Transcripts For BLOOMBERG Bloomberg Surveillance 20180219

Surveillance. Lets check in on your markets. You can see the stoxx 600 pretty much flat. They are down a touch, but pretty much unchanged. We did see a nice rally that started in the u. S. Filtering through to asia. Oil advancing. Havea reminder, we may little trading volumes because it is president s day in the u. S. And Chinese Markets are closed after the new year. Coming up, we speak to the former italian Prime Minister. That is coming up next. Then we talked to Credit Suisse. We talk sustainable investing. Later on, we talk bonds, the selloff, and what is next in the markets with andrea silverman. Lets get to the bloomberg first word news. Nejra u. K. Prime minister theresa may and her ministers gather on thursday. May seeks to unite the factions in the cabinet. It is becoming clearer that the u. K. Wants to stay close to the union in some areas while breaking free in others. Employment numbers are scheduled for monday. Imports exports and both registered strong gains in january. Overseas shipments rose 12. 2 while imports grew 7. 9 . The increase resulted in the first Monthly Trade deficit in eight months. Eurozone finance ministers vote today on a candidate to replace the Vice President , with spain and ireland in the running. The head of latvias central bank has been detained by the countrys anticorruption bureau. There are calls for the governor to step aside. His lawyer says he considers the move clearly illegal. Two of irans regional foes have delivered warnings against the country, saying it is time to confront the islamic republics encroachment on the middle east. Israeli Prime Minister netanyahu described iranian aggression as the greatest threat to our world. Saudi foreign minister said iran needs to pay a price for its aggressive behavior. Londons Property Market has moved out of its boom phase, warning sellers to be more realistic about their price demands. A new report showed asking prices were down 1 from a year earlier in february. London was the u. K. s worstperforming Housing Market in 2017. Theres little to suggest any upturn is in store. Sweden is on its way to becoming the worlds first cashless society. The value of notes and coins has dropped to its lowest level in years. More than one third of swedes claim they never use cash. 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 lets kick it off with the u. S. President , donald trump. Hes been criticizing the fbi, democrats, Robert Muellers investigation, and his own National Security advisor over russias efforts to sway the u. S. Election. Hours,g 14 times in 24 trump focused on defending his victory and insisting neither he nor his campaign colluded with the ross and the russian effort. The l. A. Times is reporting that rick gates, a former Trump Campaign aide, agreed to plead guilty and cooperate with u. S. Special Counsel Robert Mueller. Montig us for more, mario , italian senator for life and Prime Minister from 2011 to 2013. Also with us, the nobel prizewinning economist, professor at the London School of economics. Joining us now to talk specifically about donald trump is our senior writer, stephanie baker. Thank you. Good morning and welcome to the program. Stephanie, thank you for keeping us uptodate. Tweets, 24 hours, none of them on russia as in they interfered in the election. That has been the narrative, how remarkable it is that trump has not said anything defending United States democracy against russian meddling. We are facing a november election and there seems to be no cohort needed response from the president on how to prevent russian meddling in that election. The indictment was significant for a number of reasons. It shows that special Counsel Robert Mueller is nowhere near done his investigation. Theres much more to come. Francine when is the next step . Do we have any idea of the timeline . Investigation has not been a leaky shop. This took a lot of people by surprise. He decided to go after social media meddling rather than dnc hacking. This did not, despite trumps tweets, clear the campaign of any collusion. Didnts not this touch obstruction of justice, which many think mother will turn to next. The reports that gates is cooperating is significant and could open a new chapter. Francine do the tweets matter . Does it touch the trump base . Hes basically saying the fbi should focus on other things instead of Robert Mueller or russia. Do people care . He is speaking to his base, for sure. Even within Establishment Republicans in congress, this will be a hard thing for them to defend, for the president to not criticize russian meddling in the election, to not come up with a response to prevent it in november. Theres a lot of calls for paul to dond Mitch Mcconnell pursueng, to perhaps further sanctions against russia for that meddling. Francine youve been in politics. Does this change the way you do diplomacy . I dont know whether it is tweets or the global crisis. I think part of this is universal by now. Social media and the internet change the nature itself of politics and of political reactions. Detracts,urse, this because in the case of the u. S. , the president himself, this detracts from the sense of authority that sometimes we in europe complain about, but after all, we would like to be there. The other piece of news is that one of the biggest risks to world trade is possible import tariffs from the u. S. Administration, from the Commerce Department. Do you worry that we could see a trade war . I was hoping it was more rhetoric than actually imposing the tariffs. We have a proposal for specific industries. There are industries that the u. S. Will never do well in those industries. Now ise u. S. Needs to do to find industries where it has a comparative advantage and move ahead. The administration is saying they will impose tariffs. Robotics, artificial intelligence, everywhere you go, you hear about the impact it will have on the economy, yet the u. S. Saying we will build steel and aluminum to employ workers. I think it is a crazy idea. Francine how much do we know about whether they will indeed impose these tariffs . They are looking at weighing tariffs as much as 53 on steel and 26 on aluminum. That is part of the problem with the Trump Administration. They are not providing guidance. It could come at any time. After these huge tax cuts, which the community welcomed, i think this is going to go down badly in the Business Community. Francine if this is a crazy idea, will they not back away from it . I hope they will. It is not going to be good for the u. S. Economy in the long term. It is not going to be good for the Global Economy. In a growingriffs industry that cannot compete internationally and therefore it needs to build some critical mass. Then you remove the tariffs and you go ahead, you are more productive, you can compete. This is not the case. Old dinosauran type of industry. Francine this is just part of the America First policy, right, senator . Yes, but America First policy, i think the president will realize soon, requires a more or less orderly international context. Today say that as we look at politics on one hand and at Monetary Policy everywhere on another hand, we can observe the following paradox. In the past, it used to be the case that politics tried to convey certainty, predictability, and Monetary Policy tried to be effective through surprises to the marketplace. Now Monetary Policy provides forward guidance, but politics in the u. S. Tries to play on unpredictability. This is a new paradigm. Francine we will discuss that. Thank you so much, mario monti and christopher. Mr. Monti, former italian Prime Minister. Thanks also to our senior writer, stephanie baker. Plenty more to come. We will be talking up the business of Sustainable Finance later on. Coming up, we talk about this new paradigm that mr. Monte was talking about. We will also be talking about brexit and the italian elections. This is bloomberg. Francine this is bloomberg surveillance. Im francine lacqua. Lets get straight to the Bloomberg Business flash. Nejra siemens plans an ipo of its Health Care Division in the first half of this year consisting of a secondary offering of shares. According to people familiar with the matter, the ceo is likely to use the money generated to help acquire companies and pay down debt. Siemens says it will retain a majority stake in the longterm. Reckitt Benckiser Group says it will bounce back as it brings more savings. The u. K. Based maker of condoms and painkillers forecast that comparable sales will rise in 2018 after the first 12 months of stagnant sales in the companys history. The ceo told us hes optimistic about the coming year. Year as a cap tough year. During that year, we made transformational moves. We sold our food business for a good price. Which, 50 of our business now comes from higher growth, higher margins. As i look forward to 2018, i think it will be a better year. U. S. Investigators have detected software in mercedes cars which may have been used for the sole purpose of passing diesel emissions tests. A spokesperson for daimler said the documents have selectively and released to harm daimler and its employees. If the matter result in charges, it would be another blow to the german car industry in the u. S. Anglo america platinum has declared its first dividend in six years. The Worlds Largest producer of platinum will play will pay a dividend of 3. 49 rand a share. Operational improvements and cost cutting measures helped the company more than double annual profits from the previous year. The first marvel superhero movie with an africanamerican in the title role and a largely black cast has set records in the u. S. Like panther took 192 million over the weekend. It was also the most successful movie worldwide over the weekend. That is the Bloomberg Business flash. Francine lets talk central banks. It is a big week for the fed. The central bank added the word further twice to their january statements. Investors may learn if that was a hint that the central bank is debating raising rates more than three times for 2018. Friday brings the publication, the blueprint for jay powells testimony in congress. What should the path be . And former italian Prime Minister mario monti are both still with me. Thank you for sticking around. Concernsok at the main for the fed right now, are they following the markets too much . I think probably yes. You can never be certain. I think it is time, because the economy is doing well. There is some hidden unemployment, but i dont think my entire policy will affect that very much. Raising rates will affect mainly Financial Markets and inflation expectations. It would be a good policy. Francine is the u. S. Economy overheating . I dont think it is overheating. There will be bottlenecks developing and inflation coming. Surprising is that there isnt more Wage Inflation and price inflation, which is saying that maybe that hidden unemployment, or maybe the openness of the economy, are holding down inflationary pressures. Francine we are about two weeks from the italian election. Are you worried that all this ultracheap Monetary Policy has taken away the risks in italy and in italian politics . To some extent, yes. Smartb made an extremely Monetary Policy, and president draghi has been very smart in mustering the support for qe. Believe the phasing out would be rather quicker than slower. Thesome of the reasons that professor mentioned, but also for the impact in european countries, in italy, a very accommodating Monetary Policy has on the perception of the need to act on economic policy. Factorse that among the which explain why the electoral issued so literally and irresponsibly, one of the reason is that there is no feeling of pressure whatsoever. Francine what would reality look like . Is there a real danger that reforms will be lagging with whoever becomes the next Prime Minister . There are a lot of parties offering tax cuts. How do you fund tax cuts . A positive to be put on record is that no party, populist or not, has any longer euro,ea of leaving the calling a referendum to leave the euro. Issuance ofhe costly promises is virtually limitless. But what will happen . Im not too concerned that these promises will be honored. Be the explanation on the parties which have promised so much the day they have to cut down on promises . The culprit will be europe, because european constraints will not allow them to pull the lever. This is the Traditional Division of jobs between National Politics and he you politics, except that at every round of this game, the gap between the domestic Public Opinion in europe grows. In may 2019ill have the european elections for the parliament, i will not rule out that the settling down of eclectic ideas about leaving the againetc. , might come up with the populist parties. Then of course the discussion will have to be about europe. Francine professor, do you worry about this new wave of antieurope sentiment being serviced by, i dont know if you want to call it a mismanagement of electoral promises . In some sense, you are always sentimentout antie u. I absolutely agree that Monetary Policy has been exceptionally good during the crisis, and now mario draghi handled it very well. Faster sure that a tapering down or selling the. Ssets off again is a good idea i would like to see it better established, especially with the new elections. Greece is about to exit the memorandum at last. To see all those political movements settle down before mario draghi comes up and back tots now go normal operations with conventional instruments. About italy. Really needs to reform further if it is going to be up there and drive the European Union forward, along with germany and france. Im very optimistic about macron. I liked what i heard about the future of europe. It would be good if italy had a strong Prime Minister with a good strong government. Unfortunately, doesnt look like it is going to happen. That is a worry. Francine thank you both. We will talk about brexit next. Christopher and mario monti. Up next, planning the divorce. Details are starting to emerge about what brexit will look like. This is bloomberg. This is bloomberg surveillance. Im francine lacqua. We are back with mario monti and christopher. First, lets get to the bloomberg first word news. Nejra President Donald Trump criticized the fbi, democrats, Robert Muellers investigation, and his own National Security advisor over russias efforts to sway the u. S. Election. Hours,g 14 times in 24 trump focused on defending his victory and insisting neither he nor his campaign colluded with the effort. The l. A. Times is reporting that rick gates, a former Trump Campaign aide, has agreed to plead guilty and cooperate with Robert Mueller. Japanese exports and imports both registered strong gains in january. Overseas shipments rose 12. 2 while imports grew 7. 9 . The increase resulted in the first Monthly Trade deficit in eight months. Eurozone ministers vote today to replace ecb Vice President vitor constancio. se head of Latvia Central Bank has been detained by the countrys anticorruption bureau. There are calls for the governor to step aside. His lawyer says he considers the move clearly illegal. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. I nejra cehic. This is bloomberg. Francine theresa may and her cabinet are preparing to retreat to the countryside. Ahead of thursdays away day, it is starting to become clearer what the Prime Minister wants the divorce to look like. The idea of cherry picking has come to the fore again. The Prime Minister made it clear she wants to stay very close to the union in some areas while breaking free and others. Joining us now for more, our brexit editor, mario monti, and chris still with us. When you look at first of all, congratulations on a great story which was published about eight hours ago. Go through simple terms, what we know and dont know about brexit. You arethe only thing certain about at the moment . What we are certain about at the moment is that the cabinet is still divided. They seem to be coming together on a few issues. It is becoming clear that they want to stay pretty much aligned with the e. U. Even Boris Johnson said when it came to vacuum cleaners and hairdryers, they may want to stay close to you regulations. What has become clear is in some areas, they might want to diverge, but then stay close in other areas. Merkel said that just because the u. K. Once a deal that is not off the shelf, she said that is not necessarily cherry picking. Theresa may would have welcomed those comments. Data,heresa may said on data is fundamental to loads of said, wes, and may want to go further. She seems to be suggesting she wants the u. K. To have some kind of role when the e. U. Makes rules in the future, which is suggesting a very close collaboration. Monte will have something to say about this. What are they doing with ireland . The cabinet is fighting about Northern Ireland. Northern ireland is a very intractable problem. They made these pledges in december, no border, and not within Northern Ireland and great britain. Moment, there are the pro e u members of the cabinet talking a lot about ireland, whereas the prebrexit wing are accusing the ministers of using ireland as an excuse, bringing up the specter of return to violence in Northern Ireland and saying that is why we need to maintain close ties with the e. U. The brexiteers say that is a trojan horse. Francine how will the e. U. React . Do you have any insight on whether the German Government is willing to accept cherry picking that would not be called cherry picking . Think the general attitude is to want to have the u. K. As close as possible to the e. U. As long as the arrangement does not have in itself the seeds for further disintegration of the other 27. And if the concessions that the nature, thene this for all the love that we have for the u. K. , it would be irresponsible for the u. K. To go down that road. Francine do you believe this has an implication for other countries breaking away . It does, because they have to britain can get. If britain can get a deal which is better in every respect, the way the Prime Minister is saying, then kind of like poland , who have raised some questions about the e. U. , why dont we go priority ofl the the e. U. Will be to stay together, to be stronger for the integration. Hour andoke for an didnt mention brexit once. Less similarore or things. She mentioned brexit. We need to move ahead. Merkel isangela struggling to put a coalition together. If you look at macron, does he not need to deliver at home before he has the will of the people behind more integration . That is essential, but he came in, hes got a plan, which is not something you can say about brexit. Hes got a plan that covers both france and europe, the European Union, and he is beginning to find ways of implementing it. It doesnt mean that he will succeed. Maybe he will not. We are hoping he does. Macron were to come out, come up with a more favorable position to the u. K. , im not sure this would reinforce him, given the gut feelings of many french about brexit and the u. K. , buty like to be an actor t should not be putting [indiscernible] maycine how does theresa satisfy and placate Boris Johnson at the same time . That is the question. Boris johnsons speech was interesting because it was an attempt to set out the liberal vision of brexit, if you like. The reception was and that strong. Lots of people think Boris Johnsons day is in the past, that he probably isnt the likely rival, however last time he didnt have a prepared answer , he didnt have a prepared answer. To somehow has got get a proposal doesnt mean they are going to get it, but she has to come up with a proposal she can take to brussels. And what happens further down the line is anyones guess. Francine how do you see brexit panning out . How do you see how do you read the tea leaves . It really depends so much on the u. K. Francine on what they are prepared to give up . Absolutely. If there is uncertainty about how many months a Certain Program will persist, the 27 cannot be blamed if they do not take the situation as seriously. Transition very similar to what we have now. Left. Isnt much time i dont think it is enough to negotiate. It will just be going on, i dont know for how long. It will probably be openended. Remember that what they are aiming for by the end of this year is not a trade deal. What we are to get on the best case is an agreement on the withdrawal, the transition. The transition only becomes legally binding once that withdrawal text has been approved. Annex, ae is an political statement about the future of the trade deal. It is going to be interesting to see how that is worded without a legal basis and how that is going to play at home when theresa may says, this is my promise of a future trade deal. You all for ak spirited conversation. Thank you so much for joining us for the first half hour of the program. Former italian Prime Minister mario monti, as well as christopher, nobel prizewinning economist and professor. Up next, a conversation about sustainable investing. , head of impact finance at Credit Suisse, joins us. This is bloomberg. Francine you are watching bloomberg surveillance. Good morning. One of the biggest themes in davos last month was the advancement of gender equality. It is a phenomenon that is fueling growth in green bonds and similar instruments. Davos also saw the launch of the best nations report, a joint venture between a professor and usa today. Countries with progressive policies dominated the report. What is driving investors to factor sustainability into their decisions . Joining us now is marisa drew. Charged with coordinating investments that deliver social returns. Thank you for joining us. People actually care about this stuff. 10 years ago it was a buzzword. Returns because people want more of it. Marisa if you look back five years, you would have said theres this notion of what the body corporates are supposed to do. Anything that was doing good belonged in another pocket. What weve seen is this convergence, that you can make a profit and do more good. Davos was clearly a call to arms, particularly around Climate Change and gender equality. Investors are trying to figure out how to express themselves in the way they put their money to work. Francine is there a particular type of investor that cares more about this . Marisa it is across all asset classes. We serve clients throughout private bank, through our Asset Management division, and our markets division, and through investment banking. Every single one of those constituents is trying to figure out how do they get involved. Community,investor they are feeling pressure if you are running money to say, are you getting invested in sustainable causes, i want to know. That is creating activity and attention. Things like the catastrophic climate events are taking individuals and saying, i want to do something. Francine what is your biggest headache . Is it tracking transparency, the information available, can you actually follow the impact longerterm . Marisa you have two separate what we call efg investing from impact. Impact is defined as outcomes driven investment where you then measure. You set criteria and you are willing to measure yourself against that criteria. Every one of these projects or investments is bespoke. We are used to having everything somewhat standardized. How do you compare the ofsurement or the outcome serving a community and providing access to health versus access to education. I think it is the measurement issue that is a big one. The other issue is that for the large money, they want and need liquidity. Some of these projects are very small. We are trying to crack the code on scalability and to break down some of the hurdles. Francine i dont know if it is even a segment of the market or whether it actually is a blanket on the market that will grow with time. Marisa you cant call it an asset class because you need to express investments across asset classes. If we are talking to our clients, and they say, i want 5 or 100 in impact sustainability, we have to allow them to invest in public and private equity, the whole lot. I call it a sector. There is no question in my mind that this will continue to grow. Take something as simple as green bonds, which is a highly liquid end of the market. That has quintupled in two years. We hit 155 billion last year. November, they thought we were going to hit 130 billion, and we blew through that. It is growing fast. Francine this is also a time where some countries, including the u. S. , are saying they are not signing up to the paris agreement. Is there more resolve among the privates to take that forward . Marisa one is in america, while the federal government may be stepping back, municipalities are saying, we care deeply. You are also seeing a massive commitment from the private sector. Youve seen that play out in the u. S. Markets around Climate Change. You are seeing other countries wake up. China has come out very strongly. Weve seen some of the issues that happen when you have a growing middle class. We want to do something more proactively to make sure we got a Better Future for our kids. Francine you are a little bit of an institution in finance. You mentor a lot of entrepreneurs. Will the u. K. Ever become like the u. S. . Do we have a problem of scaling up his misses . Marisa if we look at brexit, one of the things, in the near term, we are going to face disruption. The gdp isjority of coming from the financial sector. It will force the u. K. To diversify. One of the Big Investments the u. K. Government continues to make is in the tech sector. That is small businesses. I see a lot of promise. The u. K. Is a leader across the globe in the syntax space. If we continue to invest in entrepreneurs and make it easy to scale businesses, we can be a force for good. Francine is there a common mistake that entrepreneurs do when they start a company . Marisa one of the biggest issues is access to capital. One of the reasons you see Silicon Valley being so robust is you have a well trodden form of Venture Capital investing and that gets behind companies, helps them figure out how to scale the businesses. That is something we need to develop more proactively. Francine does that come from government . Marisa it can. Eis in the u. K. Is a big one. Every time i think about making an investment, i compare it from the u. S. Versus the u. K. I know that while those ventures are very risky, there is some downside protection. Francine thank you so much for joining us. Marisa drew, chief executive of the impact advisory and Credit Suisse international. Lets get straight to the Bloomberg Business flash. Nejra u. S. Investigators detected software in mercedes cars which may have been used for passing diesel emissions tests. A spokesman for daimler which produces the cars says the documents have selectively been released to harm daimler and its employees. If the matter results in charges, it will be another blow to the german car industry in the u. S. The ceo of rio tinto has told bloomberg that chinas restructuring will lead to much more balanced supply and demand. Rio tinto gets more than a quarter of its revenue from the metal. Londons Property Market has moved out of its boom phase and is warning sellers to be more realistic. A new report shows asking prices were down 1 from a year earlier in february. London was the u. K. s worstperforming Housing Market in 2017 and theres little to suggest any upturn is in store. Francine . Francine one of the Biggest Development organizations in the muslim world is spearheading an effort to tackle the worlds biggest problem. The Islamic Development bank is launching a hub that allows innovators working on global issues to meet and share ideas. The best proposals will receive seed investment. , the president of the Islamic Development bank, which funds infrastructure, health, and Education Programs in 50 countries. Thank you very much for joining us. Talk to me about the Islamic Development bank. How much do you have at your disposal, and what are the key sectors . Islamic Development Bank is a Development Bank established 42 1975. Ago in [indiscernible] with a membership of 57 countries, that means we are serving 1. 6 billion people fived the world, one in the total populations. Francine as we look at some of the investments in infrastructure and health, where do you see most of the money flying into . What are the most pressing projects . Which part of the world . Our mandate is to promote development. ,conomic and social development and promote health, and. Ducation last year, the total approval exceeded 10 billion. A percent of that was allocated ,o infrastructure transportation, energy, and so on. Moreine is infrastructure important than health care . How do you choose . We are a Development Bank. Lot ont really focus a the return. We are focusing on the improvement in our member countries and around the world. Our vision is to help our member sustainable achieve High Economic growth and to generate jobs,o to improve the life of our people. Be with but it must private money, so you have to make it appetizing for them. Course. We have many funds, maybe about forunds in different areas, [indiscernible] Qatar Development fund and so on. Fund was 500 million to help support people, and especially in the area of health and agriculture. Francine given the Trump Administration is pulling out of certain countries, does it mean you have to fill in that vacuum . Yes. Francine does it impact on how much financing you need to do . Make theint is how to life of the people better, how to improve the life of the people. Countries classified least development countries. We are giving those countries priority. Most of those countries are in africa. For example, electricity, water, food, other services. We are trying to transform all these challenges into an opportunity to create jobs for the privatend sector. To do that, we established we believe strongly that science and technology are the tools to achieve this. Francine thank you so much for joining us. That was the president of the Islamic Development bank. Bloomberg surveillance continues. This is bloomberg. Francine President Trump lashes out at his critics over muellers investigation. He sends 14 tweets in 24 hours. Traders brace for more than a quarter of a trillion dollars in u. S. Paper issuance this week. How steeply will borrowing costs rise . And, the u. K. Prime ministers postbrexit vision is starting to emerge. Good morning. This is bloomberg surveillance. Im francine lacqua. Tom keene off for president s day. That means we get a little peace and quiet. I assure offense of tom keene, he will be back tomorrow. Theres a little bit of movement. Less volume than usual because of president s day in the u. S. And because of the Chinese Lunar new year. Lets get straight to the bloomberg first word news. Sebastian President Trump spent the weekend criticizing everyone but russia for meddling during the president ial campaign. He tweeted 14 times criticizing the fbi, democrats, and Robert Muellers investigation. That came after mothers indictments of 13 russians for leading social media efforts to attack hillary clinton. Florida, 17 people shot and killed, students are speaking out for gun control. Some of the students will go to floridas capital to demand immediate action. In the u. K. , theresa may is putting brexit aside. Today, may will try to repair her image with young voters. She will warn against an attitude that favors academic over technical qualifications. Jeremy corbyn has promised free adult education. In japan, shinzo abes decision to stick with Haruhiko Kuroda indicates that powerful stimulus will continue. That is the conclusion from a Bloomberg Survey of economists. They said it could make it tougher to normalize policy. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. Im sebastian salek. This is bloomberg. Francine thank you so much. These are your markets. This is what im looking at. Theres a little bit of a turn to the market as tom would say. First of all, theres a lot of talk about the euro risk premiums overall. European stocks are struggling to carry forward. 500 lastok at the s p week, the best week in five years. Today, oil advancing. Im also looking at german bonds. The euro edging higher with the british pound. A little bits less market volatility than usual. Certainly less trading volumes. It is president s day in the u. S. It is also Chinese Lunar new year in the u. S. This is what im looking at. Paradigme go to a new for 2018, this is without a doubt my chart of the week. Fed futures are nearing the return, the rate where it is no longer stimulative. This is a very simple chart, charting what we call the natural rate of interest. I will push it out for our regular listeners. Good morning to london dab digital radio. It gives us a little to talk about on whether at some point the weaker pound becomes less stimulative. Japanese shares have pushed asia higher. Markets in hong kong and china remain closed. U. S. Futures point higher despite markets shot. Cash is closed for the holiday. Optionsbe watching approaching 258 billion this week. There are reasons to believe that more yield widening is coming. Joining us for the hour, the chief executive officer. As always, a great treat to have you. When you look at the markets, we had huge volatility and a little bit of market correction. What happened . Inwe have highlighted it december. There were too many strategies making investments based on lower volatility for longer. This is really the last leg of centralbank action. You need to think of the world basevereign debt being the , then you have corporate debt on top, and the top of the pyramid is equity in credit. Volatility. S took as a result, markets started sucking of volatility across the capital structure, going into credit, corporate, eventually equity. Nature is much more volatile. Is theres no way on earth that you could have volatility forever at 7 to 8 . Backine let me bring you to our s p 500. We brought it back to september 2014. This is my chart of the year. It shows you the progression. The red circles are 5 corrections. For our radio listeners, i will push it out on social media. We dont have a correction anymore until a couple weeks ago. , pent up, at some point it bursts . That is what it is. People like us kept on edging volatility all the way through. Eventually, there is a year where you make it all the way back. I think for an investor, you always need to think what is sustainable and what is longterm. Years,take the last 100 volatility was about 20 to 25 . We came on a low volatility period. Recently, it got down less than 7 , 8 . That is insane and against logic. That is why People Like Us kept adding volatility. On the other side, there was strategy, the central bank sucking volatility across asset classes. Which we saw for example with Credit Suisse. If you look at that chart, does it mean more is to come . Does it impact credit . I think theres two issues. Because the underlying economy remains strong, the data remains strong. , change in Monetary Policy there is still upside in equity markets. Europe is so much cheaper than the u. S. In the u. S. , we went ahead of ourselves based on the tax plan, and what people are not considering is you cannot have the strongest economy over the last 20 years, make America Great again, but run a twin deficit. This accounts for about 6 . Eventually it is going to cost a lot of money. The whole world is long u. S. Dollar. As a result, yields inevitably will go higher. The fed will have to tighten because it will have a higher rate of return. When everybody holds dollar, you cant push dollar for everybody. Francine will we make treasuries great again . Are you happy with bond sales . We are hedging towards the 3 . Deficit doesnt justify a 10year 3 . Francine thank you so much. Stay with us. We will have a shot of espresso. Later on this hour, we are joined by the allianz chief executive. 6 00 a. M. , 11 00 a. M. In london. This is bloomberg. This is bloomberg surveillance. Siemens plans an ipo of its Health Care Division this year. The company will be called siemens health. The ceo is likely to use money from the sale to help acquire companies in siemens main businesses. Aberdeen ended talks over merging insurance businesses. They disagreed over control of the combined entity. Standard life wanted an equally held joint venture. Reckitt benckiser says it will bounce back from its worst year ever. Painkillers and other products is forecasting a sales increase of up to 3 after revenues were stagnant last year. Bloomberg talked to Reckitt Benckisers ceo. 2017 was a tough year. Madeg that year, we transformational moves. We sold our food business for a good price. We acquired me johnson early last year. 50 of our business now comes from higher growth. To 2018. Rward i think it will be a better year. That is how we are guiding the market. Sebastian that is the Bloomberg Business flash. Francine u. S. President donald trump has criticized the fbi, democrats, Robert Muellers investigation, and his own National Security adviser over russias efforts to sway the u. S. Election in 2016. Tweeting 14 times in 24 hours, trump focused on defending his victory and insisting that neither he nor his campaign colluded with the russia misinformation effort. The l. A. Times is reporting that rick gates, a former Trump Campaign aide, has agreed to plead guilty and cooperate with Robert Mueller. The report cited unidentified people familiar with the case. Joining us is stephanie baker. Still with us, investment chief executive. Thank you for sticking around. Stephanie, what is going on . 14 tweets, 24 hours, the president saying he was great. Hes focused on defending the legitimacy of his win rather than condemning russia for its meddling in the election. Despite this press release put out by the white house, he was purely focused on his own campaign and his own reputation. The indictment shows that mueller is only partway done, that theres much more, that hes sitting on a lot more information. The indictments had nothing to ,o with the hacking of the dnc which i expect we will see an indictment on that, and it had nothing to do with obstruction of justice, which mueller is looking at, trumps decision to fire james comey because of his pursuit of the russia investigation. I think this was a rough weekend for the president. He tried to mix the Florida Shooting with condemnation of was too saying the fbi focused on the russia investigation and that is why they missed the shooter, even though the two are not connected at all. Francine lets bring in some of the tweets. Some of them were interesting to say the least. Is this a bid for his reelection . Is he trying to talk to his base to make sure he doesnt lose support, or hes just a president that needs to justify himself because hes feeling the heat . Ironically, we saw some numbers which indicated that the tax cuts as well as the spending bill is increasing support for republicans, so his base does seem to be solidifying. However, that is a shortterm fix, i think. Not just, his focus is making sure that his own legitimacy, the legitimacy of his own election is intact, but he does not want republicans to lose control of congress if democrats win control of the house. That raises the chance of impeachment hearings. Certainly this is an attempt to rally his base. Some of the words he used over the weekend were very unpresident ial, saying for instance that these indictments, using expletives, that moscow is laughing at us, and ridiculing the top democrat in the house, calling him a monster. These are very unpresident ial language. Definitely directed at his base. Francine markets care about these things, these tweets . I think markets have learned not to care about Donald Trumps tweets. Davos was a key example, when he presented to the Global Investment community. He read a speech. Most applauded. The adults in the white house wrote that speech. Now, even bynse lots of the u. S. Administration officials, to say, ignore donald trump tweets. The more you see about this persona, hes obsessed with his own personality, hes clearly using language which is nonresidential if a teacher in any high school would use that language, would probably be fired. Result, has clearly a personal issue. Cant sleep enough, that is what they say, so he gets angry and he rambles. Look at the actual action of the government. Not as bad as the tweets were. Short the tweets and long the policies. Francine what do you do with paris tariffs . Does that amount to a trade war, and does china retaliate . That raises a chance that china would retaliate in multiple ways. Youve already seen some noise about other sectors of the economy that could be impacted by these steel tariffs are aluminum tariffs, condemning the possibility of them coming in. On they going to act Commerce Department recommendations . Do they impose tariffs on all countries . Which countries do they focus on . China could retaliate by bringing a case with the wto. A trade war is not healthy for the economy in the long term. Francine thank you so much, stephanie baker, and david. Coming up in the next hour, interview with morris reid, managing director and former adviser to president bill clinton. Look for that interview at 6 30 in new york, 11 30 in london. This is bloomberg. Francine good morning. This is bloomberg surveillance. Im francine lacqua. Tom keene, off on a welldeserved president s day. Theresa may enter cap that are going to retreat to hash out differences on brexit. It is starting to become clear what the prime in this the divorce to look like. The idea of cherry picking has come to the fore again. The Prime Minister made it clear to delegates she wants to stay close to the European Union in some areas while breaking free in others. Joining us now is bloombergs London Bureau chief. Us, algebras investment chief executive. Great to have you on the program. Thing most significant the fact that if we do cherry pick, not call it cherry picking, Angela Merkel wouldnt be so against it . That was significant, mrs. Merkel saying that it wouldnt be such a bad thing, or such an impossible thing, for britain to try to do this thing called cherry picking. Really accepting that there has to be some sort of bespoke deal for britain. This is what theresa may said all along. Europe saying in that is not possible. It is the Single Market or nothing. Maybe we will know for sure at the end of the week what mrs. May wants to be close with and what she doesnt. It is significant for mrs. Merkel to say that. Mrs. Merkel as yet does not have a stable government herself. We are still waiting for that vote to confirm her coalition. Mrs. Merkel has been helpful to mrs. May. She was back in the first round of negotiations as well. We hear different from the french side. Michel barnier himself saying it is not possible to do this. We have to wait. Francine i want to ask you about the transition agreement. Is it as simple as that you needs to figure out whether by giving the u. K. A special relationship, whether it excessive rates the possibility of other countries doing the same . Perspective, you can say that whatever merkel irrelevant. In reality, it is not. Any vote has to go through European Parliament. No matter what merkel says, she doesnt sit in parliament. There will be people in parliament that have to vote. When you have so many countries in germany,bargoed it is hard to have a bespoke deal. It is threatening to what they built over 40, 45 years. With alls complexity the other partners. I do not believe it will have a bespoke deal. Francine so you see a turning ugly . I think it will turn hard or none. This word soft, i think it doesnt exist. Francine what do we do with ireland . The conundrum no one has been able to answer yet. We have contradicting pledges. We are going to come out of the Single Market, but avoid a hard border. Tore are these commitments maybe have some special arrangement. Mrs. Mays government is propped up by the unions who have an outside say in her strategy. That problem has not been resolved. We have to wait to hear on that. Interesting to hear that about the European Parliament. Hoping there are enough countries that have strong trade links with the u. K. To fight for some sort of bespoke deal. Francine thank you both. Our bloomberg London Bureau chief. Coming up tomorrow, we will speak to the ceo of bp. He is bob dudley, live from Petroleum Week in london. That is 5 15 new york time, 10 15 in london. This is bloomberg. Francine good morning, everyone. Tom keene is off for president day. Lets get to the first world news with sebastian. Sebastian President Trump issued a week in blizzard of tweets over the investigation into russian meddling into the election. Russia,ot criticize even after special Counsel Robert Mueller came out with indictments for 13 russians were allegedly leading social media efforts to attack hillary clinton. Theres a report former Trump Campaign aide rick gates has agreed to plead guilty and corporate with a special counsels investigation. Gates will admit to fraud related charges in order to agree to testify is former Trump Campaign manager paul manafort. Goldman sachs warning that will be a surge in the cost of servicing american debt. Expansion, historic and Economic Growth along with rising bond yields. Goldman says that will eventually put u. S. In worst position than in the 1990s. In the u k, make or break week for the pound is it is likely to be driven by Economic Data that could determine whether the bank of england raises Interest Rates and three months. Traders will put the most weight on british implement figures, out on wednesday. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. Just two weeks ahead of the italian elections, are beginning to show for the right block. Are beginning to show for the right block. Both the x premier and his key ally snubbed a rally that had been billed as a show of unity. While coalition separate from fragile in the past, the track record of the government remains above the average. Serra. Et back to davide great to have you here on bloomberg surveillance. If you look at the promises of the various parties, it shows tax cuts. How deliverable are tax cuts given the economics, but also the deficit of the italian economy. You have the 3 deficit limit and most of the italian promises go way beyond this deficit. It wont be able to be delivered unless there is a massive, say, cost cuts or public administration, which i think are very unpolitical and i dont think it will happen. Lots of promises, and will be disappointed. So nothing new. Francine do the elections have the ability to be disruptive for the markets . I dont think they will be disruptive, because remember, take the last 30, 40 years. Two key insight euro antieuro, all of a sudden, 70 of voters in italy backed euro and European Union decided it was no longer the case to discuss the euro membership. All of a sudden, on the weekend, without any expedition given. The reality is, lets say when someone defines who is in a time politician is never a great complement. The reason is, you keep on changing sides just to hang in your own chair. The markets have understood this. When you see the state what is happening of brexit, you say, is this that bad . It is more or less the same globally so the markets are more relaxed. Francine youve never had a Political Party stronger to government own comment then the foot swapping of politicians, your costly meddling to agreements and trying to figure out a way without properly enable to govern. Havell, italy and germany inherited the constitution from the second world war. Basically, the allied forces imposed on germany and italy a constitution that basically has strong check and balances between judiciary, parliament, and the government. As a result, what happens, italy, everyone is to factor into power. This is what has kept italy from not reforming over the last 20 years. I think now, that you truly have, say, a parliamentary law that basically is fully proportional means no one will get to 40 unlikely. As a result, you need a grand coalition or election or new electoral law. Francine we can talk about polls because italy is strict when it comes to rules, but if you look at the very possibilities, factions, i guess the allies, are you worried that reforms wont be put in place so then this goes fine for the market and then we wake up in 18 months and you just him have the reforms that are enabling italy to grow . First, we need to look at the last four years. Average,ke 40 years the average government has created about 200 jobs per day for the last 40 years. Another a staggering 800. Number of jobs created, four times better than average of the last 40 years. The existing reforms that have been put in place are already yielding results. Gdp is about the longterm average potential for italy. Italy is playing catchup. They key issue here is where the postelection, there is going to be what i would define a grand coalition government, keep on focusing on reforms to keep jobs going. All told, will have one simple number. How many jobs has the new government created . Anything else will be irrelevant. The test of reality will pretty much be clear already as of march or april. If we were to see a number of jobs going down, clearly, whatever has been promised has not been delivered. Francine what happens to ecb bond buying . Chart. My you see this spread between the italian german bonds in 2011 and 2012. This is where we are now. This is because the ecb is buying. Both. Remember, the issue is, under insight ecb, the only true risk is where italy ever to think about leaving the eu. First of all, it is unconstitutional. You cant even have a referendum. You need to change the constitution first. Italy tried and it failed. It needs to have a super majority. I think it is pretty much impossible given the political setup. Take 130 if you are to business pointspread and multiply by seven, that makes about 9 . If you assume the potential evaluation would be 40, you have 10 . ,hat gives 15 probability ballpark, back of an envelope, of italy leaving the euro. If all of the party are saying we want to stay in the euro, 25 partyh given most of the does not want to discuss it, we are 100 in it. I think the spread has upside, in my view, meaning it could tighten further simply because youre in for euro. Francine this could tighten even once the bond buying purchases a kind of scaledback . Yes. Not the absolute yield. Hink bund, subdued percent 60, 70 basis points. Here were talking about the spread. The relative value of italian bgp versus german bonds. That could tighten further with both of them whitening. Francine where do you need this to be for italian exports . Here the question is, italy went through a severe recession from 20082014. Gdp collapsed at 10 . Italian privacy to gdp collapsed biomes 20 . By 20 . Psed survived, it is strong and able to compete. What you are seeing today besides the italy export of the fastestgrowing outside germany in the eurozone is still the fifthlargest in the world is because whatever is left of the industrial capacity, it is very strong. Italy can easily compete with the euro 125, 130, no problem whatsoever as far as exports are concerned. Francine is reg out youre going to lose money on the big short . Yes. 50 of the market share. We see tremendous sell you some of the asset class. He market is overly worried as most banks are cleaning up the Balance Sheet and there joining the european level of lets say no performing loans over the next two or three years, i think offer the ability of italian banks will go strongly as soon as the ecb will move from negative rates to zero rates. I think it is hard to have an economy growing at 1. 82 in europe with inflation of 1. 5 . And keep rates at minus 40 business points when the u. S. Your hedging for the 2 level. Ishink what ray is missing the day the ecb goes from 40 to zero, italian bikes could easily see 20 , 30 up great in one day. I think a short on italian banks over the next 12 to 18 months will be a losing strategy. Francine davide serra, thank you. Coming up tomorrow, we will be speaking with the united arab emirates. Theill be asking him about deal to cut production between saudi arabia and russia. We will be asking him about demand for oil and oil prices. That interview tomorrow at 6 20 a. M. In new york, 11 20 a. M. In london. This is bloomberg. Francine this is bloomberg surveillance. Tom keene is offer president s day. Hsbc barclays and rbs report earnings this week. It comes as talk of consolidation amongst europes biggest lenders continues. Deutsche bank ceo at the beginning of the month said he could see the bank merging one day. Meanwhile, the chief Financial Officer of commerce banks says crossborder mergers are some time away. Souteret back to david debbie sarah. Davide serra. I dont think youre likely to see lots cross order m a. You will see domestic m a. You have seen it ends aimed. I think youll see more with likely to increase its market share in spain to compete. I think you might see consolidation in italy. You might see conciliation in m a. Consolidation when youre adding two big Balance Sheets because of the basel rules, youll need more capital for both institution and hence the synergies of two people merging are more than neutralize by the more requirement for capital regulators will impose on you. For not going to actually gain anything. Francine financial stocks, u. K. , swiss and european. Or are you . Today if you look at the globe, the one were most excited are japanese financials and european financials. The reason is because what happened to your financials, which we think will happen to european and japanese. A sanction of shortened rates becoming positive. Secondly, i think it is interesting over the last two weeks of the market meltdown them a what you seen for the years,ime 2002, was 15 the u. S. Financial index is up from the market outperform the market. This has never happened the last 15 years. The resilience of the factor that has massives capital and more safer and secure, cheaper. As a result, we think this is the beginning of a financial outperform for the next three to five years. At thee if you look u. S. Ones, they have big investment banks. They are growing. How did the European Investment bank that is shrinking grow revenue . A lot of them are focusing on Wealth Management. If you are looking up pure investment banks in the u. S. Earnings, that is 5 to 10 of all bank earnings. The issue is, we think, because it europe is very sensitive to shortened rates both in Wealth Management and in retail banking, aasic normalization a policy rates in europe will be the key driver for european banks to outperform. In our view this is not priced in by the market. Banking was not created have a employees,nches, losing every year. Phenomenon will normalize over the next three years and is fully to a big Margin Expansion for european financials. Francine do you break it down country by country . German bank does not like a swiss bank that does that look like a french bank. The most sensitive to shorten Interest Rates are the most boring. But say retell operation banks, spanish and italian. Impact ofich had no the germans banks because of how they are set up, they are more corporate bank. Swiss banks, merely a shortened rates and the Wealth Management operations are they do have sensitivity but theyre ready have the benefit. A lot of their assets are in dollars and theyre already enjoying, lets say, upside through the dollar rates. I think in the u. K. , it is all the credit cycle whatever brexit we will have. In case of de facto and no brexit, i think you get banks, equity has francine but that is not your base case. No. As a after the transition period, which is basically we divorce but we dont, when we actually do divorce, we should 2020, 2021, at that point, we will see a proper hard brexit. We can see how all of these red lines between the two sides can be met. Francine this is an unconscious coupling . There is no way for 45 years you have a joint project, join kids, joint house, joint laws, you unwind it all and it is a winwin. It doesnt make any sense. Davide serra, thank you. If you want to ask questions, a couple of yours message me directly, we will try to get him those questions and you can also askonto tv and you can him some really hard questions. This is bloomberg. Sebastian lets get the Bloomberg Business flash. Struggling commodity reporting another huge loss. The Hong Kongbased company says its fourthquarter loss could be as high as 1. 9 billion. That would bring their losses of the year almost 5 million. Cent two. Ced a re black panther is the latest smash. It opened with an estimated weekend sales of 192 million in north america. That is a record for february opening. Likely to become the biggest movie ever starring a largely black cast. That is the Bloomberg Business flash. Francine according to a Bloomberg Survey, the secondhighest post is spains toulouse. They will have said support the minister over the Irish Central Bank to be the next Vice President of the ecb. Joining us now from brussels ahead of the euro Group Ministers meeting. Maria, i guess there is been a lot of criticism because he is not a central banker. How can he do and what will he do if he does get voted in as Vice President of the ecb . We knew that has been a source of concern at the European Central bank, they dont like this idea that you can transition from politics to sit at the bank, precisely because it has to stay independent from political interference. You spain hasell done a hard work. They did major reforms. And they deserve this. At the end of the day, should be based on merit. The idea where getting as he is going to win his, even of the Irish Central Bank governor probably looks better on paper. The question for the market, what does he think, is he hawk or dove . We need to see this in the broader context. The bank will change a lot. The market wants to know, how dovish are they going to be . Are we going to get a new hawkish point . Francine thank you, maria, there are brussels with us throughout the day. That you back to davide serra. Care who becomes Vice President . Does it actually materially change the way you look at ecb policy . Toi do care a lot because me, there is a redline. You cannot be from being elected in office, saving finance minister come and join the ecb. If you were to do this, it would be a big mistake because their crossing of redline. If you want to join the board first, becomes the governor of the bank of spain, he proves himself there from the bank of spain coming can join the ecb board. This idea go from politician to the ecb board is very dangerous. It has nothing to do with guindos or personality, but a professional role. The fact that spain is pushing for it is because it is clearly a power grab rather than breaking institutional set up think would be a big mistake. I am talking against it. Secondly, very interestingly, european session of the european chair with all of the mps, they clearly gave a big standing ovation to lane and not guindos. Even though it is only consultative and does have decision power, the members of European Parliament supported the candidate which actually is doing the job. Financeis a fantastic minister. The ecb is the wrong place. Francine we ever your question we have a viewer question. The viewer says with the recent equity market volatility would not see a big move in the index relative to the ss5e. Very good question. If you take u. S. Financials, you could do the same with the be kx bkx, basically, the index of banks, the main market both in europe and u. S. , 2002, the banks are outperforming the selloff in the s p. This is happening in europe, too. This is a big regime shift. Why is this happening . Two reasons. Banks have raised capital. They are not as risky as they used to be. Over the next two or three years, where can you get normalization of policy rates in your and that is beneficial. Francine twitter storm, President Trump lashes out about russian meddling. He since 14 tweets in 24 hours. Traders rates for more than one quarter of a trillion dollars this week also just how steeply will borrowing costs rise as americas debt swells . Detailing the divorce can you postbrexit remains. Good morning. This is bloomberg surveillance. Tom keene is off for president day. Happy president s day to all of our u. S. Viewers. No look at the markets, a little bit of movement when it comes to europe. First, to the bloomberg first word news. Spentian President Trump the weekend criticizing everyone but russia meddling. He tweeted 14 times over 24 hours criticizing the fbi, democrats, special counsel Robert Muellers investigation. It came after the indictment of 13 russians for meeting social media for two attack hillary clinton. In florida, students at the school where 17 people were shot and killed are speaking up for gun control. They plan to organize a nationwide antigun violence march next month. Some of the students will go to floridas capital this week to demand immediate action. In the k, theresa may is to mayly in u. K. , theresa will call for funding for education and warned against an attitude of favors academic or technical qualifications. Opposition Labor Party Leader Jeremy Corbyn has promised free adult education. Singapore is increasing taxes to shore up savings to cope with an aging population. Goods and Services Taxes will be increased sometime from 20212025. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. These are your markets. We have quite sent trading volumes because it is president s day and u. S. Meaning the equity markets are closed. It is also the Chinese Lunar new year, which is because which means a lot of the chinese equities are closed as well. Are looking at the s p on friday, a notched the best week in five years. The dollars steady against major peers. Watch off any kind of movement in german bonds. And put them on my board. I dont often do that. Edging higher. That is the latest on the markets. Off 200 50y said billion in notes this week. It will be a lot for bond traders to chew on. An ongoing Political Drama in america, will provide the fea clear. Us out, Andreas Utermann joining us now, Andreas Utermann from Alliance Global. Great to have you on the program program. Im not looking forward to it, i cant wait. Im holding my breath for to be honest. Quite honest, i dont think much is going to happen. We have reached an interesting level of the 10 year. What i felt even more interesting, i think the yield cuts have fled to the extent it has. Flattened to the extent it has. Curvet think the yield will steepen from here without any further action on the short end. Francine could it get messy from here . Messy already. N i think it is good messy. We have been saying for a while we need more volatility. That is healthy. We have such a risk on trade for so many years with the fed put in all that. But it has corrected itself. Now looking forward to more volatility. That means if youre an active investor in the markets, it means more opportunity for us to generate. Francine where does the volatility come from . A simple s p 500 chart. We brought it back to 2014. Without a doubt, it was my chart of the week a couple of weeks ago. Every time you see a circle, it is a 5 correction downward. You can see the s p upward, upward, then we had what happened a couple of weeks ago. Is morehink there volatility to come in equities or does it spread to the credit market . Whether the volatility spreads to the credit market is the 64 Million Dollar question. I think it depends on the health of the underlying economy rather than shortterm Interest Rates. We are quite constructive on that. We have a sort of goldilocks scenario. Demand picking up quite a bit and investment picking up. Im not too worried about that at this stage. If you look at the chart, what it is telling you is we went up too fast. Our estimate for the year was equity returns from start to the end about 4 will stop 4 . We are more to go, but this move that we saw in january was overdone. Francine this is pentup tranquility. See is a signal that it could spread to the credit market . I think a signal would be a significant weakening of Global Economic utility. We dont see that at the moment. I think we will see credit be quite healthy. Francine what does that mean for investment . Are we going back to active investment . We never left it, really. Side in the numbers in 2017, active managers have done much better generating than the preceding three years to five years. But what it means for us, we continue to take risk. Acid allocation risk, currency risk, and credit risk. We like asian markets. Thecine you are one of first one years ago they came on the show to talk about repression. What does it mean in 2018 . It is relevant because Interest Rates are still negative, inflation is picking up. All juristicave monetary policies. The key challenge we have as investment professionals is how do we secure the real income, the real purchasing power of the people who invest with us . Francine is 2018 the pivot year were used to the beginning of the end of the easy money . Well, yes, it is the pivot year. With cigna we have seen the peak, but it doesnt mean we wont see in 2019. As Interest Rates rises, they will still be negative or barely as zero. We are far off from positive real Interest Rates, particularly in europe and japan. Francine when will we get positive real Interest Rate . Two or three years or longer . A very long time in japan. In europe, probably at least two to three years and in the u. S. , i would say at least 15 months. Francine are you worthy 15 month scenario coincides with a downturn in the economy . I dont know whether it is a crisis or something up with the central bank in a very difficult position . Yes, i worry about it, but it is not keeping me up at night. Until i see evidence of the contrary, i think we are staying for now with our relatively benign scenario. Francine i want to ask about , is thisnds because the biggest risk to european equities . It is a big risk, but i dont see that happening. Theink the tightening of ecb is going to happen primarily at the short end, so we will see a flattening, if anything, of the yield curve wil. I think 2. 5 with inflation, that is pretty good. Debt, valuing in asian local currencies in asia are very cheap. I see some value in vienna with the euro. Ive talked about that before. If i was in u. S. Assets, i would hedge u. S. Dollar out. There are a lot of u. S. Dollar shorts out there. Might feel little bit of recovery but on a six to 12 month basis, you lose money in the u. S. Dollar, so hedge it. Then it continues to be the case that equities with strong Free Cash Flow will keep their rating. Francine thank you so much, Andreas Utermann. Trumps come, we talk tweet storm. E speak with morris reid this is bloomberg. Sebastian seem its the first half of this year, the new comedy will be called siemens health. Time, a woman will lead one of russias largest commodities companies. According to people familiar with the matter, she will become the ceo, replacing the billionaire. He is stepping down as part of a broader reshuffle. Bouncing back from its worst year ever. U. K. Based maker of think it was another Consumer Products for casting assess increase forecasting a sales increase in 2018. Year where a tough we said tough macros. But in the year, we made moves and sold our food business for a good price, then we applied early last year. As a result, basically 50 of our business comes from higher growth, higher margins hedge categories. As a look forward to 2018, i think it is going to be a better year, and that is how we are getting the market. Sebastian and that is the Bloomberg Business flash. Francine in todays morning daniel says would japanese Prime Ministers shinzo abe nominated the governor for the second term as governor of japan, he gave him a gift that might hold the key to policy over the next five years. Dan argues by nominating two japan, he gavedeputies, yes pro maneuver should he need to execute a policy shift each direction. Here to talk with this is Andreas Utermann, chief executive officer of allianz global. I love the morning mustread, but i wonder, what would it take for policy to be shifted in the other direction . You mean tightening . Francine yes. Is it near impossible . It is deftly question of old that will ever happen definitely questionable that yourhappen in the future. We talk about japan, the last two decades, all of that, but if you look at the underlying economic results, the growth of gdp for head, the growth of gdp per person employed, japan is outperforming pretty much every country in the world. That is to do with the fact that its population is shrinking and the management is transitioning really, really well. If you think about, what does a population shrinking as fast as you cans really want japans really want . , health care benefits. They want stable money. They want, if anything, disinflation because it allows them greater purchasing power. What that also means, they want the strong yen. Shiftould the policy mix to something that is not appropriate for the vast majority of the electorate . Ive always said the yen overtime is going to appreciate simply because politics dictate it. By the way, with the yen appreciated, we are already seeing tightening of monetary anyway. Francine we saw that in the height of the volatility. At some point will they intervene if the yen gets out of control . What does outofcontrol mean . If he gets back below 90, which i think it was the low 80s, that would probably be counterproductive. In that sense, there were probably the a lot of talk. That is the intervention will probably see and that would temporarily hold the rise. They are more worried about stronger yen to fast. Francine i brought the chart up. What does grow to do next . He targeted the yield, the 2 . Does he need to do more . Is it easy as they go . Right now they are where they want to be. The Global Economy is picking up. That will then if it japan. I think of is all good. Francine do you worry about a trade wars . We heard on friday we will talk a little bit more with morris reid about President Trumps tweets, but we heard from the Commerce Department saying tariffs. What does that mean for japan . It is something we are worried about for some time. We talked several years ago about fracturing and that being a risk to asset markets. It has not materialized. The monetary conditions were seeing, that is steadily a risk. It is now been integrated makes of the bigger risk. Clearly the sectors that might be active primarily by tariffs are to be looked at carefully. I do think it wont stop at those sectors. If your cigna move toward breaking up of major trade deals such as nafta, i think that will be over time have a Significant Impact on companies margins. And not just in terms of the cost, the in put cost of the materials through the tariffs, but in terms of higher wages. One of the big benefits to corporates him if you will, of globalization, was there were able to arbitrage labor. That becomes much more difficult to recreate repatriate domestically puts of domestic wages and that will have a significant negative impact on companies ability to achieve maximum returns on equity. Francine this is a simple 10 year yield chart. This kind of goes to the level hurting equities above 2. 6 . But overall, do we underestimate the relationship between treasuries and china . I guess, what amount of treasuries the chinese hold . Certainly a tool in the box in terms of the negotiating power of china with United States, therefore, it will probably limit the amount of actual action the u. S. Can take relative to china in terms of tariffs. But it is more about the overall the risk i see is your role tender and the overall content of the discussion. Brexit is an example of that. There will be a lot of invisible trade barriers put up, in my opinion, that are just as effective or costly to corporates as actual trade test can be. Francine Andreas Utermann, thanks so much. He stays with us. This is bloomberg. Francine good morning. Bloomberg surveillance. Francine lacqua here in london. Lets talk financial regulations. Nearly sixffect weeks ago after firms had three years to prepare for it. What has it meant for markets and investors . And what could be the impact of mifid global . , chief utermann executive officer of Alliance Global is with us. Get mifid, what are your longterm expectations . Nearly impressions are, it is too early to tell. We dont know really the impact, the major work that is still ongoing. It is to determine what is the right price for research, particularly Customized Research services on the equity side. Pretty much done on the fixed income side. On the equity side, it is not clear. Ice and once q1 is out of the way and we start actually seeing a price for may nation mechanism in them formation mechanism in the market, we will know more. Francine by summer . , may. Midjune we dont know and i dont the market knows, but that is ok. Isncine at the moment, it gone smoothly. In december, there were concerns about what it would entail. Loucks we are still receiving research, but it is still longer it is oligarch. We will have to see how our analyst respond to this new menu. And then what will be charged for it. He will be an interesting price mechanism, but i am not worried about it at all. Plenty of adults around the table to get the right results. Francine is anything else you worry about . Besides the price, any unintended consequences . I dont know if there unintended, but the medium concerns are going to be the regime, as a research is sharing, will be the global standard. Not something i worry about, but i think something we will need to prepare for and we are with respect to the u. S. And asia, which initially was certainly, was not going to happen when you heard about this. But clearly, i think it is a situation which is going to be becoming unattainable in the u. S. And asia as well. We talked about bitcoin. A different kind of regulation. I think since you were on, it went up and down, up and then significantly down. Is it going to be regulated in 2018 . I think we are already seeing it being regulated in a never of courses. Number of courses. It is not just states relations such as in china, but that was the trigger for the cell of initially. Credit Card Companies saying you cannot buy. I have said this before. Bitcoin is not a currency. It is a medium of exchange. Supposedly, potentially, value just like gold or a painting on the wall. We talked about the mona lisa when a was on in december. The problem is, it might not also be your value. I think that is why many people have warned against people against investing in bitcoin. Buy certainly said if you big one, youre not buying come your speculating and you need to be prepared to lose all your money and them. Andcine for more on mifid financial relations, dont miss 8 00 p. M. London time this friday. We continue with Andreas Utermann and also talk a little bit more about the brexit and the Trump Administration. Tomorrow, we will be talking to dudley. That is tomorrow at 5 15 a. M. New york, 10 15 a. M. London. Dont miss that conversation about dividends and buybacks. This is bloomberg. Good morning, everyone. Look at that from washington, d. C. Waking up celebrating president s day. It is a United States federal holiday celebrated on the third month of february in honor of george washington, the first president of the united they. Incidentally, was born fed your second, 1732. As we remember past presence does president s, we also go to the markets and we go to our first word news. Here is sebastian. Sebastian President Trump issued a week in blizzard of tree over the investigation of russia meddling into the election am attacking the fbi, even as a National Security adviser. Evend not criticize russia after the special Counsel Robert Mueller came out with an indictment of 13 russians for allegedly leading social media efforts to attack hillary clinton. Theres a report that former Trump Campaign a great eighth has agreed to plead guilty dates has agreed to plead guilty according to the Los Angeles Times saying he limit to charges and testifying his former Trump Campaign manager paul manafort. Goldman sachs warning there will be a surge in the cost of servicing american debt. The reason . And the expansion appearance of Economic Growth along with rising bond yields. Goldman says eventually will put the u. S. In a worse physical experience in 1940 with the 1990s. In the u k, make or break week for the pound. Midterm direction is likely to be driven by Economic Data that could determine whether the bank raises Interest Rates within three months. Traders will put the most weight of british unemployment figures. Global news 24 hours a day powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine thank you. Lets get to the top political story. Donald trump has criticized the fbi. Over russias efforts tos with u. S. Elections in 2016. Tweeting 14 times in 24 hours, trump focused on defending the validity of his victory and insisting neither he nor his campaign colluded with the russians. The l. A. Times reporting rick dates, former Trump Campaign aide, has agreed to plead guilty and corroborate with u. S. Special Counsel Robert Mueller. Foring us now, morris reid margaret partner. And still with us, Andreas Utermann. Thank you both for being on the program today. Morris, what to these 14 tweets in 24 hours tell us about the president . Vulnerable . He has a lot of free time, obviously, if yes that much time on his hands. The president has been that fast in the narrative has not changed. He won the election, his legitimate. He is looking for legitimacy. He gets upset when people question if he is a legitimate president. Those people can be his own staff, the media, or regular americans. This is a president that i would say hi and up on the notion that people say he is an illegitimate president. That is one thing for sure that gets under his skin. You see that every time you see the tweets. Francine this is a new line of attack against the fbi. Does it mean we are closer to Robert Mueller finding out new things in the russia investigation, or are we reading too much into it go i think were reading too much into it. You starting to feel the pressure the way he is bringing things together. Sort of confusing the issue by what happened in florida, it should be spending more time on florida as opposed to the fbi can walk and to come at the same time. He is frustrated. He would like this to be over. He is never had a situation where people have questioned him. He is always been the boss. When youre in an executive role, we have checks and balances, this is what happens. This is something he did not prepare for. Francine morris, how much do we know about what comes next in the Mueller Investigation . We know absolutely nothing. Mueller is the only one who knows anything and he is not talking. Everyone else is running her mouth. I tell the democrats, stop bring about donald trump and start to relate with the Business Community and with the american with the american people. If youre doing the same thing that donald trump is doing, youre not offering up an alternative. The only person that really knows what is going on is the special prosecutor. Francine do you care about the tweets . Does it move the markets . At some point doesnt move the market . Im not sure does at this stage. Unless there is real action on muellers side, i dont to get will. But maybe he should be advised there is Something Like one protest too much. I dont think is particularly helpful to his cause either. On hishould be focusing agenda. This is the problem. He will have good legislative or good accomplishments, the net next hour he is on the tweets storm. Hes stepping over the staffers to show there is real leadership going on. Francine we keep on saying the tweets is not president ial, but it must speak to someone, or does it not . Aboutme, it is not whether it is president ial or not. It is the content. I think they could be directed in a very different direction, focusing on the tax cuts, him what he is try to do legislatively, focus on what he is to do fight isis. Instead, he is, frankly, overwhelmed by circumstance. There is a lot of pressure on him he did not anticipate, and that is why you see this type of reaction. Francine but does his days look at the tweets and say, yes, youre right, mr. President , this is unfair and i will vote for you again. I think his base agrees with him. Whether he tweets or not. Way, you do politics the you when is to do multiplication. You do not win by just doing addition. The on the way he gets back in the white house are those five key states. If you cannot expand his base in those five states, he cannot get back. I would say no matter what donald trump says, his days is with him. He needs to start tos reach a larger narrative he needs to start to speak to a larger narrative. Francine this could in of being a trade war and maybe it means the Trump Administration distracts against the base from the Mueller Investigation . I think it is independent of that. It is part of the agenda check repatriate production into the u. S. And that is underestimated by the markets. I do think it is interesting it is counterproductive, the tweets, because of the same time that is all going on, what people are missing is the polls are improving for trump. The disapproval rating is above 40 . His approval rating. Mid30 percent. He has achieved somethings come the tax reform package, whether you agree or not, and that is reflected in the polls. On the solar tariffs, that is a win for him. It was easy. There was no organized opposition. Now you have the situation ons deal and aluminum. On steel and aluminum. This is what he said in the campaign, i tell people, get away from the rhetoric and look at the policy. Francine as long as china does not retaliate. If china retaliates, is it still a policy when . It doesnt matter because he is only focused on reelection. He has one objective, that is really. Even if he doesnt get steel tariffs in place or limit them, it is a win for him he can say, i stood up to china and pushed back. I agree, spot on. Francine will john kelly survive . It looks like they are changing your declare its security clearances after what happened with mr. Porter. How can the chief of staff survive . Im not sure he will survive. Im the outlier. The president does that was some who will dictate to him. He really wants Jared Kushner to be his chief of staff, so why doesnt he just put him in the role . Take the heat. He is comfortable with him. Someone he can have private conversations with. I know people will disagree, but this is what the man wants. As president , you get to select your chief of staff. Just do it and move forward. Francine does it not hurt the Republican Party . If he does do that, do people around him what do they say . The Republican Party is owned by trump. It is gold. It is not gop, it is gold. Push theseim to things forward. They could not get a legislative tax plan through. Cannot run away from him too far. Unless, his numbers start to dip under 30 , 20 . Right now he is the most important republican in the country. Francine what about the optics . Does it not hurt his chances reelection if you put someone in his family as chief of staff . I think he has already passed that threshold. The barrier has been crossed. This is a president they carried cares about the optics. This is a guy whos going to say, forget the noise. Look at what i am done. If the democrats dont have a narrative to push back on what the results are, they are going to lose. This is a guy who is shrewd. This is the only president who is ever set up a real Election Campaign on the first day in office. It was a clear signal that the only objective year is to get reelected. As, does thedre America First policy also mean a weak dollar policy . I think it does. What we have heard from Goldman Sachs on the risk potential to the overall deficit, i think talk to a weaker dollar, the growth of to the euro and japan, we have talked about the demographics dictate the u. S. Needs a more inflationary policy mix. Or if that means a weaker dollar. This is where i disagree. When a was in the government i say, if you want a strong dollar the reason you want a strong dollar, people in ohio and michigan feel like they are richer. They can go on vacation. That plays into your reelection effort. Would people feel their money goes further, that helps you form a reelection strategy. But how Many Americans have passports that would benefit from that and understand those dynamics . The actual voters do have passports. The actual voters to understand that i used to build go to france, now i cannot. Francine even the trump voters . The swing voters. The truck voters are one segment. He won on the 1 or 2 that went beyond that. That mother that lives in outside philadelphia, she has a passport and she understands when she has more money to spend and when things are going further. Francine the president also when after Oprah Winfrey in one of his latest tweets. Is there someone in the Democratic Party that can be put up that is a fair chance of beating donald trump the next election . I believe in the process. No one thought that bill clinton would be president. No one thought barack obama would be president. The process proved it. The democrats need to focus on the process and not coronation. Francine but this is going against donald trump. It is different. It is not. The process is the process. You need to go through it and hold your methods and skills. She wasry clinton coordinated, therefore she was not able to be the guy. They say the cream rises to the top. I think you get the best candidate, best prepare to take on donald trump. Francine who are you keeping an eye on . I am keeping an eye on the process. Francine morris reid, thank you very much. Andreas utermann stays with us. Up next, planning the divorce. Details are starting to emerge about what the u. K. Actually wants from brexit. This is bloomberg. Sebastian lets get the Bloomberg Business flash. Warning the end of the boom in London Housing according to a website. Home sellers do to be more realistic about the price demands is as. The february report says london asking prices were down 1 from a year ago for six and second of quarters. Novo Group Reports another huge loss. The Hong Kongbased company says its Fourth Quarter loss can be its high as high as 1. 9 billion. Last month the firm announced initial deals through sharks are restructure 3. 5 billion in debt. Black panther is a smash. It opens with estimated weekend sales of 192 million in north america, a record for february opening. Likely to become the biggest movie ever start a largely black cast. That is the Bloomberg Business flash. Francine thank you. Resa may wants brenda britains estate close in some areas. Theresa may could have allies in europe for this vision of brexit. What does it mean for the markets . Still with us, Andreas Utermann from allianz global investors. All,p on hearing, first of Angela Merkel would be willing to give some concessions to britain to kind of keep them on side, then i see, European Parliament would never vote for it. Which one is it . I dont think the European Parliament or Angela Merkel ive really that much say in the negotiating details. Francine who does, Boris Johnson . Theyve been very clever inconsistence as the day britain voted from brexit. Anybody who comes knocking on the doors in paris or berlin or elsewhere gets pointed back toward brussels. I think that is where the action is going to happen. I think the rhetoric is for once probably pretty accurate. Europeans will not allow the cherry picking approach will stop i know that is what the u. K. Once. The deal that David Cameron had was essentially a cherry picking deal out of the menu that was not accountable to the electorate. I think are going to have to face some hard realities. Francine in its you dont see this mirroring for certain implementations or certain regulations . We saw the munich to get a consequence desk conference, Data Protection and data security. The you think that is a load of nonsense . The u. K. Can always opt in to adopt other peoples standards, but that is different from having a say in them or being able to codevelop them. It is opened in the country to adopt the standards and that is acceptable. The harsh reality is, unless you want to stay in a Customs Union or we want to be in a Single Market, both of which have been excluded, youre not left with much else. After that, two to four years down the road, one can then see much policy areas, one can seek you their equivalents or even adoption of the european standards. But i dont think the European Union is going to be letting a nonmember codecide what the standards should be. Francine what does it mean for Financial Services . It is potentially going to be quite difficult. Francine what does that mean . The reality will be the u. K. Adopt most ofy the european standards. Francine and this would be her. A rule take francine and this will be accepted by Boris Johnson . I think youll have to accept it. Francine does it have implications for your company . Not if what i am predicting happens. But if the worst comes to worst and we are in 10 of going down a route of revelatory arbitrage, i think the penalties could be very severe. Francine Andreas Utermann, thank you so much. He stays with us. If you want to ask them a little more about what we were just discussing, brexit Financial Services or anything else, just and put a very the question to andreas in chat. Good morning, everyone. It keeps getting more beautiful. Tom keene is off. Lets get some final comments from Andreas Utermann from Alliance Global. Talking about chinas year of the dog, talked a little bit about china and its relationship to treasuries. But what do we know about chinas shadow banking . Year orgoing to be the we dont really talk about china with negatives . Quite probably, actually. The good news about the high debt ratio in japan, the fact the shadow Banking System is overleveraged come all of that is it is known. And wants something once something is out in the open, it causes much less of a threat. Topese policymakers are on of it. They are clear they want to reduce the leverage of the Banking System. That track record suggests they will be alluded to that over the next five years. Betterare looking much for china than a have over the past three or four years. Francine are we underestimating the impact this has in construction, mining, even oil because it is shifting with from building things to maybe this is like 10 to 15 years down the line, but theyre certainly building less infrastructure it seems. A different type of infrastructure. You look at the project, it is massive. It is unprecedented and dear to continuing to open up china to the rest of the world during to continuing to open up china to the rest of the world. More consumeroriented economy and serviceoriented economy is happening. That is good news. People were concerned and we were concerned that the initial phase of the ships could potentially drive Economic Growth down further than it has. It has not happened. Part of that is because the Global Economy is in Robust Health that house chinas transition. We are relatively optimistic. It doesnt mean we are bullish on the chinese stock market necessarily. Francine what do you advise your clients to do with china . It is a question of being very close to the securities of china. There are some interesting comedies and the small and midcap sectors that offer value. I dont do stocks that at the moment, liquidity driven. Those valuations. But there are opportunities. It requires on the ground presence and active selection. Suddenly, a close look at the governance. We have seen some corporate acts in the last 12 to 14 months that if hit the Corporate Bond market there. It is skewed to make sure the Companies Want to invest in will run in the Corporate Governance is well run. Francine and there is a new governor coming. We are expecting the announcement. What can a person do to stabilize it . Stabilize what . Francine the economy are make sure they are not these outflows. The have the unholy trinity. Steady as she goes. Ensure the currency does not move outside of the band it is been moving in the last three to five years. It is about ensuring there is enough liquidity in the economy and the confidence in the chinese economy continues. There is no need for action that we can tell it the moment. Francine Andreas Utermann, thank you so much, allianz global investors. That is it for bloomberg surveillance. In the meantime, i leave you. Ith a foreignexchange day on the data front. Im also looking at yen. We have plenty more coming up here on bloomberg surveillance. Also looking at oil. Oil rising. European stocks faltering after the asia rally. This is bloomberg. Anna i am anna edwards live from london. Welcome to this special edition of bloomberg markets. Here are the top stories. Ecb governing Council Member is under pressure to resign. This comes after his weekend latvian authorities. It is the end of the boom for london Property Markets. We discussed how brexit uncertainty is helping. Antian next months election, you from the countrys former Prime Minister. Welcome to the program. A special edition of bloomberg markets. Just on 12 00 here in london. 8 00 in the evening in hong kong. Lets check in on the market action. It is less it is a lot less market action. Because of markets that are