Eurodollar, 1. 20 two. A lot of the conversations today will focus on the dollar. Im looking at gold for a second day, down a touch. Coming up on bloomberg surveillance, we talked doing business in italy and natural gas. Later on, we also speak with margaret from the World Economic forum. She joins us to talk global risks. Plus, janet henry talks trumps first year with us. She the global chief economist there. Lets get to the bloomberg first word news. Heres nejra cehic. Nejra the u. S. Secretary of state offered a sobering assessment about the possibility of war with north korea. Madeillerson said advances the situation very tenuous. He was speaking in vancouver, where top diplomats gathered to explore new ways to enforce sanctions. North koreans know our channels are open, and they know where to find us. But a sustained cessation of threatening behavior is necessary indicator of whether the regime is truly ready to pursue a peaceful diplomatic resolution to the Security Threat it has created. In the u. S. , gop leaders in the house are testing whether rankandfile republicans will support a stopgap funding measure to keep the government open that would delay some obamacare taxes and provide money for Childrens Health care. Paul ryan and his team are trying to push through a plan to finance operations without having to count on support from democrats. Says theumps doctor commanderinchief is fit for duty. Ronnie jackson at tha examine hm last week. He says a cognitive function screening for signs of dementia or alzheimers was normal, and the president takes cholesterol medication, aspirin, a hair last drug, as well as being borderline obese. Steve bannon has been subpoenaed to meet with special Counsel Robert Mueller or before a grand jury. According to a person familiar with the matter, then in plans to sit down with mueller later this month. The former top advisor for donald trump doesnt plan to invoke executive privilege. Chinas banking regulator has vowed to take action on those who created large conglomerates. It signals that last years government crackdown is poised to continue. The chairman of the Regulatory Commission said such operations have become major obstacles to efforts to deepen financial reform and safeguard banking stability. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Cehic. Ra this is bloomberg. Francine thank you so much. Lets kick it off with the markets. What began as a recordbreaking session for u. S. Stocks ended in retreat yesterday on concerns over a shutdown in washington. The dow jones breached 26,000 for the first time ever. Bloombergs dollar index has rebounded this morning after coming within 0. 02 of a threeyear low. The dollar rose against all of the g10 currencies. Has it . Strategistnow, chief , gilbert from bloomberg gadfly, and paul dobson from our mliv team. Thank you for joining us. Moves, how surprising were they . Let me bring up my chart. This is a eurodollar chart. The yellow line is the 1. 2 wendy mark 1. 20 mark. The dollar is the focus of investors. It has been helping to pump up emerging markets, helping to stay the rally in the stock markets as well. If you look at the euro, after 1. 20, it picked up momentum again. Today, it is down a little bit. The euro is down a little bit, but weve had some dovish comments from the ecb. Onve had a little wobble whether germany is going to form a government. Abovero Still Holding 1. 22. The question is whether it is going to hold. Francine when you look at your investment strategy, how much do you look at foreignexchange . At some point, euro strength is going to hurt earnings, or will it . You have to look at the currency market. Earnings momentum in the u. S. Is really strong. That is driven by taxes. Earnings momentum in europe has been weakening a little bit. You have to look at currencies. Francine at what point do you worry about the euro becoming too strong . It fills me with confidence. Im not too worried at this juncture yet. The ecb will be tapering, which is due to stronger growth. It is a good reason. Francine we will come back to the ecb dynamics. Mark, what is losing moving currencies . Is it growth, differentials, or Something Else . This seems to be the shutdown concerns in d. C. All of the above. The key reason is that economy is doing better. Weve seen better growth. Weve seen some move toward inflation. What is interesting is the u. S. Yield differential with the german yields, you would suggest , would reverse at some point, you would see some flows from europe back into u. S. Treasuries. But it is mostly the economic backdrop. Francine paul, you work on the mliv team. Mliv and follow what is happening. Have there been any schisms or big market moves that have been unexplained . If you are looking at the right differential. That is not a big feature for currency markets at this moment. It is all to do with longterm outlook for the region and what the ecb is going to do. We dont expect the ecb is going to change course until at least september. We are on a preset path for another couple months. Because Everybody Knows that is going to come to an end, and then we start thinking about Monetary Policy, that is giving the currency the momentum. Francine talking about the breakeven in the u. S. , this is another chart that i really like, a symbol u. S. 10year breakeven rate. Do you believe inflation is coming in the u. S. . Inflation is coming. You can see wages on the rise. Wages of young people is on the rise. Wages on the lower end are on the rise. It is only logical with a 4 Unemployment Rate you will see some inflation pick up. Francine this is the big concern for 2017. It never came. Mark at some point, you start to see this, and the jobs market is the type that you have to think that employers have to start bidding for workers by increasing wages. It is inevitable. The textbooks have looked broken for several years. Theres a limit to how long you give that doubt. But the evidence is starting to build. The momentum is growing significantly in inflation. Core inflation is starting to start. Figures show inflation rising. At some point, you do see the economic fundamentals come through into prices. Francine let me bring you over to another chart. This is the generic 10year yield. Saying, ifdlach was it starts hurting equities above tw do you look at metrics like this . Or on the more immediate term, do you just worry that if theres a shot down, it will have a negative impact in the u. S. . Im not worried at 2. 6 . I think at 2. 6 , it breaks the downtrend in bond yields. That is the reason to look at that number. Until you reach 3 , im not worried about equity markets. It is growthdriven, inflationdriven. You are getting inflation. Corporates get Pricing Power back. It is a late cycle story. Mark on a longterm basis, 3 , that is a phenomenally low Interest Rate anywhere in the world. It is not a sign of panic in the markets. It is a normalization, which is what the fed has been trying to a save. Francine thank you very much. Paul dobson, mark gilbert from bloomberg gadfly, stay with us. Sunday coming up. When will draghi deliver . We will discuss expectations for tapering. We also have an exclusive conversation with the ceo of the italian gas giant. This is bloomberg. Francine economics, finance, politics. This is bloomberg surveillance , and that is a rather snowy Brandenburg Gate in berlin. Lets get straight to the Bloomberg Business flash. Nejra melrose has made a 7. 4 billion pound bid for gkn, seeking to win over the maker of aerospace and automotive components. The firm offer values gkn at 430. 1 pence a share in cash and stock, up from the previous proposal of 405. The move comes after millrose met this week with gkn shareholders. Burberry holiday sales fell short of estimates as the ceo toan implementing his plan give the trenchcoat maker a facelift. Retail revenue rose 2 on a comparative basis for the Quarter Ended december 31. Only half the analysts the company benefited from an influx of tourists. Nestle has agreed to sell its u. S. Unit to ferrero in the first substantial step away from the candy industry by the company that invented milk chocolate. The sale of the unit is the first major divestment by the swiss food giant ceo Mark Schneider took the helm last year. Nestle plans to focus on healthier and faster growing categories as the Food Industry grapples with a drop in demand for sugary products. Francine thank you so much. Lets talk europe and the bundestag president has said analyst expectations that ecb Interest Rates wont rise are reasonable. In an interview with the german newspaper, he indicated the forecasts are in with the Central BanksForward Guidance. Asked whether the qe1 end, he said he would consider that appropriate. And mark gilbert from bloomberg gadfly are still with us. If you look at the major Central Banks around the world, the ecb is maybe the one that should spring the surprises. Roelof it is one of the most important ones. It was the central bank which was really driving qe. It is a major move if they start to taper. Francine what would be the trigger . Inflation. We are seeing signs of inflation. The september end to qe, i think, is going to happen. I dont see any reason they would extend again afterwards. Likely that you will get an end, and theyve got six meetings between now and then to slowly encourage the markets that there is not going to be any bond buying. Francine what happens . Theres they stop the asset purchase in september, and they dont go for a hike straight away. Mark theres no reason not to. You want normalization. The older Central Banks want policy normalization. The markets are leading them that way. We seen the u. S. Twoyear yield at 2 . You are seeing the normalization in markets. It stands to reason that Monetary Policy will follow. Expectations are in line with current thinking. Wayhe economy develops the it is looking like it does, and inflation starts to get to that 2 level, theres no reason the ecb couldnt tweak Interest Rates. Francine you agree . Roelof fully agree. Francine this is a german fiveyear breakeven rate. Thanks to dan tellis. This is the kind of level. Is the biggest concern for the markets in europe that theres a strong repricing of german bunds, and what does that mean for Asset Classes . Roelof the biggest worry for markets, we know how we got here, but we dont know how we will end it. There wont be a lot of buying anymore and there will be more supply coming. This is probably the first year that theres more supply. Im not worried about the bond market itself. There are plenty of buyers looking for highquality paper. What you have to look at is if spreads start to widen as well. Moment, andt at the you said they have to communicate this, but at the moment, the market is not pricing what you are talking about. Mark i think the market is starting to anticipate that september will be the end of qe. Vitamin is in line to take over for mario draghi. He seems to be tempering his comments. Hes a little more dovish. It will be about mario draghi, and if draghi uses the next press conferences to start steering the market toward weaning it off emergency life support we dont want a repeat of the taper tantrum we saw when the fed started, but we seem to be over that hump now. We are on a path towards the end of bond buying. The market is taking it well. Francine what are you buying . Roelof the Economic Outlook is great. Growth is ok. The rates are still low. Only reason that we are nervous is that moves have been pretty violent going into this year. It is only logical that you see some consolation. This is the market environment where you want to belong risk assets. Mark politics could be a problem. Theres still brexit hanging over everything. Dontexit negotiations seem to be going particularly well. Francine thank you so much. Roelof and bloombergs mark gilbert, stay with us. Coming up, burberry is under pressure after holiday sales missed estimates. This is bloomberg. Francine good morning. Im Francine Lacqua here in london. Lets get to one of our top stories. Burberry holiday sales fell short of estimates as the ceo began implementing his plan to give the trenchcoat maker a facelift. Retail revenue rose 2 , half the rate analysts estimated. Shares lower this morning. I was looking at some of the trading volumes with guy johnson. Compared toe 700 the last 20 days. Robert Williams Joins us now from paris. Ive been going through some of the notes. Part of it is the fact that mainland china, but also the u. K. , decelerated. They dont have a creative director. What are people worried about at burberry . Robert today, they are looking at a pretty tough comparison. Last year, sales really jumped due to the lower price of sterling. Burberry has a lot of stores in the u. K. This year, it was a little less attractive to spend money and bounds in comparison to last year. The news is also coming from the fact that investors are worried about how expensive their plan might be. Burberry is planning to renovate some stores and at the moment they dont have a creative director. Is this highly unusual . Some of the other companies are looking for a new creative director. Do they just find someone, the right person hopefully, but also just give it to the markets . Robert it can take quite a bit of time to find a creative director, specifically in the current climate where the use of noncompete agreements is widespread. Burberry might identify a candidate, and it can take a really long time to negotiate. Robert, thank you so much. Robert williams in paris covering all things luxury. We will talk about some of the designers that could replace christopher bailey. Financials in focus as u. S. Bank earnings season gets into full swing. Bank of america and Goldman Sachs report later today. This is bloomberg. Im looking at some of the market swings. Come back and talk about roelo and marks view about how the markets will adjust and some of the canary in the coal mines that we must watch out for. This is bloomberg. Francine economics, finance, and politics. This is bloomberg surveillance. Lets get straight to the bloomberg first word news. Nejra the u. S. Secretary of state has operated a sobering assessment about the possibility of war with north korea. Rex tillerson said advances meant the situation was very tenuous. He was speaking in vancouver, where top diplomats gathered to explore new ways to enforce sanctions. North koreans know our channels are open, and they know where to find us. But a sustained cessation of north koreas threatening behavior is necessary is a necessary indicator of whether the regime is ready to pursue a peaceful diplomatic resolution to the Security Threat it has created. Nejra in the u. S. , gop leaders are testing whether rankandfile republicans will support a stopgap funding measure to keep the government open that would delay some obamacare taxes and provide money for a Childrens Health insurance program. The plan indicates that paul ryan and his team are trying to push through a plan to finance operations through february without having to count on support from democrats. Donald trumps dr. Says the commander in chief is fit for duty and should remain so throughout his term. Ronnie jackson examine him last week amid criticism that the commanderinchief may be unfit for office. He says a cognitive function screening for dementia or alzheimers was normal and the president takes cholesterol medication, aspirin, a hair loss drug, as well as being borderline obese. Steve bannon has been subpoenaed to meet with special Counsel Robert Mueller or appear before a grand jury. According to a person familiar with the matter, then in plans to sit down with mueller later this month. The former top advisor to donald trump doesnt plan to invoke executive privilege. Chinas banking regulator has vowed to take action against those who built large financial conglomerates. It signals that last years government crackdown on such entities is poised to continue. The chairman of the Regulatory Commission said such operations have become major obstacles to efforts to deepen financial reform and safeguard stability. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im nejra cehic and this is bloomberg. Francine thank you so much. Lets talk financials. U. S. Bank earnings season continues with citigroup beating estimates despite a bigger than expected right off. Goldman sachs and bank of america report a little later this morning. Joining us now for more on what we can expect is our reporter. Mark gilbert from bloomberg gadfly and roelof are still with us. Thank you for coming on. We still have citigroup. These are different banks, but the overarching view is they are taking a hit on tax, but not too bad. Profits are coming in about in line. Theres sot much that it is really hard to sort out the Fourth QuarterBalance Sheet because it is so dominated by taxes. Citigroup taking a much bigger hit than most banks. 22 billion that it had to write down because of the tax changes from the congress. Essentially what were going to look for is Goldman Sachs. Bloomberg had a report that their commodities trading , one of their5 worst quarters. That is something people want to keep an eye on. Besides taxes, because that is the elephant in the room, how is trading revenue going to come in . Francine how does bank of america compared to Goldman Sachs . Goldman sachs is really concentrated on their commodities. This is a big portion of their revenue. When you look at equities ,rading, a lot of these banks the South African retailer