. Worrying about Monetary Policy. European bonds are a little bit mixed. 131. 93. Euroyen at one of the applied realities of higher yields, we have not shown this chart in ages, 30 year fixed mortgage. Down we go. How unusual to see rates this low. Newill get a printout with 30 year fixedrate data. Francine this is what i am looking at. I changed my terminal to reflect treasuries and the 3 goal or aim that the market is watching out for. You can see it is quite significant and has been widening since 2012. Tom with us this morning to translate inner equities page space and across all Asset Classes is kate moore, blackrock chief equity strategist. Is yield now a competition for dividends . Kate i dont think quite yet. In the u. S. , we will see significant increases in payoffs because of that tax windfall. Ratesre a level at which compete with Dividend Payments . Tom there is a path looking down transports and utilities. What did dow utilities or s p utilities tell you . Kate what you are seeing from Price Performance what is going to cushion you in the next rapidf, especially with repricing in the term premium. I think people need to rethink what safety means in a portfolio, and that some of these higher dividend paying stocks that do not have the ability to keep up with inflation and not have and do not have strength of their own. Where do you see the 10 year yield going, and is there a danger that if it touches 3 and goes back down, it brings volatility with it . Kate i think the speed of the rise in rates is what we have to worry about. A slow grind higher is what we are all expecting. Rather than today, and what i am watching very closely is whether or not companies change the way they are thinking about funding themselves or if there is a shift away from debt in terms of capital. Tom we have shown this chart a million times since 15 days ago. Where were you . Down we go on the dow. This is a deceptive chart. 19. 87 percent down there, and we have come to this correction level where we are nudging along. Do you care about this . Investing versus speculating. Do you care about the zeitgeist . Kate you have to sort of care. Against that backdrop of the market softening and volatility rising, we had extremely strong Forward Guidance from companies, really solid economic data. The macro and the fundamentals were in place. We have taken down multiples a little bit and provide investors a longerterm view, an opportunity to buy. Tom where you go to see the new corporate dynamic . Is it leveraged down the income statement to a better even. Growth even dot growth . Was one of the things i positively surprised about in the Fourth Quarter earnings season was how strong topline was, how Strong Revenue was. Tom we saw that with honeywell. Kate at the same time, you see Different Companies continue to control cost. You are getting good bottom line as well. You are going to see this nice and a from the tax side real focus on what is the right type of investment to lead along. Rome, it is not retail or somebody worried about their 401 k . They are already 200 basis points behind. What do you tell conservative isg island by side who behind the eight ball . Exclusivesurveillance kate what we tell clients at this point is not to panic, but to stay focused on fundamentals. In the equity market, i think translating the information we have had from companies over the last six to eight weeks and expectations for 2018 has confirmed this scene, more room to run. It is not just about stimulus. Francine a couple weeks ago, we had quite a lot of volatility. If you look at the s p 500, it was a pentup lack of volatility. Are we definitely going to get more . Kate last year was a almost uncomfortable year was an almost uncomfortable year in terms of lack of volatility. The fact that we had a spike this year should not throw off longerterm investors. When you are buying the death, make sure you are focusing on quality, not just buying the stuff you have without thinking about the last 10 years, who has longterm Sustainable Growth and it was going to benefit from the stimulus we are seeing. Tom nobody cares about the market. Eventually, blackrock will be moving to hudson yards. Tom the political answer from kate moore. All that all of new york shocked by what we will see out of jpmorgan. The construction site known as midtown manhattan. Blackrock will move over to the westside. We will continue our conversation. Weve got some really good guests to get into the nuances of the market moves. We will consider european telephone. Tmobile as well. Stay with us. Taylor this is bloombergs business flash. The Company Reported fourthquarter earnings that missed estimates. Ford has ousted ahead of the region were makes the most money for inappropriate behavior. The north american chief lead left the automaker after an investigation. They say he engaged in behavior inconsistent with more contain more clues about the 87 87yearold billionaires succession plan. Now let the speculation that they are the frontrunners to be berkshires next ceo. That is your Bloomberg Business flash. Tom when the heart break is so great, the sadness so great, you have to find some humor. We tried to do that at the top of the show, the idea of weapons our schools, i guess theyre going to have to return the fire. New york times has a great article about a teacher in mississippi who had to do that 20 years ago. Kevin cirilli is our chief washington correspondent. It was not funny, yesterday. The body language in that room with the president was atrocious. Who came out of that meeting on guns politically enhanced . Kevin i can tell you that while that meeting was going on, hundreds of students were protesting outside at the white house against gun violence. Students in florida have also been making their voice known. There are several policy issues that have emerged as potential options. The president endorsing an idea to arm teachers. This has long been a proposal put forth for several years now by the nra. It comes at a time in which schools across the country, some schools are agreeing with them. There is a school in pennsylvania, virginia, and this issue is trickling down and becoming a local issue as well. On the flipside, you saw last night at a remarkable town hall, senator marco rubio breaking on several key issues with the nra despite taking money with them. Issues like raising the age to purchase a weapon. Next week, i think you will see some bipartisan legislation. Tom i have heard it before and so has all of our audience. Mr. Rubio atefeat it if he decides to leave them as a litmus test of this National Outrage . Will mr. Rubio go down in flames . Kevin i think the nra has those that they go after who disagree with them. Get done here, i am going to head to a conservative gathering and you can bet the nra will have a presence there. There are a lot of people in the conservative party who agree with them. Just this morning, the chairman of the Freedom Caucus tweeting out his support for the nra as well as senator rubio. Francine what will change . We are looking at it from afar. Beyonde debate shift Arming Teachers . Kevin will it shift . Moment,this particular compared with the other Mass Shootings that i have covered, i dont want to say it feels different, but i think the urgency from the students is really forcing the issue. I can tell you that later today at the white house, the president will hold a listening session and that when Congress Comes back on monday, you can fully for senator rubio and his democratic counterpart to introduce its laois and. Introduce legislation. Francine will anything change unless the president gets behind it . Kevin i think his support of banning bump stocks and i think it would be highly unlikely that his support of Arming Teachers gets through at all. Tom i want to change gears here. We are beginning to see analysis of fiscal policy of the country which affects all of our guests and listeners and viewers. Debtublic deck works works out. I have never seen that number, before. Is anybody paying attention to this in washington . Kevin no. I will be very blunt on this. I think you hear it from a faction of the conservative party and a certain faction of the democratic party, but the debt issue is not what it used to be several years ago before the 2016 cycle. Tom mayville maybe we will be like venezuela. We will discuss that with mr. Humes here in a bit. Daybreak,on bloomberg talking about deficits. Always a good time tos time to speak to the doctor from pennsylvania. He is the chairman of mr. Trumps economic advisers. Tom a surveillance exclusive. We need to say thank you to our digital team. Every day, they work to get the message out. We tried to use twitter we try to use twitter as a positive item. Beers we think debeers for bringing us together. Terms. On speaking kate moore with us from blackrock, hans humes from greylock as well. Funny, the social damage in venezuela is profound. How does it fall into the debt market . Hans below first for the low price lapses and in sanctions hitting cranked up on venezuela, coupled with a call to get restructured by the government. Prices of venezuela debt collapsed, traded down to the 20s and at that point, rid of thate to get debt and give it to you . Hans it is just like any other emerging market country where you get the long only index tracker. When his role in whether was a part of the index 10 years ago. People with bonds posted default and need to sell. We just provide the bid. Of venezuela, this was a very wealthy country 20 years ago. The eventual recovery is going to be much higher than where it is trading now. It is just a timing issue when clinical be a transition and a return to the mainstream. Francine is it a frontier market . If you do invest in frontier in general, what kind of return can you expect . Expect about a 100 return, conservatively. It is a matter of if it is going to take a year or 10 years. If the country decides to go the way of cuba and just exit the International Community, it is going to take it well for this to play out. Tom how do we take advantage of this . We have a blackrock etf, passive or active, can we play in the space or is this only the esoteric world of a guy like hans . Kate we leave debt and specific countrys to our specialists, but there are ways countries to our specialists, but there are ways. Tom we are at 100. Hans is buying this garbage at the 20s. We dont even have to make it back to 100. It would be nice to get back to 40 or 50. Kate we are being opportunistic in trying to figure out what is real value. Its the key to making money. Tom stealing ideas, here. We will come back with hans humes and kate moore and look at the value trap and bonds and bring you over to the equity Market Analysis as well. Coming up later from Deutsche Telekom, tim hoettges will join us to speak on Global Telecom as well. Equity markets are self, yesterday, bigtime south, yesterday, bigtime. Today, stability in the markets. Stay with us. This is bloomberg. Tom it is a washington consumed by domestic politics. The president will take time out to meet with the leadership of australia. I believe it is in australia where we do not have a u. S. Ambassador. That speaks volumes. Good morning to washington. Those of you in washington, good morning to you. Right now on first word news, here is taylor riggs. Taylor President Trump make it some help from astoria to fix our bridges and roads. He will meet with Prime Minister turnbull today in the white house. The u. S. Embassy in montenegro was attacked last night. Only the attacker was killed. Authorities say a man threw a grenade onto the ground of the embassy and then killed himself with another explosive device. No one else was hurt. The trump administrations top antitrust enforcer is footing with the European Union regulators over the crackdown on tech companies. Google, apple and facebook are some of the companies to have runins with the eu. The Justice Department says antitrust enforcement should not punish success. Betting that Interest Rates would increase are getting a boost. Hike hasof a may rate now risen to 83 . Global news, 24 hours a day, powered by over 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you so much. Lets get to Deutsche Telekom, reporting earnings that missed analyst estimates. Growth, you look at the european market, it is at the heart of the companys strategy to sell customers bundles of landline and Cable Services broadband services. Tim hoettges joins us. Let me kick off with the u. S. Are you interested in expanding in the u. S. . If yes, by how much and would it be through mergers and acquisitions . We are expending in the u. S. , bigtime. 19 quarters in a row now, growth with customers. We have expanded our footprint which is on par with our competitors with the new spectrum we are deploying, much higher than anyone else in this industry. This is the growth we are planning. There are no on organic moves we have planned there are no unorganic moves we have planned. Francine there are a lot of rivals going into that space. Why do you want to be in it . Products moreur excited. Productivity from all over the the thingsontent and which are entertaining for you, we have bought tv and video platforms which is helping our customer easily access all of this different content. It is mainly for free, like our netflix offer we have in the u. S. Which is included, and highly attractive to our customers and widely received. It is a kind of added value to the classical mobile connectivity. Tom i want to bring up the chart of the path of Deutsche Telekom. It is not pretty. The boom in the 1990s, a lot of other charts look like that. On a longterm basis, it has been a struggle. You are consolidating in europe. Maybe aged us is maybe a jettison of the tmobile idea, but what are you consolidating two, in europe . If Deutsche Telekom brings it home, what are you bringing it home to . The first thing is, when we the story was in 2030 when i came into the office, we said what we have to do is we have to invest into infrastructure because the network is our biggest skill. German engineers, it lets us control and understand and we were investing much more than anybody else in this environment. We want to convince customers that we have the better infrastructure, the Better Network and the better access to data. The customers appreciate it. But as the only struggle with doing that. Home,e want to bring first, we have the best network and we are winning every drive test in our area. Second, we want to become , sovant for our customers we are driving internet of but weand long term, need is a much more stable environment for the infrastructure that we could offer convergence for all of our customers. Wrong ons completely the guy with the magenta shirt at tmobile. It has been a success for deutsches but fertility for tmobile and Deutsche Telekom. Dynamic when you are bored versus what Deutsche Bank has to put up with . Is your board behind you to make tough decisions as you consolidate . Have 220,000 people with magenta blood. We are brothers in mind, how we drive the company and our board is supporting what we are doing. I just renewed my contract for another five years. I get a lot of appreciation from the environment and we are doing things that are right for our customers and for the business. The way of investing a lot of more than the rest of our competition, that is the support we are getting and what we are doing here is the same thing we are trying to drive in europe as well. It is unique what is happening in the u. S. , unbelievable in turnaround. We are the Biggest Telecom operator in europe. Francine talk to me a little bit about the u. S. Versus europe. Is the u. S. Seeing a bit of slow down or are you doubling down on europe . Tim you have seen the guidance of our team and we expect another 3 million new customers coming in throughout this year. Last year, the big increase which we have seen, both on revenue and more than 10 growth. All the other carriers in the u. S. Are shrinking. We are the only one growing and we have just started. From 230 million folks to 300 million. This is a big potential for growth. I am very excited about how our u. S. Team has positioned with great network, superior customer service, added value like content. This is going to be successful throughout 2018. Francine certainly a cheerleader for your company but crosse technology, you benefits between tmobile and Deutsche Telekom. Tim we are engineers by profession. I can tell you, there is nothing happening around 5g that we do not know. We have a lot of trials and industry, autonomous not want to go into the specifics, but we specifically understand from edge computing, we know what is needed. We are testing in the u. S. Market as well as the european market. That is the advantage of having 75 billion companies. Way. Ll find our own this is something that the u. S. Team will do it the right time. Tom mr. Hoettges, thank you so much. He is the chief executive officer of Deutsche Telekom. With going to come back kate Moore A Blackrock and hans humes of greylock. We will look at the equity markets and what that means for higher yields. Your morning brief on radio, coasttocoast and worldwide. This is bloomberg. Taylor this is bloomberg surveillance. Lets get to the business flash. Cvc Capital Partners is buying a chunk of the European National gas company. Has been considering a sale while it tries to raise cash and invest in renewable energy. The worlds biggest carmaker and the biggest ridehailing company are teaming up on self driving cars. There are few details on how toyota and uber will collaborate , but both have been active in autonomous driving, separately. We have a bought a stake in uber back in 2016 toyota bought a stake in uber back in 2016. Tom i will plug my year now, as we are going where few tread, factor flows. Kate moore from blackrock has brought along a chart. We were debating if we were allowed to bring this chart show this chart on television. There is the dreaded word, momentum. This is a hugely optimistic chart about money moving. Discuss. Kate the big point on momentum is that what makes up most momentum indices actually has strong fundamental backing. When you look at the companies that have outperformed last year, a lot of them have secular growth, significantly increasing top lines, which is why they were leaders. We believe that the strong macroeconomic recovery that we are experiencing in 2018, as well as a very healthy earnings environment will lead to momentum outperforming once again. We are going to get drawdowns. That is part of the natural course of business. I dont think they are going to be sustained unless we shot ourselves out of this economic and market regime. Tom the math right now is very few companies are leading the way. How do you respond to the narrowness of that leadership and how does that folder back into the inertial force of a continued bull market . Chart i have another put out, talking about the sector contributions to momentum and the attributions and tech is a big portion of that and has been for the last couple of quarters. A significant portion comes from financials. From consumers. Francine, their end of the level three cfa clinic this morning by kate moore is certain selected people on the bloomberg Surveillance Team truly panic about level three, like june. Francine a subliminal message, get back to your books if you are studying for level three. If you look at technology and you look at the bigger trend of transforming the way that we use transports and driverless cars, how can you take advantage of that trend now driverless cars, how can you take it vantage of that trend now . Kate we are seeing a broadening out of the sector opportunity. As we look back at how companies are talking about spending their tax windfall, an increasing number of them are discussing increasing their tech enterprise men enterprise spending. You dont just have greater consumption of silica and or social all of silicon and social media. From a sector perspective, it is one of our favorites and we dont just highlight the new technologies, but also look at some of the more traditional parts of the sector. Francine we had a great story buying cobalt directly at the source. Do you need to look and tech look at tech with cobalt . Are you looking at cobalt producers as a secondary effect . Ate we need to Look Technology across all the major sectors. Which companies are harnessing technology to take is this to the next level in which are going to be left behind. While we are constructive on equities, being able to really differentiate between the winners and losers about how they think about their supply chain or using technology is going to lead to the generation. Tom lets get distressed with hans humor hans humes. 10 corrections once every two weeks. Hans it is kind of nice to watch it on the screen every once in a while and see everyone run around with their hair on fire. Tom that was an hr issue right there. How do you respond to the frenzy you see over small pullbacks in the equity market . Hans my hair has already burned off, so watching other people these small the to these small moves in my view. I think it is healthy. I am not an equity guy. I am very much removed from the u. S. Market. When people start getting a little spooked, track it and make sure you keep tabs on when the sentiment overflows becomes a general risk off market. Kate that was very much a sentiment issue and when youre looking around blackrock and my colleagues on the street, people did stay relatively calm because the macro data was really strong and the earnings numbers were really solid. That is always the key, what is going to be sentimental. Hans it is an interesting dynamic between shortterm and longterm and medium term. The tax plan provides a real boost to equity. You did the overhang of the deficit and adding fuel to the fire, what is the fed going to do and how is an equity market going to react . Tom that sets up our next section, so lets go back to the deficit. Kate moore and hans humes as well. Take a look at tv. Blackrock deciding which Corner Office you are going to have at the new hudson yards offices and you are watching tv , trying to get briefed by kate moore. You need to dazzle her. Get smart on Deutsche Telekom. Steel that chart and show it to kate moore. This is bloomberg. Tom good morning. Francine lacqua in london, i am tom keene in london in new york. Single best chart, it is all linked together. This is a chart that goes to our morning mustread on where we are on the debt. We showed debt chart one, debt chart two, debt chart three. This is what you need to know, this is the debt of america as a percent of our economy. Humes, 40 debt. This is not Ronald Reagans debt in 2018, is it . Hans no. Just getting the obvious, it has been a phenomenal change to get off message about the debt and what im curious about is in the midterm elections, if you get a group of democrats running as centrists who start calling into ,uestion, entitlements unrestrained defense spending. Thatsul and some of the you are running for congressional seats on the democratic side are together in terms of what kind of scrutiny the pentagon is going to get. These numbers are off the chart. Tom when you sit of blackrock and you are not deciding what Corner Office you are going to have, you sit around the table, how do you fold in this chart . Kate it is a real concern. To equity big risks markets this year is what happens in terms of the pace of Rate Adjustment and also how much it adjusts to reflect issuance and centralbank language. They were talking about whether or not emerging markets to sign to continue to recycle their excess. That is a very different environment and equities are not going to be perfectly inflated from sharp moves in the bond market. The one thing i want to say, when we look at corporate Balance Sheets, they are less sensitive to rising rates in the near term. While the stock of debt is higher, especially for u. S. Corporates, the sensitivity to higher rates just is not there. Perspective, it would be concerned if we saw a huge move. Tom francine . Francine hans, i want to ask you, there is something you need to make better investment decisions, what is it . The outlook on inflation or Something Else . Hans i read Randy Quarles comments and i tended to agree with what he said, yesterday. The balance is if you get a equity market selloff that reduces expectations economically, that will allow them to stick to the three hikes plan. Oryou get more than three instead of 25 basis points, 50 basis points because the fed has to catchup to a growing economy, that is going to make us take a step back. What we try to Pay Attention to is when the market changes from risk on to risk off. Francine kate . Kate i have to say that we are going to see a couple more air pockets in 2018, in the equity market. Some of that may be caused by adjustments in rates. I would focus on the fundamentals this year. The earnings picture looks very strong. We dont think we are at the end of this bull market and we recommend investors continue to add to risk. Tom thank you so much, hans humes from greylock and kate moore at blackrock. That is the science of investment. I want to let you know that bloomberg is dazzled by what we are doing in space. We will have complete coverage of the spacex launch. An extraordinary thing that we saw a few weeks ago. We will try to give you a good coverage and some need features of what mr. Musk is doing in space. In foreign exchange, not much move. This is bloomberg. Continuing the current path that we are on. Alix hawkish or dovish . Markets confused and they came up empty. The ecb could be to blame for the powerful selloff in the bond market. Shareholders how to woo shareholders. David welcome the bloomberg daybreak on this thursday, welcome to bloomberg daybreak. I dont remember a lot of people trading on the ecb account. It feels like we are developing into a risk off feel in the markets. S p futures trying to eke out a gain. The eurodollar is slightly higher, previously flat. A broadly mixed dollar story. The dollaryen moving