The German Economy boosting 2. 2 . 2. 3 for 2017 , but it came in at 2. 2 . An impact on your dollar, one. 1939 1. 1939. We had a little volatility over the last couple days. Markets we are hoping will grow worldwide, and tend to focus on earnings. Today, we will talk a lot about that. Of 48le bit of zigzagging hours. Yield at 2. 54. Coming up on bloomberg surveillance. , talking with a leader from armstrong, and another guest bolus act oldish expectations. Ceo frank del rio. Lets get straight to bloomberg first word news. Heres nejra cehic. A reportina has claiming officials are reviewing the countrys Foreign Exchange holdings, recommending selling or holding purchases of the u. S. Treasury, might have quoted a wrong source. The state administration of Foreign Exchange said we think a report might have had wrong sources or may have fake news. There was a report that it wasnt clear whether the recommendation was adopted. U. S. President donald trump has agreed that america and north korea will resolve their conflict without war. The north will not be attacked. Trump was speaking in a News Conference with the norwegian Prime Minister. President trump we are building up our military to a point that weve never been before. We also were very much weekend over the last long very much weakend over the last long period of time, but i think we will have peace through strength now. 60 the u. K. Has had. 5 Million Pounds less investment. There is no word on the Customs Union or single market. A cambridge study commissioned atthe london mayor looked five different brexit scenarios, and found every option damaged the british economy. Germany is maintaining its hardline stance on brexit, demanding the u. K. Pay for privileges, Financial Firms having access to the u. K. Market. Nton can talk for a crate britain cant help for a trade agreement like this, unless it contributes substantially to the eu budget. The Canadian Dollar felt after after canadianl officials said President Trump will have six months before leaving nafta. There has been no change in the president position on the trade pact according to an official. The move is described by u. S. Trade representative a trade representative as an attack. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im nejra cehic, this is bloomberg. Francine . Francine thank you so much, never. Bonds, a 24 for hour. , thats the question we are asking. Treasury yields have doubled since 2014, and longtime pillars of support have showed that is eroding, with news breaking from china. The rosa recommendation for purchases of u. S. Stocks. This bust did last long. Losses treasuries have by days end, thanks to a 20 billion option, the strongest demand since 2016. Here is what some people had to say about the market. The market has been at a 30 year old trend. Youll keep going down, which attracts Bond Investors yields keep going down, which attracts Bond Investors. Fundamental gdp has been telling them what it should be for a long time. Includesear market, it negative prices for highyield angst. Its an investment rate of bonds, high yield bonds. Its an investment rate of change. There can be a long time for markets to digest, go over the information. There is a different story if you go over to 75 in two weeks. Francine was this a hiccup or sign of a longer trend . Joining us are two guests. Patrick, let me caps off with you. Is the most, this unloved bull market ever. What comes after treasuries . Patrick treasury yields go higher year on year. Were still near record lows. 4. 5 , a record to improve. We think we will see signs of inflation emerging in q2 this priceas there was a low based last year. Theres a weaker dollar, higher commodity prices, and different prospects for wage growth. All of that leads to a subtle appreciation in treasury. A lot of things could come together if there are trump protectionist policies turned into a reality. Japan and china dont need 5 trillion of u. S. Treasuries. There are things that are wildcards, but with everything equal, we get higher a treasuries. Also get want to rogers talk on this. Rogers talk on this. Ouries would hurt guests talk on this. Treasuries could may be hurt, but theres talk of a lot of things coming together. Where would treasuries be . Above 3 this year, if everything goes according to our base case. You can see them getting to 3. 75, 3. 5 may be. If you worry bout some policies, you have bond vigilantes coming in, and a lot of things coming together. Francine do you agree, is your base case, are things quite stable . Its an orderly increase in yields. We are looking at less than 2. 8 , but the key in our worlds trade on new rules. Rising u. S. Yields no longer guarantee Dollar Strength. And back in office that is great for markets. We have we have to see purchases play out. There is an upside in the dollar, and we think there are opportunities elsewhere in the world. Francine there are those cases of people saying the dollar should be stable, or it should be priced indifferently this year. Viraj we are in the slower camp. We are looking at weighted, not too much related to last year, a relative decline. Backe now focusing structurally backwards. Their twin deficit risks. We talked about china, but lets ask ourselves about the u. S. Treasury. I think theyre just part of the wider global investor, their better return opportunities, and that story could play out over the next couple of years. Have people saying they were diversifying, or were slowing bond purchases, treasury, but then they said thats not true. This is my chart looking at the holding of china and dodge through belgium. What does this chart tell us about the appetite for treasuries . Patrick i dont think much. Patrick if you get a clear view that they are reducing holdings, that the ebbs and flows in this chart are dynamic. I dont think you can extrapolate the trend. Francine is it because they see value elsewhere . Patrick could be a value factor, could be the differential where they are receiving 2. 5 on u. S. 10 years, 5 of their own securities. It could be part of a trade war as well. The weapon against the u. S. Francine theres accountability, so they couldnt buy euro. Where would they go . Viraj its i first fine. They could increase their euro holdings, holdings for trade partners, if that makes sense. The fundamental macro fundamentals for holding the dollar is relative to what it needs to do. A look out and the dollar as global reserve currency is shooting overshooting its economic potential. There is scope now for other currencies to pick up slack. Francine whats your favoritefrancine . Viraj euro now. Over the next couple of years, you have a big factor of abovetion in europe, risk fed mementos, and is also financial markets. There is something quite cap powerful for the euro. Francine do you like euro . Patrick we think it will fallpatrick . 115. Ine 115 . Patrick we think the dollar is oversold right now. Think with macron being elected in europe, their Interest Rate differentials playing out this year. Interesting, because what happens to german bonds . We had a chief economist from Deutsche Bank saying this quite powerful repricing. 1 this year, so i think ill develop markets, government bonds are going to move higher. Two years ago, you could be a make a case there be deflationary risks. I think thats an old story now. We are in a reflationary world, where things are normalized. Francine you pushing back against that . Patrick patrick corrections are normal. We are just looking for the next key 126, 1. 67e of the distance. Thats the ecb story, a policy for pricing. There are muted euros and inflation dates. People have to we have to let it put on the pedal again for markets. 130 atkes us to 125, and the end of the year. Francine its great having both of you with different views, as this is the challenge of the markets, right . Thank you both for staying with us. Up next, a look at market reaction, as canadian Officials Say theres a good chance, trump will withdraw on lockdown. This is bloomberg. Economics finance politics. This is bloomberg surveillance. Im Francine Lacqua here in london. Lets get straight to the Bloomberg Business flash, here is nejra cehic. Inra via has cut its stake investors, 40. 2 as part of its its percent on drugs ongoing look on drugs. There is a shift away from chemicals for bayer. Torero is nearing a deal acquire any u. S. Company for 2. 8 billion. There is an agreement that could be signed as early as sunday. Brands have been suffering a decline in revenues. Both companies declined to comment. There has been a drop out of the bidding in the stake of one of the worlds top investors. According to people familiar with the matter, euro was advised to not have this go to santiago base, after having information in a data room. There was 5 billion at current market prices, which and many declined to comment. There was a biggest ever makeover of the dike broke diet coke brand. Diet coke was lodged in 1982. Sales volume fell more than 4 last year. Original diet coke formula wilmot be changed. That is the Bloomberg Business flash. Francine canadian Officials Say the increasing likelihood that president will give six months notice from withdrawing from nafta. , andanadian dollar fell there was news that there be no change on the president s position on trademarks. People complained of american duties. Campbellon nafta, matt joins us. Welcome to bloomberg surveillance. This could potentially be a huge deal. Us thatthink this shows the cancer of these relationships has worsened. For the first yearish of the Trump Administration, people were eager to not if not ingratiate themselves, be open to the new administration as much as they could. You can see that patience is running slim. Ill think nafta will necessarily be killed. Theres a long way from here to there. Question ising whether or not nafta will survive without mexico. Before nafta was created, there for alegal argument larger trading relationship. That is still a long way down the road. Francine the president Just Announced he is attending an event in 10 days. There is his campaign, calling people elitist, out of touch. How will people welcome this . Think we dont really know. On the one hand, many people that a spouse president are not popular in the elite. 0. 01 . Are up for a there will be significant financial benefits. As unpopular as he may be, the president is powerful, and its bad to be on his bad side if you can avoid it. Force . His back in full i dont think if it will move from. Full rhetoric. But i think trump may do is have a six month intention to end nafta, but not follow through. There could be an opening gambit, a negotiation. Then they will stick up with it on new and improved terms. Nafta is hugely important in the United States, not just canada or mexico. Canada and mexico are getting all the benefits of nafta, which i hope is just the opening gambit. There means higher prices, lower Economic Growth. Francine youre expecting protection them. Matt i agree. This is talk and no action. Hispoint theyre making that you might see things take off a bit, antitrade americans. Quite negative for the dollar looking forward. You have the rest of the world firing on all cylinders, but also the fact that u. S. Is in the latter stages of its market. Here, ifno impetus that makes sense. You got to have domestic politics. This is something that the president , he wanted a fairer trade downs. Agreement. Re was an he doesnt use all sides to deal with korea. When push comes to shove, we have seen that President Trump upset the eager to apple cart completely. There are statements, but in terms of concrete actions, he tends to be more cautious. Given the dependence on Something Like nafta or china, their reaction would be thermonuclear. Withdraw, there is a a trade war with china. Francine you talk about the putting in protectionist measures because of the midterm. Is this to distract away from the book . Talk itself is quite profound. Francine currencies move. Yes. You saw the kneejerk reaction. Administration cap sees this if this administration sees this there was a change in the risk environment. The dollar could weaken, and hurt thed still administration without any sort of backlash, if that makes sense. Francine do like emerging markets . I dont know that we need to look at them like we have in the trade, orerms of whether we will have new highs that we saw in emerging markets. We dont have emergingmarket equities right now. Bonds. Some exposures in instead of bonds, you are getting real yield 3 above inflation. Francine what do you see as attractive and emergingmarket currencies . There are tactical opportunities, especially the european currencies, going back to a strong europe. Thats a good destination, especially in asia as well. The korean won, we want to reduce political risk. Fundamentals. Ng printing one of the things we were looking forward to an davos is the recession, and now this was looked at by the Prime Minister in india. It is showing up in davos takeaway the limelight . It does for everyone. Ofeel bad for the organizers the west. They work all year to create this session that be interesting and have brilliant people on them. Donald trump is going to show up in that all everybody is going to want to talk about. Francine last year, they were not criticized for not looking at having the Trump Administration there. The west has been criticized again and again, going back to the 70s. Theres something relevant to the real world. That was particularly true last year, when the reaction was so obvious been washington. It was the trump inauguration. Having someone who campaigned against what the west stand for sale, you know what . And, someone else who traveled saying, i need to go to this event, and it something thats worth my time, the hassle. That shows this is important. Francine is it a simple as the administration putting out things they want, looking at exports . I think so. We are shifting away from a strong dollar administration towards a laissezfaire dollar administration . Think the key is the stock market. The dollar might be better gauge of the economic aspects, but the stock market is the way forward. Francine what do you think of ricer . Viraj no idea. I dont think its going to matter too much. It will be interesting to see if powell voted with yellen. Will you want a fed centralbank come aboard put the u. S. Back into recession what you want a fed central bank, or putthe u. S. Back into recession . Francine should the fed chair . More hawkish than patrick francine do you think we do . No. I think other people could shift it. Francine all right. Im looking forward to davos. Matt campbell, patrick armstrong, garage patel viraj patel. Next, a study of brexit, what that means for jobs and investment. Viraj was all over the newspaper. We will talk about the 150 call, and whether that is strength of the dollar. This is bloomberg. Again, quite a lot of movement on yen earlier. If you look at the top, its all about the 10 year yield, where it will end up in two months from now. This is bloomberg. Francine dara economics, finance and politics, this is bloomberg surveillance. Im Francine Lacqua here in london. Lets get straight to the bloomberg first word news. Reportchina says reviewing slowing or halting purchases of u. S. Treasuries might have quoted a wrong source. In a reference to a new story published yesterday, the state foreignexchange said they may be fake news or have a wrong source. Itre was a report that wasnt clear what the recommendations have been adopted. The crisis between america and north korea will be resolved without war. The president said he would not correct the two asian nations speaking during a white house News Conference with in norwegian Prime Minister. President trump we are building up our military to a point that weve never been before. We also were very much weakend over the last long period of time, but i think we will have peace through strength now. Nejra chinas li coach on has said the worlds secondlargest economy ended by 6. 9 last year. According to news agency, there and comments at cambodia, there will be a seat of success for policymakers. There is a need to keep expansion on track. Global news, 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. Im nejra cehic, this is bloomberg. Francine half a million jobs, 50 Million Pounds. This was a deal according to a study. Analyzed economics five different things. With a deal,ended creating fewer jobs and, all parts of the economy would suffer. Saw a seasonrs inp a seesmic drop december. Thank you for joining us. We were talking about that 150 call, but first, i want to get patricks view on the economy. Is athese surveys month of trends . As their cut off point is there a u. K. Cut off point . Its at 1. 51. 6 Economic Growth. Brexit is gaining headwind. There Interest Rate policy, and the various global backdrop. I think there is a kind of growth we can expect in the Third Quarter as well. How much mail would you get call . 150 by the end of the year. Its a stretch of headlines. 3 t were saying is a appreciation in the pound. I think the second point will really make it. Pound directional cause, now a real conviction is taking it to 140. Relative economic cycles, Monetary Policy, political risks. There is slightly too much optimism in the u. S. Francine you bring let me bring you over to this chart. This call doesnt sound so outrageous as it does in the shorter term. Why do think there was a kickback . Is it because people see it as pound up . For trade, we were thinking 2018 was a story for the pound. What really matters for brexit when you have structural factors is euro pound.