inister moments ago. caroline: he is back to make an grem to put to the u.k. voters. he will only do a deal if it is what britain needs. if get what is the u.k. needs. the pound trading lower versus the dollar at the moment. tom: we welcome you to our first word news. >> a couplor headlines crossing bloomberg now about the u.s. government. the u.s. government memo shows world strategy to access phone data. the white house is having meetings on encryption. we'll continue to update you on that. the meeting in brussels, the british prime minister is pleading far deal that he can take to british voters. eastern european leaders don't ike his demands. plans to protect london's financial industry. rance is willing to relax -- pope francis is willing to relax birth pposition to control. the u.s. says that defeating the islamic state is the overwhelming prort. a new bloomberg politics pole shows that hillary clinton holds a commanding leevered bernie sanders in south carolina. a 3-1 lead among african-americans but sanders leads among white voters. that could be a warning sign for hillary clinton. nal polls suggest nevada's caucuses could be a close race. when president obama goes to cuba next month he will meet with raul castro but not fidel. he said he will raise human rights issues on the trip. tom: thank you so much. let's get the data check. you heard me say the phrase indeterminant. that changed yesterday. it is very important. it is a deceptive friday. there is a lot going on. let's run through it. the euro 112-11. stronger dollar. eelt to that in a bit. now it gets interesting. the vicks coming in with that better stock market. -- vix with the better stock market. negative 0.53 on the german two-year. geelt to that in a minute. aroline, it is a subtle market caroline: it is. tom, we are on track for the best week since december 2011 and i see your vicks and raise you the european equivalent. we are also down 2.3%. on the pound trading lower. we have some concern about this elongated meeting in the e.u. with brussels. david cameron sounding optimistic saying he has made on the u.k. deal but will only do the deal if it is what the u.k. needs. meanwhile kering, it is u.k. fashion week. have to focus on gucci. it looks good. the stock is up. tom: i can see you in gucci. caroline: i wish i could see it. tom: let's get out of this quickly. we're going over to the bloomberg -- here it is. i didn't know how pretty this chart would be until i did it. this is a u.s. two-year yield and german two-year yield negative interest rates. the quiet news of the week. here is that hope and prayer of the fed raising rates, three, four, five rate hikes this year. we have given up so much of that. this really bears watching. caroline: commerzbank saying they are in the waiting room to the e.u. decision. tom: it is a really interesting soup this friday morning. an indeterminant week. we go to chinass right now. caroline: we do. that was a focus when we got into european trading. the central blank increase requirements for reserve some banks but they must must lock away this capital. a record 2.5 trillion won in new oans in january. what thuzz does this mean? they are trying to get a grip on perhaps more risky loans. too much debt being fueled into the equation. s&p already warning about this. >> good morning, caroline. indeed, look at -- an instration of the kind of balancing act that china's central bank is trying to carry out here. we all know their economy is slowing. to juice it up with in loans. the banks are lending. they are getting funding from the local governments. people are being put to work. at the same time china has an verhang of a bad debt problem. they don't want to go down that road again. they don't want to play that play book in totality again. it is kind of a balancing act that they are trying to do. that's why we're seeing the tweak to the reserve rate . quirement for the bank tom: i know you're going to take off four or five thundershowers friday evening. there is always surprises this china over the weekend. what should we look for over the weekend but particularly into the chinese monday morning? >> we're heading into an important week next week in china because they are hosting the g-20. we're starting to see quite an increase in the communications and rhetoric interest the top chinese officials. for example, the people's bank of china governor broke a month-long silence last weekend to talk about the currency. he is out again today. watch as we head into next week and the g-20 "meet the press"ing commentary on the yuan. caroline: the pboc coming out discussing potential moves. how are you negotiating this balancing act to put it so well for us? they are giving with one hand and taking away with the other. what are they trying to support? the chinese economy? >> they want to spin this into a good thing or a bad thing. on one hand they are quite hawkish. they don't want a repeat of the 2009 credit stimulus. the whole world has been scream where is the demand coming from? we may getting some evidence of that demand. that may be a good thing they are trying to calibrate things very carefully now. if demand is coming through, they may may be willing to provide lick witty. witty. -- liquidity. keep it going. that is going to weigh on the currency as well. a balancing act. i think the next phase is march. if we have credit demand right now foreseing upcoming growth and the government can play ball as well, i think the market also start to take notice. caroline: you're sounding pretty upbeat. the you're a man who cut his teeth in the fx market. are they steering long-term depreciation story the right way it some support this week? >> as we all know, that was break of silence recently. that is no basis for significant depreciation. i think now it is about trying to guide it stronger, pushing back against all the negativity in markets and they mentioned speculators in the article. if you're going to take us on, you're going to lose. they can contain the market. to challenge those c.n.h. positions as well. get xt stage is can they the conditions going having warned off the idea of foreigners tom: jeffrey, good morning. like your idea of a bank torn as we see with the pboc. down we go. an historic moment in 2005 where they depreciated. is is a gorgeous managed quadratic -- down we go again. the absolute one way -- for you, the weakness gets ever weaker. all my radar is up on that. help me with a one-way bet. >> one-way bet, we think of 6.8. overevaluation is in place. the pboc government is not pushing back against the depreciation expectations. it needs strengthen or anything like that. i think the spath clear. we want to depreciate the yuan. tom: help me here. why don't they do a jump position quasi devaluation, clear the markets so they can mover forward? what is the why there? >> i think they don't -- they have no confidence or not enough confidence that they can control the process. very simple example. much is enough, right? maybe 16.2% will be enough for them to say that is done. i'm going to buy now. what if you do 16.1. saying it is not enough. when you have close to 100% confidence, i don't think they are willing to go caroline: we'll have to see when they get the confidence to do that. we will be discussing so much more. jeffrey stays with us. coming up in the next hour of "surveillance," we speak with a ster about nce minute brexit and that s&p downgrade last month that had such an effect to the polish losses. stick with us for that onversation. ♪ tom: good morning, everyone. bloomberg "surveillance". caroline hyde in london. i'm tom keene. >> january was a surprisingly good month for british retailers perfectly sales rose the most in more than two years last month. the british government gives the credit to post christmas sales. the head of norway's central bank is warning of excessive use of the country's income. he said they may have to withdraw $10 billion this year. the funds have $810 billion in asets. apple has been given more time to fight against that court order to unlock an apple iphone. they have until friday instead of tuesday. a federal magistrate ordered apple to help the f.b.i. get information from the iphone of ers in the san bernardino massacre. caroline: let's switch gears back to the e.u. negotiations that spill into a second day. of course they are tired, exhausted. the men and women fighting for the future of the european union. hope not so tired, ryan chilcote for in brussels. we just saw david cameron arrive. he is sounding optimistic despite his exhaustion. what did he have to say? ryan: yeah, but i think the key point he made was that he will only do a deal if he thinks it is the right deal for the british people. yesterday we thought this thing was going to be a cakewalk. he came in here. now we expect to be hosting what they were calling an english breakfast. now it has moved to a belgian lunch because they were up so lite in the night. i think there is a sense that there will be a deal in the end. a lot of countries want there to be a deal but david cameron learn there are 27 other countries and each has their own idea how the deal should look. tom: ryan, who is driving the bus for europe? there are 27 countries, whatever it is. he is across the table from one person. who is that? ryan: right now he's going to be across the table from the president of france. the president of france doesn't like all the language when it comes to financial regulation. basically what cameron wants to prevent is the situation where the 19 countries that use the the 28-member club are able to dictate what happens in the nine countries in the e.u. that don't use the euro, i.e. britain. he wants to shield british banks from e.c.b. and eurozone regulations but the french are saying we want to make sure you don't get an unfair competitive advantage out of that. a lot of people think the french president is playing to his local press but that he intends to do a deal but he needs look tough and like he is pursuing . ench interests caroline: ryan chilcote, thank you very much indeed. let's get back to jeffrey. we have u.k. pound trading lower. you have a house call to go underweight at the moment. how much is this tied into the brexit? >> we have reduced our underweight equities. the temperature regarding an brexit is rising. look at the pound. look where it is. that is not a great earnings environment anywhere now. last year, the pound was a significant headwind. ow it is too early -- you have corporate earnings and so far no longer a headwind. a look at what happens in europe and japan, for example. i think the jury is going to be out. from e to differentiate the country's exposure to the domestic market. tom: interest switzerland or norway or denmark is my recollection. what is the unique fear of the united kingdom vs. other successful out of europe models? >> for i would say the scandinavian region, sweden, they are much more fearful of a u.k. exit because the u.k. has been a reliable ally for northern europe and scandinavia in such negotiations and they want the u.k. at the table. a lot of pro e.u. names in the u.k. will say look, switzerland has binding agreements with the e.u. anyway. that model perhaps is not the template. these countries would be lost. tom: we take great pride in pairing interesting conversation. we do that in the next hour. e're thrilled to bring you a guest with his view on disstressed debt. we'll speak more about the linkage of global affairs into your u.s. investments. it is bloomberg "surveillance." ♪ tom: it is a beautiful morning in new york. really been spectacular, folks. there straight ahead, the empire state building and very close, st. patrick's cathedral. beautifully done. if you haven't seen it in five, six, seven years, it is a gorgeousimp ty of white marble now. that gets us to our morning. >> that was so beautifully done. tom: it is true. it is gorgeous. i was standing at saks fifth avenue the other day looking over at st. patrick's. gorksd it is gorgeous. >> we have to talk about donald trump versus the pope. he case, you sf you like the nature of this case, the spat between the two. francis is the only man who could best flump a debate. you can't call the pope a person and get away with it. trump would probably cast doubt on whether the pope can be pope because he wasn't born in the vatican. there is comedy to this but it is also a very serious issue. the pope was responding to an ssue on immigration. tom: i'll be honest. i'm not up to speed on the nuance of this story. basically he said the mexican government possibly coerced the pontiff into these statements. not only did he go after the pope, he went after the mexican government. >> it happened to come as the pope was in mexico on a major trip. i love what has come since then. of the websites came up with trump tweeting back just before christmas 2013 saying the new pope is a humble man. very much like me which probably explains why i like him so much. talk a about flip-flopping. tom: who is over there, caroline? caroline: it is making huge headlines. south carolina going to the polls saturday. it is interesting from what i have read, it won't really affect the actual view on donald trump. you would have thought the head of the catholic church weighing in calling him nonchristian might have an impact but south carolina is largely protestant. it doesn't have much of an impact. tom: in the last election, caroline, 25% of the nation's catholic voters, the president took 50% of them. we're watching oil very carefully. 20.39. stay with us. good morning. ♪ . . tom: good morning, everyone. "bloomberg surveillance." markets not, equity showing much, but bond markets very interesting. bloomberg first word news with vonnie quinn. vonnie: tom, thank you so much. saidyear, the white house it would not seek legislation for tech companies to build a so-called backdoor into their product. what they did not know is that a secret memo was sent ordering them to find a way into the most heavily protected user datea of iphones and other devices. toederal judge ordered apple help the fbi get data from an iphone. david cameron is running into resistance. is british prime minister starting his second day of negotiations. european union leaders do not like his demands on non-european citizens. meanwhile, eu leaders are fighting again over refugee policy. greece is being accused of doing its borders. seal also in slovenia, they are accused of doing too much. germany will take in the bulk of those refugees. it is one of the largest private are deals ever. billionaire hedge fund manager ken griffin paid about half $1 oneion for two paintings, jackson pollock -- tom: my kids could do that! vonnie: the seller is the david geffen foundation. global news 24 hours a day, powered by our 2400 journalists and more than 150 news bureaus around the world. i am vonnie quinn. maybe i will be their patron then, tom. caroline? caroline: i cannot wait to see your kids' artistic bent, tom. let's bring you back to fx. we have got geoffrey yu with us of ubs wealth management. we are on course for the best month for the japanese yen since 2008. today, it is still up .25%. you say this time to go underweight the yen. when will this safety stop? geoffrey: if you look at the japanese call benchmarking their outlook, they are well below $118. they need to come up with something. they did do something, but it was uncredible. pinprick rather than a baseball bat, so they need to follow up on that. all of the currencies in the region -- what is china going to do? what is japan going to do? tom: ok, math guy, let's go at it. look at the quadratic nature of negative rates. here is a disappointment over the last week. there is the announcement, a little bit of yen weakening, and then massive yen strength below the $115 level. as a general statement, autonomic's wants to get to the green box. geoffrey yu, what i've learned in the last two weeks is you need a lot more evermore negative rates. that massive inertial force of greater negative rates. is there any theoretical or applied foundation to have the courage for massive negative rates? geoffrey: denmark will tell you yes, but they were trying to defend their currency box against the euro. 97% of bank reserves were charged negative, -75 basis points. japan starts basically from zero, might get to 1/3 by the end of the year. on a waiter basis, most are not being charged negative. if you are going to do this, you have got to come all in, and the doj is not doing that. -- and the boj is not doing that. tom: negative quadratic rates, all of a sudden, it affects society. what does it mean for the swedish people, the canadian people -- if they ever get there -- or the japanese people if you have massive negative rates? geoffrey: it will only start to affect them if you really start to see the banking sector tossed that onto mom and dad, toss that onto retail. basis pointsd, -22 right now. not a single central denmark -- we will only see it until we get there, but until we get there, central banks will keep trying. vonnie: we have a new financial indicator today. right now, for in-owned property company of tokyo has begun buying golf courses up because nobody is playing. their success is bound to be fleeting. geoffrey, let me ask you, where -- does the euro continue to see the end strengthening? geoffrey: that is something we have to look at beyond this year. the yen is clearly undervalued, even at current levels. as long as we do not get structural reform, at some point, if that third does not -- here's the markets the thing, if the boj does not go on, you risk a crisis in the yen. there is no guarantee the young will strengthen on the back of that. that is a tell risk we have to look into as well. the yanis fine medium to longer term. fine medium to longer term. tom: we heard that from michael porter yesterday. wenie: yes, and carl big heard from carline be g figures, a lot of pain in that trade there. do you think the reason this has already happened, geoffrey, is people are already position for where the yen is now? might be thet final washout waiting to happen. it is domestic. if domestics are no longer willing to go overseas and by assets, that is a problem. even toward the end of last year, you're going to see a lot of outbound m&a, japanese corporate buying up overseas assets. but that is not enough. if that chokes up and we no longer see the outflow, then a weaker yen will be harder to attain. caroline: luxury corporate, you see so many chinese buys in japan because of the weak y en. you have seen asian effects track oil lower. you have got the one desperately trying to intervene, to strengthen it slightly. we are off by .5% on the yuan. is the rest of the asian trade depreciation all the way? geoffrey: i think they are separate like the korea and the taiwan kind of edging. it is not have the great growth or demographic profiles. expectations are falling. you want to import some inflation, for example, so i think they need to make their mind up there. malay, indonesia, i think they need to prevent the currency prices more than anything else. tom: geoffrey yu, this has been a clumsy week. the one thing we have not seen move is oil. link oilu at ubs dynamics into what we see with a strong yen, what we see with lower yields off of yesterday? they are unlinked right now. how do they get back and think -- in sync? geoffrey: when you global oil to pick up. if that does happen, we know no longer worry about high-yield in the u.s. and long asian currencies versus the dollar, i think they continue to do well. secondly, what does it do to inflation? the risk right now, even if oil stays here, then inflation expectations come further down. corporate stash cash flows are improving. household -- that is improving as well, but they are not spending the money. we are waiting for the em consumption, but it is not coming up to speed as we anticipated. that is just as important. tom: i go back to one of our earlier interviews this week with the good stephen short of philadelphia, really encyclopedic on american oil dynamics. he says he has no clue which way oil is going if he has to nudge it, a further test of the downside. west texas, around $30 a barrel. coming up in the next hour of "bloomberg surveillance," an important conversation with the finance minister of olan, pawel szalamacha. szalamacha., pawel much more about poland's place within the new european union. stay with us this morning. "bloomberg surveillance." futures flat. ♪ caroline: welcome back to "bloomberg surveillance." alliance. -- germany, of course, is where it is safe. it is europe's biggest insurer. what is in a name? pimco is currently down on trading. we saw it actually placed andurth quarter increase, noticeably, the dividend was not good enough, even though the cfo told us it is a great dividend yield. the markets want to see more. tom: they want to see more. i would go to franklin templeton for some of the same challenges that are out there. it has been ok. i'm looking at the 10-year track record off the bloomberg. meh. it is sort of that kind of performance. what else do we have? caroline: i will get less meh with you. role.are on a , however muchows new york is, and the rest of the world is buying in. of theiroup, about 2/3 products, and we see the new ceo making critical acclaim. what the8%, double market had anticipated. tom: it is amazing that they have turned that around. it has been a troubled brand. for those of you a lot, all you have to do is look at the traffic outside any given store's window. in all seriousness, you see people stopped, and they are frozen in front of the gucci store on fifth avenue. vonnie: caroline, u.k. fashion week starts today because new york fashion week finished yesterday. we need to mention that of course as is tradition, mark jacobs finish off new york fashion week, and people were -- and twitter was allied with his strategy.sque and this is lady gaga, everywhere last week, the super bowl, the grammys, doing the david bowie tribute. tom: she has got the same shoes i have. vonnie: tom, put your feet on the desk. i want to prove that statement. tom: i cannot put them on the desk. vonnie: they are not the platforms she wore at the super bowl. caroline: she is rocking it, i have got to say. we will be looking all out on the u.k. fashion week kicking off. we have been speaking to the head of british fashion and talking up the growth we have seen. fashion technology is such a big area of growth as well. tom: caroline, what is the british icon's forward momentum? how is burglary doing? -- how is burberry doing? caroline: it has been so exposed in china. in the u.k., has been doing incredibly well in europe. it puts everything on the back in asia. they did not lock in the japanese trade. they were too late to the japanese trade, and of course the weak yen helping with the chinese tourists. they are very exposed at home, and sales are not going well when it comes to chinese buyers. tom: let's go to a data check right now. equities, bonds, currencies, commodities. things changed yesterday afternoon with lower yields. you really see that in the u.s. two-year, 72%. test $30hing oil again. caroline hyde in london, i'm tom keene in new york. stay with us. "bloomberg surveillance." ♪ oil,on the watch on american oil, west texas intermediate, $30.31. worth watching this morning. also on this friday, our bloomberg business flash with vonnie quinn. vonnie: property developers in hong kong are playing "let's make a deal," offering everything from iphones to wine coupon spirit analysts predict hong kong home prices will fall as much as 25% this year. it is the highest inflation rate in the world. venezuela -- 181% last year. venezuela released the figure today after president maduro announced a package aimed at helping the government raise money. the country has been hurt by the plunge in oil prices. owner of mcdonald's franchises in the u.s. are pessimistic about the company's turnaround efforts, like it's all-day breakfast strategy. according to a survey obtained by bloomberg news, only 14% think the comeback plan is working, and 35% are confident in the company's long-term success. caroline? caroline: thank you. eagerly watching brussels. they are expected to reach a deal in the u.k. with european union as soon as today. we are just hearing from the head of the eu at the moment speaking, saying there will be a deal done today. asp an eye on that as well inflation, expecting to have declined in january. tomorrow in the u.s. -- politics. south carolina holds its republican primary, and nevada holds its caucuses. let's keep this conversation about the u.s. now. you --stin geoffrey yu with us. the dollar strength, making back some of the losses we have seen in the prior month. what is your outlook when you have got political instability, when you are heading into an election in the united states? it is mainly about the fed. geoffrey: i think the that is not going to push back aggressively against the markets to attain expectations for rate hikes in the near future. are we seeing the transmission from the dollar into the outright weakness in the u.s. economy because at the end of the day, compared to germany and about wherell worry the dollar mexico is going. at the. manufacturers same time to the north and south, if they want to directly link the fact that the stronger dollar is starting to cause the jobs, but the fed is the same yet. caroline: at the moment, we have got similar coming out, it is time to rein back essentially on those rate increase potential that we are going to see for this year. you are saying they are actually quite pro from the u.s. dollar. are we going to see those backtrack? geoffrey: they will still say everything is data dependent. we will get a refresh. they will look quite different. caroline: you think? geoffrey: yes, but ultimately, it is about labor markets. market,r underutilization of the labor market, and that is starting to shrink. the trend is very clear -- it is going up. seeing how many jobs are being created, but why is that not translating into higher growth expectations? until that turns around, i do not think they will be too aggressive. tom: geoffrey yu, i love what you say about the adjacent nations -- canada and make go. -- and mexico. this is plaza court of the 1980's, and it shows where we are relative to those. geoffrey, i love what you say about the blocks of foreign exchange. the emerging market, hydrocarbon, the developed nation, yen, euro. which will win out of the different blocks of nations against the dollar? which will be the dollar dominant one movement -- which will be the dominant one in movement? geoffrey: the dollar is overvalued pretty much across the board, but where will that adjustment toward the dollar weakening happen? i think we need to look over the two-year horizon like the euro m the yen. adjustments are, a lot of savings are. session and a g-20 shanghai, and there is a racing talk about a new arrangement between the u.s. and every thing else. just like the mid-1980's, the dollar is too strong. you need to get back down. i think this is barking up the wrong tree when you look at what japan and china are looking at. there is a misconception in asia. that lead to three lost decades in japan. it went below $100. there is no appetite for them to repeat that again. i do not know where these expectations are coming from. tom: let's stop the show. this is so important, folks. here we are with dollar, this is the price-adjusted brought dollar. here is the massive dollar strength. the loop accord is right in here of theng the damage dollar. this is all ancient history back in the 1980's. so geoffrey yu and others at ubs a accorda court -- plaz or meetings of other convergence of nations is not going to happen, then what will happen if we do not have a plaza accord? geoffrey: right now until demand comes through, it is going to be the status quo. we mentioned em in asia. with the exception of the yen, it is hard to see the currencies strengthened against the dollar. sure, it is expectation, but then we bring in the new viewer, and has central banks exhausted their limits? you cannot rely on central banks to do the heavy lifting. even the fed, they are turning to all editions. look, we need structural reform right now. let's get our act together. we have some of that in europe. maybe in china up ahead. that will get demand up and get these currencies to strengthen. if there is any coordination, it is not the central banks -- it is global fiscal correlation. yields are so low. start investing. there is no appetite for that yet. people will to germany and say you are the country that can spend it, you can lift demand. why isn't that happening? vonnie: the real effective exchange rate, which is the one you look at in order to, and your opinion, tell us where the dollar is found in terms of world currency, and the renminbi, for example? geoffrey: right now for the dollar, the u.s. has its own $ index on the bloomberg. i think that is what they will be looking at. it is only against developed markets currencies. that will follow the line closely. severalsaying they have ascus, including the one they just launched, so that is important, but ultimately it is about the daily fixing. if it is to see exiting the country, and right now they are still worried. tom: jeffrey real -- geoffrey yu, thank you so much for coming up, hans humes of gray like capital. this is really wonderful. -- of greylock capital. this is wonderful. we will lock in the bond market of deutsche bank, on oil as well. with the reality of how to over this weekend. if a little bit of tension in the market, a little red on the screen. humes and moore next on "bloomberg surveillance." ♪ this friday, a flight to quality in the bond market. the german two-year at record lows. abenomics -- perhaps it fails. in this hour, we link asia .hallenges to distressed debt republican candidates telly different message in south iowa, and new hampshire. they are so last month. this is "bloomberg surveillance ," live from our world headquarters in new york. friday, february 19. i am tom keene. in london, caroline hyde. give me an immediate update on brexit. we will talk a lot about it through the hour. caroline: we are just seeing them in sco saying the year, the u.k. is better together. it would be a catastrophe if the u.k. did initiate a brexit, did leave the e.u. all eyes are on the deal. tom: headlines coming across bloomberg about every 20 minutes or so. right now, leading off with brexit in our bloomberg first word news, here is vonnie quinn. vonnie: david cameron is kicking off the second day of the e.u. summit with bilateral negotiations with other european leaders in brussels. eastern european leaders do not like how much demand for welfare occurs on non-british citizens. e.u. president martin schulz says he thinks leaders will get a deal today. a story raises questions about your mobile devices as the u.s. housement -- the white said it would not seek legislation forcing tech companies to build a backdoor into their products. thatthey did not know, is national security agencies sent them a secret memo to find a way to do so on iphones and other devices. this is according to people familiar with the matter. earlier this week, a federal judge ordered the fbi to get that from apple. apple says it will fight the ruling. the turks blame the kurdish group for the bombing in ankara that killed 20 people at least. the u.s. says that defeating islamic state is the overwhelming priority. clintonll shows hillary with a commanding lead over bernie sanders in south carolina. she holds a 53-31 advantage among likely democratic voters in the february 27 primary. among whites voters. it could be a warning sign among -- a warning sign about loyalties. president obama goes to cuba next month to meet with president raul castro. he will not meet with the leader of the cuban revolution, fidel. day,l news 24 hours a powered by 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. tom: we want to get to our two esteemed guests. , 1.1102. let's march to the next screen. , 21.22. the dow showing a list from team --up to 16,000 42 16,413. showing real yen strength this morning. caroline? caroline: we are seeing risk aversion heating up in european trading. the stoxx 600. we are seeing green banks with peripheral spreads blowing out again. our volatility indexes tracking lower. not wholehearted risk aversion, -- a bit of caution as we head into the second day of negotiations on, will we get a deal that u.k. voters can swallow and remain within the e.u.? up owner of gucci is trading in terms of profit for the fourth quarter. tom: set up the morning. let's look at a chart. i did not know what this would look like until i put it out. the german two year, the u.s. two-year. ofht near record lows -0.53%. this all of apparatus into uncertainty. we have rolled over here, rolled over here. this is a great disparity between relative u.s. success versus challenges. it is interesting how the fed is still able to actually impact the two-year yield. and commerzbank says just in the waiting room of the council. churn.69 here in the there. two different guests -- they are barely on speaking terms. hans humes is the chief executive officer of greylock capital. he is an expert on the doing of distressed debt. actually getting it done. with jpmorgan.s i want to flip it right now. distressed debt, from your prism -- what does the hans humes will look like to you, kate moore? kate: we are not going to enter into that part of the world. we do not feel comfortable entering into it. although if we were, we would go with an active manager who is picking individual mons and making those decisions on a -- picking individual bonds and making those decisions on a one-off basis. i cannot endorse anyone in particular, but that is the kind of strategy would go for. tom: what does the equity market mean for you, hans humes? over,ism of apple rolling what does it mean? hans: when you get to the point in the markets where it is either risk on, risk off and everything starts correlating, the equity market as it has been for the last month and a half has been a leading indicator to where we go when the risk off happens. we have had a complete this location from bond prices to fundamentals. tom: i woke up this morning and said this is the money question for hans humes, his idea of the indeterminate nature of the week. meantas this strange week to you as you look at each and every market? hans: that my traders have been very stressed out. with a new regulatory environment, it has had an impact on liquidity. price moves have been more dramatic than they have been in the past. at a point, you have to watch and let it ride. vonnie: do you shift positions much? have you bought debt of other countries in this uncertain world? have you sold tesla? cons: i just lost the car -- car, i didt lost the not buy the stock. you choose entry points. for example, ukraine. we got involved last year going into the restructuring. at a certain point we saw the political problems coming and we decided to lose risk. to the extent you are able to go in and out of the markets, it makes a lot since -- it makes a lot of sense to be an active manager. you are driven by the flows in individual markets and you are getting pricing based on the volatility. you try to buy the lows and sell the highs. vonnie: how do you navigate this world? how often do you change your advice and strategy? ate: as we were looking 2015, we had a year of two parts. a positive first half and a much more challenged second half. we did not do as much trading as in previous years. this year we have been much more tactical, even in the last six weeks, rebalancing the portfolio and looking to be more specific -- we are looking at the volatility in this market is opportunity to make a decision pretty often. caroline: give me a sense of your view on banks at the moment, k. greek banks selloff once again today. we are seeing huge investment banking units in europe. ,ow are you analyzing risks particularly on the bond front and the equities front? kate: we spend a lot of time analyzing financials because of the huge percentage of market cap we make up in almost all the major indices. hasentral-bank confidence really deteriorated, and that is playing through in the prices of all these different bank stocks, i worry that it is going to be difficult to restore that confidence in the near term and that will not provide broad level support to the equity market over the next few months. the one thing i can say is that we have done a deep dive into the u.s. banking system. tom: i am going to rip up the script. head you are nodding your as kate moore says that. can you say the same thing about europe? hans: it is a different situation. what is ironic in europe, the fact is greek banks have gone to a recap exercise, and their balance sheets are better than deutsche bank's. the sense is that the market is selling off peru. a but we are not looking at the same systemic problems we had in 2008. -- the senses that the market is selling off. at theare not looking same systemic problems we had in 2008. the ironic thing is that the germans, who have been dictating all this economic or physical prudence -- or fiscal prudence need to get their own house in order. you do not have to worry about the aftershocks coming through to decide. tom: hans humes with us. to deutsche bank. we will not speak with deutsche bank about kate moore. pawel szalamacha, we will speak with. stay with us. "bloomberg surveillance." ♪ caroline: welcome back to "bloomberg surveillance." leaders,rs -- e.u. all eyes are on the meeting in brussels. david cameron is facing resistance, particularly from european nations that have more of a welfare curve on european citizens. i am pleased to introduce pawel szalamacha. on what is happening in brussels at the moment, where do you stand on a deal that might be wrought back to the u.k.? is welfare benefits are crimped, it will hurt people can come -- it will hurt people who come from poland. : i understand the position of britain because we have a problem with the sensualist -- .he central list tribe we think the case is strong, and the hyperactivity represented by brussels should be checked. we have a point of difference, and this is the focus working elsewhere, and so on and so forth. that it is crystal clear there will be differences between our government and the prime minister cameron in brussels. i hope a sensible solution can be worked out. caroline: what about the solution that you might come to -- last month you said they celebrated -- pawel: i have forgotten this, actually, because of our performance on the commercial markets. day we took a hit. but then we recovered, and the recent issues of the bonds which we made, both in euros and in poland were quite successful. they were highly oversubscribed just a few days ago. caroline: the financial markets have recovered, but still, you have a triple-b plus rating. thatabout the consensus you are as a government taking significant action on european institutions, increasing social spending, taking shoal -- taking control over the constitutional court and the public media? what about the central-bank? are you worried about the independence of the central-bank? pawel: the term of office in the central-bank expires in june. in the meantime there will be a new person in charge. there is no concern about the independence of this institution. competence or something in my powers. there are some names on the market. but there is hardly a case behind it. it is a normal six-year term which expires, and the new person is voted into the position. with the constitutional tribunal, a highly complicated case, debatable issue, because the previous house voted in five .ew members the term of these five persons expired during the term of the new house. we believe that they wanted just to lock the tribunal as to control the agenda of the government. what is going on in the states now? there is the death of justice scalia, and president obama has declared his intention to appoint a new person, and there are already voices who say that to give it to the newly elected president next year. it is quite a similar situation. we believe that there are general discussions going on, but there is overreaction on the part of one of the created agencies. tom: mr. finance minister, congratulations on poland is an outlier of success. looking inside poland come outside poland -- bring up the chart, if you will. do you need depreciation to jumpstart a better polish economy? are you indirectly with a currency war with frankfurt, germany? thel: we are happy about depreciation of the currency because it creates stimulus for the exports. we have been doing quite well on this side. anothery, there is negative aspect of the currency fluctuations. the position of the swiss franc, nominated mortgages. a substantial part of the population has said that these credits on private balance sheets -- they have to serve the debt. so there is a problem both political and economical. we know very much about what is going on on the euro there. tom: you studied at the kennedy school at harvard. let's go back to the classic power in interdependence. has the power.y give us the state of interdependence within your europe and particularly with the eastern european union versus the rest of developed europe. pawel: it is true that we have very strong economic links with germany. the most vibrant location of direct investments within manufacturing firms, so it is a positive side. stimulatech want to our own domestic resources, and we believe that it is hardly possible for any country to be successful just relying on the foreign investment. that is why the agenda of our new government is also to put a stress on what we have within the country. tom: one final question. please be quick here. we have a 19-year-old from warsaw waiting on tables in london. what is your advice to prime minister cameron as his economy is supported by a service sector of polish kids and eastern european kids holding up the restaurant industry in london? what is your advice to david cameron? i am in a very critical position to give advice to the prime minister, who is not asking for advice. i understand that he is in a difficult position because he gets to communicate with the british people here, to win the referendum, but equally he should not be too tough on his european partners, trying to push to the very extremes the limits of what they can agree on. we want the u.k. to stay in, but not at any price. that this could be like an ongoing auction of demands and expectations. tom: mr. finance minister, thank you so much. pawel szalamacha. before we get back to on seems and kate moore, futures interior a little bit. $30.13, west texas intermediate. stay with us. worldwide, "bloomberg surveillance." ♪ tom: good morning, everyone. "bloomberg surveillance." we just told -- we just heard from the polish finance minister. i'm fascinated -- as a yield junkie, you must see eastern europe. his eastern europe an opportunity? -- itit is an opportunity is not that dissimilar to what we are seeing in other peripherals. the most interesting thing is the banks there have been proactive about working on the balance sheets as well. there has been a lot of scrutiny in the eastern european banks, in the greek banks. so we have been seeing portfolios coming out from bulgaria, romania, in terms of the overall yield pickup in the european countries that are part of the e.u. you are not seeing anything as attractive as the government bonds. tom: do you have to hedge the currency change when you go into european stressed that -- european stressed debt? hans: most of the stressed debt that we do is in hard currency. of other people who get involved in the domestic markets and do not hedge the currency, generally we stay in the hard currency -- euro, dollar -- and play the external debt side. if it is very distressed, you would prefer to have the jurisdiction be here in london rather than on their home turf. thiswisdom from hans humes morning. on monday, it has been way too long. brad hintz with us on america's banking. ♪ caroline: welcome back to "bloomberg surveillance." stocks are heading south in europe, up 5.6%. .6%. by we have these stocks -- we have a bit of a turnaround in the risk elements side of things. volatility suddenly turning to the green. the pound tracks lower as we seek a deal in brussels, exhausted men and women in this second day of negotiations. there is a better return on gucci now. let's head out to the first word news with vonnie quinn. vonnie: david cameron is running into resistance as he tries for a deal is for you k's membership in the european union. a second day of negotiation brussels. putants an agreement he can up in june. eastern european leaders do not like his demand for welfare curbs on non-british citizens. cameron wants a plan that protects london's financial industry. the greeks have been accused of doing too little to seal up orders. one million more refugees are expected this year. germany will take in the bulk of those. pope francis is willing to relax the catholic church's opposition to artificial contraception. he thinks women threatened by the zika virus could use it. "avoiding pregnancy is not an absolute evil." donald trump says it is disgraceful for the pope to suggest he is not christian. trump wants to build a wall between the u.s. and mexico. he spoke last night at a town hall meeting on cnn. itald trump: i did not think was a good thing to say, and he wall asbout having a not christian. he has an awfully big wall at the vatican. global news 24 hours a day, powered by 2400 journalists in more than 150 news bureaus around the world, i am vonnie quinn. tom: kate moore is with us from jpmorgan. let's bring up our single best chart, which talks about a backstory on getting to the beginning of 2016. everybody recalibrating through january. there is the s&p 500. this is the 401(k). i am in the double leveraged cash fund, so i don't care. if you look at 1996 to 2006, we cyclically went nowhere. kate, are we getting -- are we beginning a new decade malaise gekko -- are we beginning a new decade malaise? looking at last decade or a few decades ago, what are the quality of corporate balance sheets, how sustainable are earnings levels? how significantly will we decline in margins? all of our stress tests are not suggesting significant deterioration. we will have to see animal spirits return. jpmorgan,el feroli at lower. bring up the chart again. i would suggest the lift here is nominal gdp china lift throughout the last 8, 10 years. that has evaporated. where is your animal spirit at the top of any blue-chip corporate line? drivenquities have been by policy over the last seven years. that is what i worry about the most, that if we do not get confidence in policymakers, we will not have people willing to take incremental risks. we see cash levels relatively high, relative to history. we see cash levels on corporate balance sheets relatively high. people are looking for a catalyst. tom: you are in the crosshairs of this, but this is critical. financial engineering, everybody has been tarred and feathered over use of cash. not convinced it is a bad use of cash, particularly if multiples come down a couple of points. if we were to go down to the same multiples as last week, a company can ask questions, does it make sense to have confidence in their own business? it is not just about trying to goose the pay of executives, it is about the recognition of what is fundamentally sound. vonnie: you are just back from greece, london, and paris. tom: what a life! vonnie: when you talk about incremental yield, are you headed to the likes of greece? kate: we have been careful to reach too far into lower quality areas to get a bit of field at this point. we are looking at these places in the market that have been ignored and unloved as opportunities to reallocate at this point. we are trying not to be super contrarians. we recognize that the market is closer to levels that we have seen in the last few years. i have a question for a man who is on the committee of sovereign risk. give me a sense of the sovereign risk with china right now. should we be as worried as we are? hans: i would say in broad terms people do not do need -- do not need to be as worried. we are driven so much by emotion. but in china, clearly there is a debt problem. the question is, what are the ramifications of it working out? to bank muchably debt in the system, driven by global low rates. muchere is probably too debt in the system, driven by global low rates. the debt can be catastrophic or it can provide an opportunity for thoughtful restructuring. it is pretty open, the question of what china will do. you could end up in a situation -- the situation that they are really dealing with is capital flight. there is the possibility of capital control. the work out of debt within the system, i do not see it as being that much of a problem. i am more concerned about possibly some of the npl portfolios being worked out in a way that it is transparent, that there is real inclusion of the foreign partners in the process. i am not as paranoid about china as most investors are. caroline: you talked about correlation a little bit earlier. we are at such significantly correlated higher levels of the moment. tom was calling it a messy week. are we seeing a disintegration in the correlation we have seen in the high levels of this year? hans: i think it is just a normalization of markets, where uss investment opportunities one by one and do not worry about the wave of emotion. it is giving people a sense -- we are starting to see differentiation of, in our world, the asset managers who pick the right place. whoever is getting a turnaround in performance because they made the right calls and bought the right things, it is playing out now. i am glad to see the markets becoming a little bit more rational and it is just not correlating. tom: help me out here. i do not have a banner for this, folks. this is exxon mobil doing well back to 2009 and really holding its own with the dividend, with financial engineering versus the price of oil, 100 down, down we go. i would love to know what your call is on my thirst to buy distressed oil. this energy stocks at point, or distressed oil. i would love to have a crystal ball that tells me anything about where oil is going to head. but i have abandoned predicting oil prices. what stresses me out the most is not so much demand. global demand looks fine. more importantly, i do not know what to do with the global inventory glut. that is some of the feedback we got from our clients in athens, that the shipping guys who were in the oil services business who had oil vessels were looking at a great profit for the next couple of years. vonnie, help me here. athens in february? vonnie: i like the sound of that. -- should ask hans tom: 15 seconds -- can you buy distressed oil? you have to do a quick and dirty analysis of what the recovery value is. is this a whiteout, -- is this a whiteout, or is this -- can they make it through price levels of five dollars a barrel or down. everything has come off. it is a hold your breath to buy. tom: this is what "surveillance" is all about. it is like two different worlds. let's do a data check. i'm watching oil right now. brent crude south and west texas. $30.07. challenges in rates. stay with us for more "bloomberg surveillance." ♪ caroline: welcome back to "bloomberg surveillance." a beautiful morning. the pound trading lower against the dollar. that is as david cameron enters his second day of negotiation. will he bring home the bacon and get a deal with eu that will satisfy e.u. voters and go to the polls with a referendum? the pound up 5.4%. .4%.e pound up by fou wasie: out leon's says it hurt by european storms and floods. from the storms and floods, people who were affected by the. ken griffin is making cuts at his $26 billion hedge fund firm. about 15 -- city el cut aboutd 15 executive professionals. and it is predicted the norwegian government may have to withdraw $10 billion from its sovereign wealth fund this year. the norwegian fund has $810 billion in assets, so relatively speaking it is not that much. that is the "number business flash." going to hans nichols in berlin to get an update on one of the back stories this week. let's bring up the chart before we go to handsome hans nichols. this is one of the thermometers of the european banking system, and there is a nice rebound from the angst we saw last week, but a little bit of churn. give us the man on the street update on the state of deutsche bank in germany. what has happened in the last 10 days? hans: i think there is a little more confidence that they will not be forced to pay these bonds and there will be trigger. last week,e story that they were trying to say to the market that they were not going to do anything. when you look at what has happened in the last 24, 48, 72 hours, there is a little more talk maybe in frankfurt and elsewhere that the ecb has a difficult role because they are may be causing the distress at deutsche bank with its low interest rate environment. they are also deutsche bank's regulators. what do they do to fix it? do they go in and buy some subordinated debt in the next round of asset purchases and expand quantitative easing? tom: one thing we saw this week was a credit agricole act restructure. we saw air france turn a profit, yet they will continue to restructure. i believe barclays is doing a restructure. where is deutsche bank and the restructure? hans: they are speaking of their plan, which is really their third plan. john cryan came in. i do not think i am an apologist for deutsche bank, although i may be because i am a customer there. john cryan is sort of working through his plan, and he has a big mess to clean up, and it is going to take a while to sweep out the stable. nichols tofrom hans hans humes with his expertise on distressed debt. the basic idea is a relative play here. kate moore is not going to talk jpmorgans, but normalized back to the financial crisis and is doing good. how do you play that? we do not get very involved in banks in the developed world. i am looking at this and i am amazed at how people are getting so paranoid and freaked out. the cocos were built to be the shock absorbers. if they do not pay -- this is part of the risk reward. tom: how do you take european deutsche bank over to the third grade investments you make? hans: you wait for this event to stuffr panic selloff and that does not have to do with the central theme of what is going on with deutsche bank. whatever goes on at deutsche bank is probably not going to have wrought based repercussions in the global -- is probably not going to have broad-based repercussions in the global market. not asks just are leverage. take advantage of the opportunity of the selloff that is caused by the headlines around deutsche bank. deutsche bank at some point is going to work it out. germans are not going to be quite as insistent on not having qe because it is happening close to home. hold your breath and buy something. whether it is venezuelan bonds or some exposure to greece, we took the opportunity. do not overthink it. caroline: what about italian banks? the rest of the banking system has been selling off and we have a significant amount of nonperforming loans. are you looking at the bank financial debt within the periphery still he? is it distressed enough? hans: i would say the banks themselves -- no, we pay attention to it, but the relative opportunities there, we are not in equities shot. on the bond there, it is not cheap enough to get interesting. what we are starting to pay more attention to is the nonperforming loans coming out of the banks. greece and eastern europe. at some point there is going to be some good value. tom: hunts humes with us, and kate moore as well. stunninghese are headlines from an american icon. vonnie: cutting its forecast and saying fiscal 2016 will cnet net income coming in lower than what we have seen. the fiscal first quarter, it did beat, but it missed on revenue. tom: right into the bond market, futures at negative six as well. in 2016.ales down 10% tom: amazing here. cannondale's -- canada sales flat. this will be a major barometer story before the day. dow futures, -54. an abrupt drop off the john deere headlines. eps view comes in at about 4.09, versus an estimate 4.24. i am sure we will talk about deutsche bank. -- thrilledsee with to speak with bradley hintz. watching oil, $30.11. "bloomberg surveillance." ♪ tom: suddenly markets move. let's look at foreign exchange. .he yen 1.1283 at the bottom, the dxy and the asian dollar index. those will be a pairing, if you will. asia, x japan. that will be 2016. futures -10, dow futures at -77. it seems to come off the john deere headlines. i may be wrong on that. i am watching west texas intermediate, $30.14. caroline, you see deterioration in europe. caroline: you see 1.1%. the banks once again in the eye of the storm. greek banks, spanish banks, portuguese banks. i am watching the spread once again. yields rising for greece and portugal. volatility is on the rise. meanwhile, the pound sinking lower. all eyes on brussels and whether we get david cameron bringing home a deal today. tom: absolutely. it is really something. i was thinking of a deutsche bank rollover. i do not want to make too much of that, but nevertheless, a way to the market. withhumes is with us along kate moore. people like you drive you nuts because they are watching "bloomberg surveillance," and they are like, why is tom blathering on around this? yet we are. how has the day to day movement day to dayw has the movement affected our investing world? kate: it really has. fairxample, we have had a number of companies, out and reduce their overall earnings expectations for analysts over the next year, and really even a longer-term. this is what is scaring a lot of investors at this point. i think we see a lot of people want to take a little cash out of their portfolios and keep it during a very volatile and uncertain time. tom: is cash the new asset class? cash used to be something a mutual fund had that they were pained by. kate: we have been deploying a little bit of our cash in our portfolios and taking opportunities in fixed income, whether it is in investment grade or at some point in the high-yield market. we have said so many people have been risk-averse, they are stepping away from what are good investment opportunities. we are doing the opposite -- we are doing the opposite and saying the pessimists have gone too far. onnie, jump in with ugly john dear headlines. the headlines have sort of stopped. you can see year sales down 10%. the success of john deere is a proxy. john deere was so troubled 20 years ago, it was part of the financial analyst curricula as to how not to run a company. --nie: then israeli venezuela is turning deeper and deeper into trouble. hans: venezuela is a call option on oil. it is a complicated call option, but you have two sets of blocks of bonds. moreboth have issues, some short-term debt issues. it has been trading at extremely distressed values, and at some level you have to make a , even if theyer have to default and restructure, if they are at recovery values, it is not clear, but it is the kind of bond that will pop. if you see oil prices guatemala dollar, two dollars, you will get a run-up, just like in oil equity. tom: thank you so much. kate moore, hans humes, i love this pairing. kate moore with jpmorgan, hans humes with greylock. caroline hyde with us throughout the week. she and others in london with day.on brexit through the on monday, brad hintz will join us from new york university on american banking. ♪ the conference call. the ultimate arena for business. hour after hour of diving deep, touching base, and putting ducks in rows. the only problem with conference calls: eventually they have to end. unless you have the comcast business voice mobile app. it lets you switch seamlessly from your desk phone to your mobile with no interruptions. i've never felt so alive. make your business phone mobile with voice mobility. comcast business. built for business. david: china puts the brakes on lending. some banks will have to put away more reserves because they made loans to banks fast. david cameron negotiates reforms to keep the u.k. in the european union. a new twist in the matter of apple versus the fbi. it appears the government is working on its own backdoor to mobile devices. david: welcome to "bloomberg ." i'm david westin. stephanie ruhle is off, but matt miller is here. winkler, a pleasure to have you with us. first we go to vonnie quinn for the first word news. vonnie: u.s. warplanes have attacked multiple targets in seniorone described as a office coordinating terror attacks.

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