Crude rollover continued a little bit as the dollar trends higher. David at 10 00 this morning eastern time, President Trump will speak at the conservative Political Action conference outside washington. At 10 15, new yorks William Dudley and Eric Rosengren appeared together in new york here it the fed releases its semiannual policy report to congress. At 12 30, President Trump goes back to the white house to meet with australian Prime Minister malcolm turnbull. Alix we discussed the top three stories of the morning. A 315 billion china blowup. Higher wages may not lead to higher inflation . Where is the inflation in japan . David we are going to welcome Lisa Abramowicz and michael mckee. I heard when they bought the waldorfastoria. This shows some of the places where they made investments around the world. This came from nowhere, for me, and grew really big. Now the Chinese Government is saying, not so fast. So manyis raises issues, especially after what we have seen with hna, another glom dutch conglomerate conglomerate. You can see a 2 billion investment in the waldorfastoria and other huge property investment. Will they have to divest . Which chinese conglomerate is next to be targeted . What does that mean about thernational purchases and real estate market, as well as the chinese economy is xi jinping is serious about cracking down on leverage . David they are not nationalizing it, it will still be private. They say they will just run it for a year or so and they will charge the former leader with financial crimes, and recapitalize. Michael you have to look at the way they put this together. To are going to try try to d erisk the economy. Mismatch raised a lot of concerns. They used that money to buy properties. As anbang a bad company . Analysts say no. Ubs says this could be a Viable Company if you strip out the high risk her kisses purchases. 11 of the company is high risk. Lisa there is a big question, are these properties going to be worth what anbang pace for them . Liquiditye not, that mismatch is a huge problem. Think about the sivs during the crisis. States, in the united we may companies and shareholders pay for these things, or taxpayers have to do it. In china, the taxpayers are going to do it. No question the government will print the money to make this work out in the long run. They put some people in the jail. Maybe the founder will have to go to jail. In general, they feel they can get through this. They want to avoid an aig moment, the thing we saw here. That is the take away from this, if you want to buy yourself a hotel. Alix clearly. U. S. , we are taking a look at Steve Mnuchin. You canin an interview, have Wage Inflation and not necessarily inflation concerns in general. How valid is this . You are laughing. Michael i am joining the rest of the economics world in laughing. Lisa and economist was on Bloomberg Television yesterday afternoon and he thought this was viable. Michael probably not. For a couple of reasons. We are probably going to get inflation anyway. Finally, inflation is picking up around the world. It is a question of how fast it accelerates, and the problem for the administrations they talk about this being a supplyside problem and you increase the supply and they do not have a supplyside problem. It will not take that long for inflation to show up. How does the market react . The market will not wait around to see if in the long term this works out. Investors,al view of kind of the obvious thing, you get Wage Inflation like he is talking about without increasing wages higher without increasing inflation, then your profit margin is lower and that is bad for shareholders. If you get inflation, yields go up. Lisa Steve Mnuchin was echoing what white house advisor hassett had just said. I wonder how much this is a wink, wink, nod, nod to the Federal Reserve, saying you do not have to raise rates oh quickly because this will not be an inflationary story, it will just be a growth story. About inflation, you do not have to worry about it. That has been the big tension. I was just in minnesota talking with neel kashkari, the Federal Reserve bank president. While this was before those comments, he said something interesting. He said we have great disagreements on the board about inflation and how fast we will have to add,d but we are united that there will be no political interference and we will react to inflation. David this is not the first time we have heard this. It sounds reminiscent of the reagan years. It is almost a matter of theology or orthodoxy. If you are probusiness and progrowth, you believe the supplyside will take care of itself. Michael and it has not historically. Lisas point, there is not an economist at the head of the fed. Lets talk about inflation elsewhere. The final read for inflation for europe as well as japan. Japan could not breach 1 and euro area core inflation stayed at 1 . Is this an fx story . Michael not right now. Maybe to it a little bit a little bit of an extent in japan. Huge exportting numbers, half a percent. That powered the German Economy to grow at its fastest rate in seven years. The euro not weighing on german trade and it is probably not affecting the rest of the eurozone. Japans inflation rise on the headline was basically due to cold weather, because fresh fruit and vegetable costs went up. They have been trying to generate inflation a long time. They finally got a little bit, and it is not rising hugely fast , but it is the same story the world over. David the question is if the ecb thinks that is the real issue. Arians what mohammed and mohammed elerian has to say highlight common Economic Optimism and similar analytic challenges, but apply different risks. The fed says they are worried about a bubble. The ecb really goes after fx. They are concerned about the stronger euro. Lisa there is a theory out there and i think this is very important that the ecb is driving above globally with bond yields, and their worries are frankly paramount to everybodys, because that is the next shoe to drop with respect to tightening. If you see 10 year treasury yields on the second day of declines, we saw a big decline in german tenyear yields as there was a big question of whether 10 year yields can continue to rise in the u. S. If you are seeing softness in some of the data, excluding exports, some of the data in the european union. Michael we are seeing strength in germany. If it continues, because it is not just exports but also Capital Investment, because they are using up so much slack in germany they are starting to spend a lot more, companies are, to increase productivity. If that keeps happening, they have an issue of we also saw the first pattern Wage Negotiations in germany, with a big increase for workers. If that continues, you will see some inflation there that the ecb will have to react to. They do not think they will have to go off course yet, but the markets will think about it. Alix jeffries had a note saying there is overheating in germany. Thank you so much. Lisa abramowicz and michael mckee. Treasury secretary mnuchin says you can have your cake and eat it too bank, eat it too bank, and Jeff Gundlach says no dice. This is bloomberg. Taylor this is bloomberg. General mills adding natural dog and cat food to portfolios. The company has agreed to buy blue buffalo for about eight alien dollars. Global food giants have been snapping up makers of natural and organic foods, which have faster growth than mainstream brands. Posted its first fullyear profit in a decade, but no celebration going on. Rbs has not settled an investigation into u. S. Securities and they cannot return dividends to sell the british governments majority stake. Issued anckard optimistic forecast. Are seen as signs that hps turnaround is starting to work. Company announced plans for a billion dollar buyback and plan increase. That is your Bloomberg Business flash. Alix treasuries secretary mnuchin brushing aside investor worries about raising prices, saying you can have Wage Inflation but not inflation concerns in general. Jeff gundlach disagrees. We will policies expand the Buffalo Art Museum without making it bigger. Theliest the break of silly sarah bryant called and Lena Komileva are with us. We were just talking about this on break. You say a supplyside argument is not totally crazy vassili the point i would make is whether wage increases translate into higher inflation depends on the purchasing power. If you listen to some of the fomc speakers last year, they devoted time to that. It is still affected by global competition, digitalization of the economy, the ability of consumers to make price georges choices in a more informed way, so theres the possibility firms will not pass on the full increase in wages to the consumers. Timetheless, i think over higher wages should lead to higher inflation. David i am not an economist. What has to happen with productivity to have 3 or three plus percent growth for an extended time, but no underlying inflation . Can you hear me . Lena yes, sorry. I did not hear that the question was towards me. Look, there is the fundamental question that you raise here, but if we leave that to one side for a second, there are two political and policy implications behind his comments. If a minister of finance of any nation is not talking down the trade deficit and talking down the cost of its treasuries, talking down inflation, talking up productivity, which is what is needed to limit the transmission from unit labor costs towards higher enduser inflation, to the question that you just raised. This minister of finance is not doing his job rate. Front, therecal are attempts to politicize the tools of monetary finance by politicizing the Exchange Rate or the Interest Rate, by giving an open hand to the suggestion to the fed they should perhaps consider the two sides of the story, not just the demand cyclical mentum but momentum, but supplyside that is a dangerous path to go towards, the u. S. Alking down cost of borrowing or the u. S. Currency is a matter of international relations. David lets put fx aside for just a moment. Help me as a matter of economics, has the white house is saying if we get Capital Investment up, we will get productivity up and that will keep the inflation down. From an economics point of view, how direct is the relationship between Capital Investment and productivity increases . It is basically about return on capital, return on investment. The truth of the matter is that we have had very spotty signals from the stock market, that this return on investment is happening. The question is, is this happening on the back of the projection generation economy, and the jury is still out. The importance here is one of time. It will take a very long time before the deficit spending and tax cuts materialize in the form of stronger investments, private sector, Public Sector as well. How this is financed and implemented, there are some significant lags. In turn, that would eventually egoove the real economy structure, the ecosystem that supports a productive investment. Butdividends will be there they will be very much in the long term, whereas for the fled fed, the inflation calculus is about raising questions of where the potential growth of the economy is here and now in the next two years, and how in turn that will translate into the cyclical inflation premiums the u. S. Economy can generate. The two sides are not inconsistent, but we talk about two different time horizons. The is this just sort of way of trying to get higher yields on a weaker dollar . You can see the correlation between the 10 year yield an dollar index, almost in negative territory. Vassili i think the dollar has been recoupling with yield. I doubt that these particular comments were directed at the dollar. , anynk it is obvious that administration would want an acceleration of underlying growth. This is what we want. In the long term, it is all about productivity at the end of the day, the trend pace of growth. There is a currency link in the sense that if we were to get an acceleration of the trend growth in the u. S. Economy, i think it would be positive for the dollar because we would have a good steepening in the yield curve in terms of the longterm real yield would go up. I think the dollar could benefit, but unfortunately, in our own forecast and more generally, we are not expecting that strong of an impact on productivity from this tax reform. David what are you projecting over the next year as far as the dollar goes . Vassili i think we are in a weakening cycle. It started really last year, and the cycles last five to seven years. It does not mean the dollar will weaken every month or every quarter. The currency situation looks a little bit like 2005, where the dollar rallied in the middle of a down cycle. You had earnings repatriation back then, so if we got a little more hawkish in the fed, yields can go up shortterm. Longerterm, i think we are still in a bear cycle. Both of you, please stay with us. We will talk about the rise and fall of anbang. The Chinese Government takes control of the deal hungry conglomerate and charges it ceo with fraud. This is bloomberg. David big news out of beijing overnight, as chinese regulators step in and take over anbang. You can see from this map, these are some of the places they have made Big Investments. We now welcome enda curran from hong kong. Tell us how dramatic this was. Over here, this seemed like quite a big announcement. Enda that is a very big announcement. It is something of a cinematic fall. One analyst described it today. There are two sides to it. You have an in sure that ballooned in size through there arens, and questions about financial stability, how they are being financed, and asset and liability mismatch because they were shillings selling shortterm management assets but buying longterm. There is also a real political, economy side. Is serious about taking risk out of the Financial System. The state rules over everything in chinas economy, and if you youa private enterprise have to fulfill the National Interest and meet the communist party objectives. David he said all of those things and the congress. What reaction are we seeing in the markets in asia to this action . Enda the Market Reaction has been relatively controlled, because as you say, there has been an expectation or understanding that china is clamping down on these conglomerates. Move caught a lot of people by surprise. One analyst said it was like the fed taking over a company. This is not a takeover by any conventional sense. It is the state going in and while the state is temporarily taking it over for a year, there is no guarantee they will take a year before they run down the assets of the company and get the financing involved. Very certainly unprecedented by western standards. Alix what does it mean if you are a company now . You can take a look at chinas breakdown of debt. This goes back to the end of 2016, and the white bar is the corporate debt. Clearly it is the corporate sector that are uber leveraged. The government is going to bail me out . Enda it certainly raises a question of hazzard. At the same time, there is a feeling that throughout the nearterm pain, authorities are clamping down on companies that borrowed in a big way. They want to slow the pace of credit growth, which will mean nearterm economic pain and disruption. Longerterm, this is about putting the economy in a more sustainable, durable footing, and moving away from the debt funded growth. It raises questions of moral hazard, but the bigger picture, it is part of a shift. Alix thank you so much for staying with us. And the current, bloombergs chief and the current. Enda curran. Inflation challenges faced by japan and europe. will thatx continue . European stocks on the upside despite the fact that core inflation did not go anywhere. The final read at 1 . The brexit drama continues to roll out. Deal without hearing the specifics, plan or no plan. Look at what is happening with sterling. It is a broader story with the exception of what is happening with the cable rate, almost hitting 140. In the 10year yield on a weekly basis they are on their longest 20eak of gains and almost four years. However, jpmorgan is saying make it see a short squeeze coming in the bond market. We have seen solid buying. Crude is a little softer as well. David taylor riggs with first word news. Taylor in florida, Authorities Say that the on deputy sheriffs the onduty shares deputy took cover. The sheriff says that his office received two dozen calls about the suspect over a decade. They may not have followed up adequately. There is a report that the Trump Administration is considering an offer from a billionaire to pay in part of the u. S. Embassy jerusalem. Government lawyers are looking into whether it is legal to accept the money. That would add more controversy to President Trumps decision to move the embassy from tel aviv. Joyce has quit over a sex scandal. He was having an affair with his former media advisor. That led to allegations he breached ministerial guidelines. Global news, 24 hours a day, powered by more than 2,700 journalists and analysts in more than 120 countries. This is bloomberg. I am taylor riggs. Thank you. The inflation story in japan, stays below 1 . Still stuck at the 1 level. With the data means for markets. The potential story this year was that a combined convergence tapering, is it continuing to be a story of diversions . Recognizemportant to that the story in global bond theets is greater than monthtomonth changes in cpi figures. We have seen nothing short of a regime change in 2018 compared to 2017.