Transcripts For BLOOMBERG Bloomberg Surveillance 20240713

600 gaining. A lot of the focus is on earnings and the economic backdrop. 1134. Ollar 1 it has fluctuated but is very arrangedbound. Rangebound. Coming up, the World Economic forum in davos. We bring you all the biggest names in banking. Lets get straight to first word news in new york city. We begin with the new york senate approving Donald Trumps new freetrade agreement with mexico and canada. It handles the president and a major win ahead of impeachment. The overhaul of the agreement was a priority for mr. Trump. Mitch mcconnell called vote a rare moment of bipartisan cooperation. The white house broke the law in withholding aid the ukraine. Accordingting to an independent watchdog, saying the president should not have delayed money. This is a key part of the impeachment case against President Trump. , quoteg with them obsessed with the u. S. Trade deficit. This is according to bill hogan, saying americafirst policies are bringing about a priceless moment for global trade. This came during his threeday visit to washington. We must call out the narrative that the United States has an unfair trade relationship with the european union. In reality, the relationship is balanced and mutually beneficial. This cannot be stated enough. The facts are clear. Microsoft wants to go carbonneutral, carbonnegative, rather. They are investing billions to back technology that removes carbon from the atmosphere. It says efforts to merely admit less are not enough emit less are not enough. Global news, 24 hours a day on air, on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. This is bloomberg. Francine . Francine thank you so much. Chinas gdp growth held at 6 , stabilizing after slowing to the weakest pace in almost three decades. Policy reduced pressure and stopped further deterioration. The outlook has much improved. Joining us for more is our Greater China editor. Is the data better than expected . Yes, it is a little. Layarticular the good news in the investment data. Sectorknow, investment in the private sector was sluggish in china. We saw a significant pickup and a lot of it from the manufacturing sector, which tells us a better demand from the Global Economy and probably even better consumption down the line. Francine how much will the trade truce affect that . Defaults have been increasing and concerns about other things. Jeff right. Obviously, a deal was reached in the middle of december. It is pretty difficult to tell how much that would have fed into sentiment so quickly. Obviously, it is a little bit better and would be a better basis for investment. Having said that, is a difficult road. It is not easy and there are already targets to be met. Tensions could flare up at any point, and if it does, you could imagine the investment environment will continue to be needed muted. Francine thanks, jeff. Is the head of Investment Strategy at jp morgan private bank. What does china hold for us this year . Less of a market risk than it was in the previous 18 months. Opportunity to administer diversification of equity exposure. Diversification of the asian market is one of our key themes for our client base. Toughing the market is but has been getting easier all the time. We have dramatically expanded our coverage, fund options, and i think calibrating standard growthe for tremendous focused on consumer and tech is our key agenda in that region. Francine this is a chart looking at the shanghai composite. Market,ook at the stock people have been saying it is divorced from the economy. Shows the annual return is roughly the same as nonmarginal gdp. David the chart shows long times of underperformance and dramatic rallies along the way. , it is at of markets market not to be messed with in terms of how much you want allocated in your equity portfolio. In many countries, we see longrun times of disconnect between the growth rate and equity market. Believe that emergingmarket equities are one of the most promising Public Market segments out there. You just have to invest in the right instruments. You could argue one of the most exciting developments is the ability of private companies and private equity comedies to exit with greater liquidity than they have in the past. It is another reason to engage in the private markets. For us, the growth was more challenging given the lack of the on shore market. Is this so that phase i does not go back to a war of words . David that would help every market in the world. I think one of the key lessons from the last 18 months of trade war has been the impact of such a conflict does not just affect those directly involved. Also, it is focused on some of the capital goods. It has had a Chilling Effect in business confidence. Absolutely, markets and economies could do without that. If we now proceed along the ,mplementation of phase one this is a reasonable success and we can talk about phase two. Francine thank you, david. We are getting breaking news across the bloomberg terminal. We have been following the situation closely. The u. K. Has considered routeszing some of these as the rescue. As part of the rescue. The u. K. Is considering subsidizing these routes as part of the deal struck with the countrysbiggest biggest carrier. Amidst a deferral of passenger duties. We will have more on what that means for flights of ryanair. Next up, phil hogan accuses trump of shortsighted tactics on trade. We will get the latest on his visit to washington. And we will be speaking to the Qatar National bank chief executive. Largest banks in terms of assets under management in the middle east. Dont miss that on sunday. Francine lets get straight to our business flash. Barclays cutting jobs as it seeks to rein in costs. They will mostly be in trading roles across its corporate and investment bank. They are due to report fullyear results in a february february. Bayer is close toclaims, almostt settled into september. No details on the possible terms of the settlement. Alphabet joins apple and microsoft, solidifying the tech giants as the biggest giants of wall street. That is your Bloomberg Business flash. Tradene the eus new chief has accused donald trump of electioneering, calling him obsessed with trade deficit and warning about the economic damage of addiction is protectionism. He urged them to work with the eu on open commerce. The objective is to try and reset the relationship and and findd each other Common Ground in relation to many issues. That was the eu trade commissioner phil hogan speaking exclusively to bloomberg. Still with us, david stubbs from j. P. Morgan. If you look at trade, its better between the u. S. And china. What if the u. S. Sets its sights on france and germany . That has been a risk for a couple of years with the president s comments. Late last year they were supposed to report on the issues. We had the white house basically burying the issue on china. Its possible it reemerges, i would suggest president has made the calculation with the election coming up. He does not want to get into any he isights and i suggest now focusing on market performance. Risks asprice tariff long as it is not in the long run. Francine is it finally the year when european equities outperform u. S. Once . Ones . David we are still in favor of the United States. It does not mean there is not european stocks to engage with. Ofre are plenty incomegenerating and cyclical stocks. We are trying to buy secular growth, often listed in the u. S. We do have a Macro Economic slowdown in europe. Its not clear the exceptionalism in america is going away. , we are nott could ready to make a massive call on europe this year. Francine we spoke about emerging markets, but if you look at 2020, what are your top three picks . Overall. David emerging markets have one of the highest potential total returns, absolutely. The stabilizing in trade should prompt em outperformance. Emergingmarket countries have had their and you have stable leadership. You might not like them, but you know who is in charge. Alongside responsible policymaking in Central Banks as well. We are engaging with clients in emerging markets. Francine what is your take on bubbles . The bond market is normalizing, what does that tell us . David we push back strongly against the notion of a bubble in the government on market. Bond market. Term, ands a specific as a key part, has a deficit in structural growth, and by definition, the bond market does not have that. Bonds are getting a little less expensive but we think they are there for a very good reason. The inflation pressures are not going away and could argue leak at worse. Arguably get worse. One of the biggest things in 2019 was the banks fully processing the environment. Francine you dont see a repricing of funds . David you could always have idents like the bond stock bund shock, but that was markets dealing with policies that were totally alien at the time. Have become more comfortable and Central Banks have committed to keep these policies on hold. Its a long way off and thats one of the reasons we have seen significant gains in the equity market. Francine david from j. P. Morgan stays with us. Coming up we get all the details and what that means for the markets next. This is bloomberg. Francine this is bloomberg surveillance. The senate has begun the formal process of impeachment for President Trump. The democrats will try to force a vote on witnesses, including Mick Mulvaney and john bolton. Meanwhile, an independent panel says the white house broke federal law when it withheld more than 200 million in security aid. This issue is central to the impeachment case against President Trump. Joining us for more is our ,enior writer, Stephanie Baker and david stubbs from j. P. Morgan. Do we have any idea how the trial will play out . Both sides will present their side of the case, trump and the house, and then senators will ask questions it is unclear how long that will last. Clintons impeachment lasted 16 hours it it could last longer this time. Stage, the republicans would like to hold a vote to dismiss the case and get to the crunch point where whether or not democrats could convince her publicans or introduce additional evidence. Francine what role does chief Justice Roberts play in this . Stephanie he could play a crucial role. Footstepsllow in the of chief justice ryan west rheinquist where he tried to remain hands off. I didknown for his quote nothing in particular and i didnt very well. Did it very well. In this case, the partisan divisions rstar. Stark. Re does justice tie, in . Rts way in weigh francine what about lev parnas . Be huge, it could because he has implicated , whichnt and mike pence changes the nature of the debate. He has also implicated william barr and i think that does change the nature of it if they are allowed to testify in the senate trial. Francine how are markets treating impeachment . David the consensus is that the president will not be removed so i dont think it particularly impacts markets. It is topped by the uncertainty of who the democrats choose in the primary process and how a campaign between that candidate and president will be shaped. Ver the summer get intoible we could a loselose situation with a very progressive resident and a bellicose president with his comments about international affairs. Those are risks for the year but are not manifesting themselves right now. Francine does it affect the polls or President Trumps popularity . Stephanie this is the issue of whether or not witnesses are called. Obviously, he will be acquitted. There is not a two thirds majority in support of impeaching him. But if the trial proceeds in a way that introduces more damaging evidence, perhaps it could change the polls. But throughout his presidency, his base has remained stable. There are small swing boats up additionalnd perhaps damaging evidence could influence those voters. Francine Stephanie Baker will join us later. David stubbs from j. P. Morgan stays with us. Milestone. This is bloomberg. Francine stabilizing chinese economy. It ends on an upbeat note in gdp stays steady. Chief pulls trade no punches on his washington trip as he cautions President Trump against protectionism and shortterm thinking. Alphabet joins the trillion dollar club. This is bloomberg surveillance. Actuallyil sales are much more important than in the past. Inectations are being priced of a rate cut on january 30. December retail sales are falling. That is quite significant and. 304 he pound at one 1. 3084. Lets get straight to first word news in new york city. We begin with breaking news. The u. K. Government is considering subsidizing some flighty art of the this airline rescue package. The owner has criticized it as a quote misuse of public funds. Chinas economy is stabilizing after slowing to the weakest pace of growth in three decades. Gdp rose the same as the previous months at has seen the first acceleration in investment since june. This signals further recovery could be underway. The u. S. Treasury will start issuing twentyyear bonds, expanding its mantra of securities as the government looks at ways to fund its growing deficit. Institutional investors are calling for riskfree securities. Donald trump has confirmed heman he plans to nominate Federal Reserve positions and move to the u. S. Senate for confirmation. Global news, 24 hours a day on air, on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. Francine . Oomberg. Francine get a look at your stopovers with Annmarie Hordern with annmaries hordern. Annmarie i want to start with richemont. They were able to make up sales in the crucial Holiday Season while they faced a decline in hong kong. The whole watch sector has been facing troubles in the hong kong market. 8 . No is down more than warning out init france. The strikes are hitting the bottom line, especially during the sales. Cd project is plunging today. They were the biggest gain or across the stoxx 600. Berpunk, ao do with cy new videogame. Theres a lot of anticipation but they would have to delay it. It will still be historic, but it loses a bit of credibility. Slightly after passing the 1 trillion valuation mark. Joining the club with microsoft and apple which respectively have 1. 4 at 1. 3 trillion valuations. Amazon has not quite join the club yet you can see the tech sector is the marketdriving force. S p is made up of these three stocks. Francine thank you very much. Lets get more on these tech valuations. So with us is david stubbs and alex webb who writes about tech for uber. Bloomberg. Does this change anything at all . Number. s just a being worth 90 billion instead of a trillion, its just a number. The thing that is quite interesting is the nature of the valuations. Google, by some arguments, is undervalued. Apple,es at the same as and traditionally they trade at a generous premium. Two thirds of revenue still comes from the iphone and google is able to depend on more reliable, recurring revenue. Haps there is concerns there are concerns priced into. Francine what are we going to see from google and alphabet . Alex the cloud is a huge priority. They have not managed to keep pace with leaders in the field which are amazon and microsoft. Is is the biggest and azure trying to eat at the market share. Google is way behind. They have made a few acquisitions to catch up in an effort to pivot away from the core advertising is this. There are the subject of huge regulatory scrutiny. Francine what does that mean for putting your money in tech or not . David this is one of the most common conversations we have. But if itoves tech, is just in u. S. Market cap, yo uhave ahuge concentration. Huge concentration. If you wanted to go internationally you have tech outside of the u. S. In asia and europe. If you do those things, size, geography and private markets. Keep the level the same but hedge the concentration at regulatory risk. Somethingis there below the Tech Companies that you like . Components or Something Else . David one of the most important innovations is a fund focused on vehicles and the supply chains. These are tech firms focus on a thematic one and we have a whole range of tech and internal funds focused on different niche is niches. We have tremendous enthusiasm amongst our clients for those. Francine if you look at regulators, the biggest concern, is there a regulator markets fear more than others . Alex Margrethe Vestager is up there. But the u. K. Markets authority is going to be certainly slightly more powerful. It is trying to build an expertise in digital advertising. Does, others will look at and potentially follow. Francine as you set out your opinion pieces, what are things we should be watching out for . Alex the regulatory, cma question, 5g and the way that affects the cloud space and the ,bility of telcos to push back bigthirdly, i think the way carmakers are reevaluating their approach to the threat of electric, Autonomous Cars and ridesharing. There has been a calibration there. Francine what does this mean for you, david . Is it to enter a great market with new multiples. David the pure ridesharing platforms obviously struggled in terms of investment. That is a revolution which could depress large parts of the automobile market because there is more efficient usage of their product. Most cars sit idle for the vast majority of time. Ridesharing raises the use of vehicles. For us, the threats we just heard about our driving a combination of changes. We were focused on investment in other ones. They require vast amounts of new technology and long, dense supply chains. Thats why we have dedicated Fund Managers focusing on it. Francine thank you both. David stubbs stays with us. Its a week before devins davos. Ourt miss our chief interview with the chief executive of microsoft, cisco, and facebook. Francine this is bloomberg surveillance. We have looked at the probability that the bank of. Ngland will cut Interest Rates this is the latest after we had the worst run in retail sales on record despite the discounts. That data came out 12 minutes ago. The pound fell and we found out that the volume of goods sold fell 6 in september, confounding expectations of an increase. Thats why i went back to the great chart Hillary Clark made me. The probability of a rate cut was about 8 and is now over 73 5 73. 5 . Outlook slumping in disarray at this french retail business. This is after strikes and protests weight on sales. Bondholders rejected a plan by the Parent Company to repay aliens of debt billions of debt over 10 years. Morgan stanley is cutting at its businesses in asia is adding more positions in asia, signaling is confidence in the region. It contrasts with job cuts at ubs, culling headcount in europe and asia. Alleged anticompetitive behavior prompted a lawsuit. Against facebook four companies called for a judge to open a suit against facebook, saying it will stifle competition. That is your Bloomberg Business flash. Lets get more on a breaking story. The government is considering from flybe. Flights it could be part of a deal struck with the owners of the countrys biggest carrier. What we know about this rescue . It will be put together by increasing the number of public obligation flights. Flybe ay, they allow couple of subsidized roots routes and this would expand that. Francine what does this mean for eu rules . They allow a certain amount of flights to be subsidized. It may not be profitable. Francine i want to get david into the conversation shortly, four years down the line, where is flybe . Unless they get their operations together and start breaking making their routes profitable, they are kicking the can down the road. Of course, we will have to see what the current owners want to do. Francine is this a new government we are looking at . The intervention is definitely different. David this was outside the u. K. This airline operates several routes that are hard in other modes of transport. This government was selected upon leveling up regions outside the country and this is a key part of that. The whole economy points to the lack of trains and buses as a reason why productivity is so low beyond london. Germany taxing its domestic flights into this is the opposite. This conflict will be there for a while because it will take more time to find other ways to do this. It may be that this is a purely National Company a few years from now. How pragmatic is a Boris Johnson government going to be . We may see a conservative government considering more state ownership in a way previous ones werent. Francine why are we here now . Inevitable,shed the a couple of times. It was on the brink of collapse before they were rescued. Essentially, the current owners nine milliond to and 12 million from others. Defervernment agreed to less than 12 million pounds. Francine i reporter and david stubbs from j. P. Morgan stays with us. To the qatar speak National Bank chief executive. Dont miss that interview this sunday. This is a bloomberg is a this is bloomberg. Francine this is bloomberg surveillance. Lets take a look at what you should be watching out for next week. On monday, u. S. Markets are closed but a busy tuesday. The beginning of the impeachment trial, netflix earnings, and the World Economic forum in davos. Make sure you catch our coverage , and on thursday, the latest ecb rate decision. Ecb lagarde will unveil the scope of the banks to teach it strategicbanks review. I dont know why we are showing skiing, nobody skis in davos. There used to be a race of chief executives but nobody has skied for years. There are bets that the bank of england will cut rates at governor carnies meeting next month. They predict over a 70 chance of a cut. We are back with david stubbs from j. P. Morgan. We had a policy speech from mark carney which was less data dovish that markets took it. Then we have disappointing data and markets are expecting a 73 chance of a rate cut. Certainly possible the bank could move in january. Weve had other crucial data and there is a potential majority to cut. Its not a unanimous decision, this is a majorityeast system basedsystem. But they absolutely would not want to get behind the economy if it looks like there is a recession coming and would want to do something modest and hope with good reason that the budget would be stimulative. If the data continues to slide, they would throw the kitchen sink at the economy economy. Francine what should the focus be on . David leveling up the economy is the narrative but it takes a long time. If the government is facing a cyclical downturn, they are going to reach for tax cuts. To get housingut transactions going. It is powerful stimulus there. And potentially national the lowercuts to income parts of the workforce. That would help them in the narrative. What does it mean for a pound trader . David the deficit is likely to expand from there. Deallone any tax cuts to with the potential slowdown. The deficit is going higher and i dont think the market gives a damn about the budget. Deficits inge america and the market doesnt care, in japan, the market doesnt care. It might push the pound down if we have this slide in data, but if most participants are worried about the performance of corporate earnings, they will welcome robust policy support whether it comes from the bank of england or the budget. Francine if you look at what pound the traders care about, it is the trade relationship with the eu. When will that come back into focus . David sooner rather than later. They can extend the process until the middle of the year. We have to take him at his word that is not going to happen. Year,cond half of this brexit risk comes back with a vengeance. You will have a stare down between the two sides searching for an ambitious agreement and the eu trying to restrict access from a major competitor. That is not going to be rectified quickly and will go down to the wire. Assets toect u. K. Become a and things like sterling to weaken. Francine do you try to buy on the dip or is there value longerterm . David yes. Francine where . David the stock market is still cheap on a relative basis. Is modestly inexpensive. Theres not that much upside, but people with a fiveyear time horizon without much exposure could be picking up select equity names. The currency and stock markets are pricing risk. Ride is notatile for the fainthearted. We have taken exposure bernanke companies we think are strong. Francine thank you so much, david stubbs them ahead of Investment Strategy at j. P. Morgan. Next week, we will be at the World Economic forum in davos, bring you interviews with chief executives from the biggest banks. Dont miss our coverage. This is bloomberg. Francine chinas economy and his last year on an upbeat note as investment picks up pace. The eus new trade chief pulls no punches on its first his First Washington trip. And the trilliondollar club. Alphabet joins apple and microsoft in reaching a trillion dollar market cap. Good afternoon, this is bloomberg surveillance. Im in london with tom keene in new york. Every day, i look at the money markets and probability of a rate cut. After todays dumbfounding retail figure retail sales markets aremoney 75 gesting a probability probability of rate cuts. Tom if there is a unit dynamic if units were down, and i do not know about digital, cyber monday , and all of that, but also the discounting is something we are going to see in the next 90 retail. 90 days from francine now lets get to the bloomberg first word news with viviana hurtado. The government saying in 2019, the gdp is rising 6 still, in line with aging beijings target. A sign of a stronger economy will be on the way. On the capitol hill, where there was a rare show for bipartisan trip and a rare win for President Trump. ,resident trumps agreement last night, democrats getting behind a deal, the biggest roadblocks were on labor, the environment, and enforcement. Nominate trump will two people to join the Federal Reserve cured in the senate, the two are likely to face a lengthy confirmation promised her to both suggest they would be open to the president s rates. Walden is an insider. Sheldon spent decades in economics. Nothing merry about christmas for british retailers. Retail sales have fallen for the last five months. That will to speculation that the bank of england may cut Interest Rates this month. Global news, 24 hours a day, on air and on quicktake by bloomberg, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Francine, tom. Tom thank you. Shocked, up eight, dow futures up 83. 30,000 watts,w, give me a couple of hours. 10. At 58, vix at 12. Francine one screen friday, there you go, tom. I wish i had put pound, actually. 1. 3068. , francine i am looking at stocks, treasuries dipping overall, tom, trying to find out what the earnings season will bring in new york, tom. Tom we have got a lot of other stories this morning to look at. Do,cine we certainly because chinas economy is stabilized last quarter after slowing to the weakest pace in decades. Outlook. L outlet black, the is jeff Greater China economics editor. How can you break down the data for us . Jeff hi, francine. We have had overall a lower was expected,at because china was on that trajectory. However, in december, we saw some brighter signs. Production was pretty good come of retail sales were not badgered mostly encouraging was the investment, which obviously brings us into 2020 and what they might thsee. Within that again, manufacturing investment picked up quite strongly, so that suggests that Global Demand is not too bad, and down the road, that is good for the mexican economy, too. Eff, how are the sightings in washington taken in hong kong and from what you can tell in china as well . How was the signing of the phase one deal taken at the moment in china . Well, first of all, there was a certain mind of relief, because that takes the immediate pressure off of current terror for increases tariff increases. The government did this as an equal treaty, not entirely onesided, but if you look into the details, sports you can see that there are many, many implementation hurdles for the tiniest, that the chinese specifically have to take, and some are coming up quite quickly. There has got to be an action plan on intellectual property within 30 days. Behind,f that falls then you can see friction arising again over u. S. China trade, already in the first quarter. So it is not something that we can all just forget about a get on with our lives. It is going to keep coming. How is that debt cleanup going on in china . Jeff im sorry, can you say that again . Francine the bad debt cleanup, how is that going in china . Jeff yeah, well, that obviously continues. The effort to get credit out of the shadow Banking Sector and into regular banks with good capital levels, that keeps going. For private companies, it being difficult it is difficult to get credit. The government are doing things about it, but whether or not anything changes dramatically in 2020 is still up for grabs. Jeff, thankl right, you so much, jeff black scott bauer Greater China economics editor. Black, our Greater China economics editor. Joining us is George Saravelos of Deutsche Bank. George we think it is not going anywhere. If you look at the outcome of the u. S. China agreement, it is to keep it stable. There is some time for the dollaryuan to go down to 6. 80, but in the big scheme of things, we think dollar china will be slow this year and china overall , its a very quiet on the asia fun front, much more interesting in the u. S. And europe. Francine what is your dollar call . George we see low vol, even in the majors. I see the dollar stay in quite strong, even against bureau. Bureau moving back to euro. The year of moving back to 1. 10. When carry is king, the dollar does quite well, even with improving. Of have got strategies, you the u. S. Elections, and these have the potential to have dramatic impacts on the dollar, but it is not a story for now. Tom george, if it is not a story for now, do we walk away from the market . The issue is the volatility of foreignexchange. Have we ever seen a this quiet . No. Ge well, the answer is if you look at real life volatility, we are breaking into new lows, as we speak, and the reality is when nothing is happening in fx, what people do is go to carry trades, and it is a consensus that vol is going to stay quite low, but i do not think the market is heavily position of the carry trade, and when the carry trade does well, there is a consensus, for instance, this year that the German Economy should improve muscle the euros should balance, but euros should do a little bit better, because the economy will improve. Even if the european economy improves a little, that youre euro will stay weak. Francine, a friday, what is the carry trade, something dominant, or, as , whate said the other day is the bad outcome of a carry trade when it ends . George well, the bad outcome is essentially vol. Carry trades do well when volatility is low. Anything that causes volatility will have a negative risk on a carry trade, so the top risk, i will call it the known unknown, is the u. S. Election. If Bernie Sanders or Elizabeth Warren make the first primaries march, super tuesday, that could shake things. Bernie will sweep, i think it is much more likely that we have to wait for clarity from the democratic primaries from april into may. Actually get some sort of large surprise. Saravelos, sell in january and go away, love it. Coming up, extremely Important Note on the effective trade deal on germany and brazil. We are into anticipation of the meeting of the World Economic forum in davos. Important conversations with bankers. They will be mees, meeting staff, meeting, meetings. With bloomberg, smart conversations. Terrythis is bloomberg. Viviana this is bloomberg surveillance. I am viviana hurtado. Lets get your Bloomberg Business flash. Bayer is willing to sell cancer points on its product roundup. He says the number of cases may have doubled. Reecalifornia, bayer lost th roundup trials, a combined resulting damages of 191 million. Increasingley confidence in asia, adding dozens of businesses in hong kong and asia. Recordstanley reporting profit, the wealth business reporting for more than half of its revenue. Governmentsritish rescue of the air carrier, fly become of the u. K. s biggest airline. It would have left some of the less well off parts of the country with fewer transportation options. That is the Bloomberg Business flash. Francine, tom. Tom viviana, thank you so much. This is George Saravelos from Deutsche Bank. Ramifications of trade deals. George, let me bring up the trade chart. This is the bloomberg dollar index, good math of a bundled currency set in the u. S. Dollar. It is clearly a level, then there is a jump up in 2014, a new level, the president ial election excuse me, 2008 back here. George, where do we want the dollar . There for four years as a general statement. Where do we want the dollar . George well, i think if you ask the ecb, if you ask the boj, they want the dollar stronger. They want Inflation Higher. The problem is, they have run out of ammunition. This year, i think the ecb has been hidden away somewhat discussing the strategy review, and what will be a lot more interesting is the fed. We have our u. S. Invasion u. S. Inflation forecast does not go to 2 . The fed is missing it. Come and of the year, when the strategy is over, how does the fed respond . Newink the fed will enter a easing cycle, they start cutting rates again to get Inflation Higher, and the way to get inflation hire us to push the dollar weaker, but that is really a story for later, and at the moment, quiet markets maiean carry does well. Tom george, you just beautifully laid out the sequence that chairman powell and others hope for in the financial system. There is no evidence they can do that. If they are going to move the dollar, can they do that with that policy . I mean, this is a basic question. Can they manipulation of a policy actually moved dollar . The manipulation of a policy actually move dollar . George absolutely they can. The dollar would move substantially. If they cut rates next summer, we actually published it these that said this will be enough to we can bang the dollar, if they only cut two or three times. Midcycle cuts are not sufficient to weaken the dollar, because yields are still very high. Again, if you compare u. S. Yields to the rest of the world, the highest dollar is still essentially the carry trades out there against the yen and the euro, but if the fed were to start cutting again, and if they were going to bring that yield potential even lower, and importantly, if it is cutting rates to get Inflation Higher while Global Growth is weaker, that will be quite a powerful force driving the dollar down. The strategy in the middle of the year is extremely important for our dollar outlook your again, the problem is, it is in june and not january. What do we do until then . Francine what do we do until then . [laughs] george i think the dollar stays strong. I think it is an environment where the euro stays weak. Because the ecb is not doing anything, the euro stays as a funding vehicle. It is an argument and i think is quite different to what others are making, which is you get global inflation, the euro should rise, but it is a different world now, and the euro is more similar to the yen. If you get more data, you get more carry trades, you get more funding, the euro trades leave. The fed needs to cut rates to weaken the dollar. Francine George Saravelos, thank you. George stays with us. What you should be looking at, lets start on monday, u. S. Markets are closed for Martin Luther king day. A very busy tuesday. The beginning of trumps impeachment trial, netflix, and davos. Decision,ursday, the president Christine Lagarde will finally unveil the scope of the Central Banks strategic review. All of that coming up. This is bloomberg. Tom bloomberg surveillance. Good morning on a friday, getting it ready for your reading. Francine and i ready to get on the way to the World Economic forum in davos. A really exciting panel. I will be looking forward to that. This will be a safe haven for negative rates as well. Right now, an Important Research report. Obviously a smart report on the china trade, George Saravelos of Deutsche Bank as well. George, a twopart report, germany and brazil. What does the chinau. S. Phase one trade deal mean for germany and particularly german manufacturing . If i think about characterizing the phase one deal, it is essentially a massive Purchase Agreement between the u. S. And china. If you look at the sections around intellectual property, currencies, they are all very small, and more than half of the deal is just dedicated to these purchase amounts, which the chinese are meant to buy off the u. S. And unfortunately, what that means is, to look at manufactured goods, for instance, the biggest loser out of that, potentially, is germany, and france as well. The one big category is aircraft. What does that mean . Who is the other single biggest producer of aircraft in the world . It is europe. It means the chinese will have to buy more american goods. So i am worried about the impact termsl have in europe in of the chinese purchases of the u. S. , and of course you mentioned brazil, which is a big agricultural exporter. Tom i was stunned at the back of your note on brazil and soybeans as well. You go to econ 101 and call it one massive substitution o affect. Has President Trump just substituted out our allies . Iorge well, in some sense, think the answer is yes. This is the outcome of the american first policy, which is essentially, lets get the chinese to buy as many good that they can over this Election Year and the next, and this will be a constraint on europe. I really do worry if you look at the trade deals that trump has done over the first term of his presidency, pretty much most countries of course the usmca, japan, china, and really the one that is left standing out as europe. Hogan, who is now the eu trade representative, is now in d. C. , but i am worried come up with tariffs against europe, is it going to escalate . Overvestigation on europe the course of the year to keep up the pressure, and you have china shifting away purchases to the u. S. , plus the brexit uncertainty as well. From the trade front, we do not have the all clear on europe, and the risk is the pressure is maintained from the u. S. Administration. Francine back into the currency markets and 2020 with a vengeance . Yes, eventually, looking at fed strategy reviews, will be fed start cutting rates again . That is a big sources well. And, two, the election. I do not think either of those events will be big for q1. Is dollark for q1 stays strong, carry trades do well. Tom bring up the screen. This is inflation for soybean. Give me a break. It is an approximation based on u. S. And not brazil. The great fear of agriculture around the world of inflationadjusted soybean getting back to the inflation and disinflation of 2000, of, you know, arguably 20 years ago as well. Within a perfectly competitive item like soybeans, is that the ultimate risk, that these bilateral trade deals do us a multilateral disinflation of Agricultural Products . George well, i think what you are going to see, as you mentioned earlier, substitution effects. The amount of goods globally available are the same, so if china is going to shift more purchases from the u. S. , it means some other buyer is going to have to shift purchases to brazil. And the same goes for other goods. But what you need to see for the substitution effects to take places price effects, so you could potentially see the agricultural price of brazilian goods dropped to force new buyers in there, while u. S. Could rise, and that would be detrimental to the u. S. Francine george, thank you so much. George saravelos of Deutsche Bank stays with us. We will have plenty more pound checks and retail sales when we come back. This is bloomberg. Ck. This is bloomberg. Francine the oecd chief speaking in french about the tax imposed,st spearheaded by french proposals. Le mairear from spat willd if this continue. The pound is falling after week retail sales weak retail sales, boosting the prospect of a rate cut. Lets get back to george from Deutsche Bank. 2012 is looking and has. Rate cuts surged significantly. 73. 5 chanceo after weak retail sales. Is there a chance they do not cut . George there is if the pmi has a large balance but we have been pessimistic since december. Hasr the election, there been this narrative of a huge inflation story, but the economy is in recession in the data is pointing in that direction. I think the bank of england will cut in january and eventually do qe. If you look at the fundamental driver behind u. K. Economic weakness, it has been brexit. The reality is uncertainty is not going to go away and will be present for the following years. Rollinghave negotiations and manydeals minideals. There are 40 different sub decisions on all sorts of areas and this is just not an environment where the u. K. Economy can grow above trend. Inflation and data will stay week. A bounce will not be sustained and the risk is qe to eternity. Now if itwhy do cuts is mark carneys last decision . George one reason is that they are late. They should have cut earlier in the year they are realizing they are late. In some sense, it is a belated cut. On the fiscal story, we are pessimistic. Last year, the stimulus was much larger. You have this budget update in march, but remember, we are just after an election. If there was to be a large tax cut or fiscal giveaway, you think it would happen before the election. Multipliers of this kind of stimulus will not be relevant for a long time. Tom well said. I am fascinated and a complete amateur on the Multiplier Effect of fiscal policy dispersed across the united kingdom. What is the likelihood for school stimulus fiscal stimulus goes expansionary . George i make two points. The first is that they have already done fiscal stimulus. Last year, there was a large boost. Weakte that, growth was and points to the multipliers being quite low. Thinking ahead, there are a few different types of stimulus. One is essentially tax giveaways and subsidies. The probability of that happening is very low so we have just had giveaways. Had is have Infrastructure Spending in the north. Infrastructure spending takes a long time to have an impact on gdp. I dont think its relevant this year. Is the u. K. Ist close to bank of england will have to go back to zeroqe. Tom when i look at sterling and you weigh in on the whole some of it, is it tradable . George i think it is. We have had different views over the course of last year, political negotiations were optimistic and we had a sterling rally. A simple way at looking at sterling is take the trade weighted index over where it has been over the last three years. It has been in a range and pricing hard or soft brexit. Sterling is at the upper end of the range, pricing a soft brexit and an economy that will be quite strong, and we dont agree. We think the risks of a hard, contentious brexit are high so sterling should be back to the middle of the range. 88 ratherer to 87, than where we are now. We are negative on sterling and think it is tradable. Tom this has been wonderful. Right now in new york city, our first word news. Viviana americans were hurt in the Iranian Missile bombings. That contradicts President Trumps statement. 11 troops were treated for concussion. The attacks were launched in retaliation for the killing of a senior general. Leaderate democratic Chuck Schumer will try to force a vote on calling witnesses next week after the trial begins. He will need at least four republicans to agree. The European Unions new trade chief made his first trip to washington, calling President Trump obsessed with keeping the u. S. In Good Standing with e. U. He questioned the new u. S. Trade deal with china. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Fowler in theto equity market, jerry fowler with aberdeen. He will explain the great bull market. Let me cut to the site diced of the weekend. Zeitgeist of the weekend. It is all about the fed and accommodation. Jerry we have probably moved beyond that phase. That fed through to a bit of a surprise on investor positioning and schools suggested in upside in the second half of last year. We are probably at peak stimulus and peak investor optimism, but that is an environment where growth has stabilized and is starting to pick up. There is some legs to the equity market rally and we are still bullish this year. Tom i dont want to talk about fancy and duchennes like aberdeen stander investment. Like aberdeen standard investment. How do they hedge this bull market and participate, because they know they will get hammered at one moment in a power will press conference . How do you affect a hedge that assists you forward . For a that is tricky resale investor to go to market and access the sophisticated strategies. Having said that, they have made enormous announced of money amounts of money owning bonds, equities, everything has gone up last year and has been going up for decades. We are cautious about the expected returns on those asset. We have them as low. You have to think of a move from passive to asset active. Look globally for short positions, three things sophisticated Fund Managers can do to produce returns that are hard to access using long only momandpop. Francine if there is a big correction, where do you see it first . Think there is too much of an obvious bubble. We dont think equity valuations are bubble terms. Pe is high and bond yields are low so the risk premium is modest. Valuation is not a headwind to the broad market. We always look for opportunities to go short areas where we think there are inefficiencies. There has been an explosion of Corporate Credit in small theanies so we are short russell 2000 smallcap index in the u. S. Another thing that looks bubble like is a small group of Tech Knowledge he ipos that have no profit, Technology Ipos that have no profit, they are losing money. Some of these companies do not have comparable Business Models to apple or google so the valuation is so high yet there is little likelihood they can grow into that valuation. We are comfortable being short those. Francine is 20 20 the year where we will see more european year where wethe will see more European Asset allocation . Gerry europe in particular is focusing on its green package, so we own European Energy Infrastructure Companies is a specific basket that is doing well. These have structural growth and are like Utility Companies because of the conversion from fossil fuels. Market, we have little exposure to. Specific pockets in europe we have more exposure to. Moved awayina has from its focus on Financial Stability and back into a growth phase so we are more comfortable sticking with european equities. That does not mean there are not policies products were policy is supportive and there is good growth and values. Francine thank you for joining us. We will be back. It is a week from the World Economic forum in davos. It will be very cold. If you are going, wrap up warm. We will bring you the biggest names in tech and banking. Do not miss our walltowall coverage. This is bloomberg. Francine this is bloomberg surveillance, tom and francine from new york and london. We will be live from davos all next week, speaking to a host of world leaders, tech titans, and top leaders. The focus will be on the disruption in various industries and also how much a cup of coffee costs in switzerland. Tom it will be, and it is always an interesting meeting. Look at zurich and relative prices is an extraordinary exercise. Thanes, 30 to 50 more anywhere else in the world. , hes go to George Saravelos looks at the tradeweighted swiss franc. The firework is a stronger swiss franc for the great financial crisis with a blowout help and a massive blowout at the end of again. 15, and we ebb up why does this happen . What makes the swiss franc so strong . George switzerland has a huge trade surplus, a current account surplus. The mostafe haven, and important thing is domestic investors refused to allocate capital offshore. If you look at europe, you are seeing a reach for yield into u. S. Assets and offshore assets, but in switzerland they are staying close to home. Has to constantly intervene to prevent the swiss franc appreciation from becoming more acute. If you look at what drove this swiss franc strength over the last few days or so, it was the u. S. Essentially throwing a warning shot to not intervene as aggressively. I think that is what triggered this recent trend, the swiss franc entering into the currency reform. Francine does it ever become too expensive for the snb to continue doing this . George you are increasing liquidity which is being put into the system which charges negative rates. When does President Trump start focusing on switzerland . The way to get around that is for the snb to cut rates again so we are looking for another rate cut around the price to prevent the swiss franc from appreciating. Francine will we hear on the ecb a less dovish Christine Lagarde because of the encouraging data . George i think what president lagarde will be doing is avoiding providing any answers to questions, and she will have a very good excuse. We saw that in her first meeting, whenever she was asked, she said it would be part of the strategy review and officially announced in the next meeting. The parameters will be broad and the ecb will enter a period of introspection, not doing much. We expect the ecb to be very quiet. One other point, if you look at most of the speeches president lagarde has made since she became president , very little about monetary policy. She made a speech yesterday about europe and frankfurt, nothing about monetary policy, and i think that will continue. Thinkconomists introspect is always introspecting is always dangerous. On thataravelos research note. Now with our business flash. Viviana shares of gap are rising, saying it will no longer seek to establish old navy as a standalone. In recent quarters, old navys performance has deteriorated. Demandingtitors are Mark Zuckerberg give up control of facebook, accusing facebook of anticompetitive behavior. They want the company to sell whatsapp. Alphabet joining an exclusive than having market of more 1 trillion. Only a few companies have broken through that threshold. That is where Bloomberg Business flash. Surveillance, on a friday, getting you ready for the weekend. Is theu need to know wrap up of American Banking earnings is simple. James gorman hit the ball out of the park. Theas a little chippy on Conference Call yesterday over the narrowness of questions. We will talk to him about that at the World Economic forum. Dimon isw the fortress getting it right. It is always nice to see him at the espresso bar. Here are the american banks, loser, loser, loser. Yellow is wells fargo. There is the sole company, jamie dimon. He can have a shot of kahlua. Sonali basak goes right to the heart of it. How lost his Goldman Sachs . people are wondering what their numbers will look like. They are saying they will not stick to the 5 billion revenue targets that were previously set, but we have all kinds of things that you should be excited about. Tom go back to the chart again. I am all fired up. Banking,banking, Goldman Sachs wants to be a bank. How many years will it take to be a bank with profit . Sonali it will take some time. You lower deposits, your cost of capital. In their core business, fixed income, none of them grows as much as jamie dimon, but Morgan Stanley, 1. 5 billion dollars in fixed income compared with 1. 8 billion. Tom how many years until they see a profit . I am getting ready for the interviews in davos. How long to get the prophet in Retail Banking at Goldman Sachs . In Retail Banking at Goldman Sachs . Sonali he will tell you to wait next week. Tom he upset banking like he upset gorman yesterday. Sonali did you hear gorman telling them they were being like children . Tom what is the number one question at investor day for solomon . Sonali it is 1mdb they have to get past, the largest legal charge in years. How long until these efforts pay off, and what do we hold you accountable to . What are the new metrics we need to follow . Francine what are the strategies of these big u. S. Banks for china . How quickly do they need to ramp up presence . Sonali a huge deal, came up a ton of times already. Even before these initiatives to open Chinese Markets to the u. S. , Goldman Sachs and jp morgan have over 1 trillion asset vantage men units management units in china where they can start allocating. Interestingan relationship with China Investment corp. In the u. S. , a little tougher with the trade tensions. Tom lets look at a lineup of people who do not want to speak to sonali basak. They will avoid her like the plague. Solomon, gorman, moynahan. Next week, good conversation. Good morning oh no, here comes the neighbor probably to brag about how amazing his Xfinity Customer Service is. Im mike, im so busy. Good thing xfinity has twohour appointment windows. They have night and weekend appointments too. Hes here. Bill . Karolyn . Nope no, just a couple of rocks. Download the my account app to manage your appointments making todays Xfinity Customer Service simple, easy, awesome. Ill pass. This morning, it is the oddest of old markets. Forget sell in december and go away. What if you miss . The dow is up 34 since Christmas Eve 2018. Needed more scale and that means more mergers and or acquisitions. Judge not, the chief justice of the United States. Judge roberts squares in the senate where the trial of a president begins. From our World Headquarters in london, both of us jetting to davos. What is the initial thing on davos . Legitimately and the whole Climate Change and Sustainable Energy has reached critical mass. Francine remember, we are expecting President Trump in davos. We are expecting the Iranian Foreign minister. That will be interesting. It is a confluence of a lot of leaders that are embattled at home. Tom in the strongest terms, i agree. And will be interesting, things will change by thursday. We have important conversations coming up next week. Right now, our first word news. Viviana the week of economic expansion in china weakest economic expansion in china in almost a decade, gdp rising 6. 1 . Beijingsn line with projection. Thereo capitol hill where was a rare show of bipartisanship and a Major Political win for donald trump, the senate joining a house, passing a new trade agreement with canada and mexico. Democrats got behind the deal after a year of wrangling with the trump administration. The biggest roadblocks were the environment and enforcement. Nominate will and Christopher Waller to join the Federal Reserve. Both have made comments that they are open to the president s calls for lower rates. Merry about christmas for british retailers. In the u. K. For the past five months, retail sales have fallen or stagnated, adding to speculation the bank of england may cut Interest Rates. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Tom let me do a data check, one screen. Up vix is 12. 13 right now, in the market that never goes down. Would notnuel said he show up if there was read on the screen. Red on the screen. Francine i am looking at stocks , much higher than we started the day off. We started trading sideways, european stocks now gaining. It is an important conversation, and to do it you need to speak to someone who has had the courage to rationalize, theorize, and be in this great bull market. Julian emanuel has done that. No one is as persistently and mathematically had the courage to stay in this market like mr. Emanuel. Your idear note, love of greater animal spirits. Matt has been the miss call miscall. Isian what has been unusual we still havent seen the animal spirits. The public has not become unenthusiastic buyer. Tom help me. This is as close as we will get teaching for friday. Gdp,l spirits is nominal real Economic Growth and inflation. Do we sustain our animals is spirits by sustaining inflation or Economic Growth . Julian it is both. You have listened to the fed for the last year and they are committed to both. That is why this accommodation is likely to continue this year and next. Marketw do i stay in the and how do i acquire more shares . Two separate decisions. Julian staying in the market is that longterm investor perspective. Dont open your statements or turn your screen on, and dont get emotionally and rapture. Enraptured. Tom i should not open my statement . Julian cash has some yield to it. If you look at the course of the last 11 years and we have been going for almost 11 years it has not paid to chase. We wouldnt necessarily be aggressive about adding positions, but we would absolutely be patient. Francine patient waiting for what . Julian patient in terms of staying the course of being look,ed and patient when the market is as overbought as it is now, in the near term, that increases the potential for a pullback susceptible to negative news of some sort. In the longterm, it is a positive statement about the underlying demand for stock. Francine what would be the catalyst for that pullback . Is it a correction . Is it because some assets are in bubble territory or is it letting some steam off . Julian likely letting a bit of steam off. You have come a long way and as strange as it may be, given the fact that we have the beginning of an impeachment trial, the news has been favorable otherwise in terms of usmca and china. Tom you will be in eight client meetings today. What do you do with these tech spots stocks that are moon shots . What do you do with the glory group . Julian you hold onto them or optionality is very tom explain that to an audience that doesnt understand. Julian part of this runup, and you mentioned the vix being at 12 several moments ago, is that the cost to hedge or replace long stock exposure with long calls where you limit your Downside Risk if you get that pullback is very inexpensive. Tom i own apple use apple as an example. Dont write this down. You own apple and you can be long apple or hedge. How do you protect yourself if apple drops like a rock . Do you buy puts . Julian you can buy puts or replace your stock with long calls. Tom a taxable event. Julian it is, which is why the majority opt for puts. Francine what is your best number one tip for 2020 . Unloved, and asset that is unloved or something that will perform better . Julian we are behind the financials picture. You talked about a lot in the last hour and what is remarkable to us is the degree of pessimism with which the Analyst Community has looked at financials over the last month, and as we have seen, whether it is the fixed income line or other businesses, things are going well. The yield curve is steepening. We like financials. Francine all kinds, or is it the Brokerage Companies . Julian liquidity tends to gravitate toward the big lowerials, but at the level, part of the story of what we think could carry stocks beyond our 3450 target this year is the idea that the public does come back and becomes an interested buyer, zero fee online trading, fractional share trading. The discount brokers will work as well. Tom i want to congratulate you. You are in a discrete set of people with the courage to stay in the market. He is trying to get me into the triple leveraged all beta cash fund but we are not there yet. Week,ne, davos next really extraordinary. I guess we will see each other in davos, maybe at the zero it drains to zurich train station. I have got to take the train. Francine you have to take the train. Tom the surveillance gulfstream, i think ferro is on that. Francine we are texting, what time are you arriving, should we go together . We will probably have lunch at donalds. That is mcdonalds. That is tom skiing down the mountains. The World Economic forum starts next week. This is blue. Bloomberg. Viviana you are watching bloomberg surveillance. Bayer is on the verge of settling more than 75,000 claire cancer claims over roundup they are optimistic the deal will be reached in about a month the number month. The number of cases may have doubled in california. Bayer losing three trials. Morgan stanley signaling confidence in asia and plans to add dozens of staff in hong kong and singapore. Morgan stanley reported record profit. The wealth business accounts for more than half of its revenue. Is the uks biggest domestic airline. Boris johnson said the loss of flight be would lease some of with lessell off options for flying. Francine chinas economy slows in the last quarter at the weakest pace in decades. It picked up pace in the First Time Since june but on retail sales, beat consensus. Still with us is Julian Emanuel. David, great to have you on the program as well. When you look at acceleration of investment, it is the First Time Since june. Does that mean if we had a recovery it would be stronger . David looking at last year where you had the front loading ahead of tariffs, you will have some high but the auto numbers were of particular note. We saw an acceleration something in the line of 8. 5 yearoveryear. ,f you look at the sales data 1. 8 yearoveryear, that is the first increase we have seen since july. Autos picking up his notable because it has been very weak. Francine this is through a job in manufacturing expenditure. How can we be sure this trend will not reverse . Damian we cant. There are high hurdles in place with the tariffs announced yesterday. I have my doubts. Just the 30 day action plan on ip alone, that is an aggressive time schedule and then you see 200 billion of purchases the u. S. Has put on china, very aggressive. Willyone gets to how china meet these hurdles or will there be volatility along the way, i am betting there will be. Francine volatility if u. S. China goes back to the forefront escalation. Does the fact that the holiday was earlier this year, how much does that affect numbers . Damian i have not looked into that. 5. 1 Asset Investment up in full year 2019. I think we expected 5. 2 . We saw a retail sales higher than expected at 8 , but a lot of it has to do with auto. We talked about phil hogan meeting with lighthizer on the heels of iran and whether we see an extension into the e. U. , there has been talk of tariffs out of the e. U. Some of the tariff talk between the u. S. And its partners. Francine is there something we misunderstand about china . They are not doing that much monetary policy, relying on fiscal policy, and this is a country with a heavy debt load. The longer challenges are transitioning into a more capitalistic economy, so many things could go wrong. Julian no question about it, and that has been a lot of the story over the last 10 years. Go back to the auto sales data point and it mentioned it tells you within the context of a currency that is actually surprising has actually surprisingly strengthened and the strengthening his considerable over the last few months, that is positive for the consumer story in china. Tothink that is likely continue given the cooling of trade tensions. Francine we are getting a headline from newsmakers in china saying china has been able to keep the economy in a reasonable range, according to cctv. Does anything make you worry in china . Is it defaults we have seen around companies . Julian no question. In a centrally planned economy transitioning to less centrally planned, in theory, and ongoing transition from industrial led economy to consumer led economy, there are a lot of things that can go wrong. Over the last several months, we have seen there are a great deal of levers the chinese can press in order to keep things moving forward. Francine thank you so much. Us. An emanuel stays with davos, a couple of days. Next week, bloomberg will speak to the top newsmakers, including the chief Financial Officer of w me shout me this is bloomberg. What we want to do now is build on some aspects of the deal the u. S. Has done with china, see if we can move in a common area to deal with some of the issues we share in relation to unfair trading practices. Hopefully, we can identify Common Ground in relation to a number of these issues and build our own relationship from the july 28 agenda. Francine that was the european trade commissioner phil hogan speaking explosively to bloomberg exclusively to bloomberg. If you focus on europe, and we talked about the trade tensions and how the easing of tensions could benefit europe, but how much value do you see in european financials . Julian that could be the surprise positive story of the year. Given the persistence of the negative rate regime, one can argue that. 6 times book versus 1. 5 for u. S. Financials perhaps is warranted, but from our point of view when you look at how the long end of the curve has started to react and how breaking in inflation is starting to create buyers in germany in particular, if you negotiated trade deal, there is a lot of ifs, but you are getting paid to take that risk in europe. We think in the event and we expect this to happen that you break back above the 0 andl in 10 year bund yields there could be a profound change in psychology. Francine is that on the basis that negative rates will not go into deeper negative territory, or they will creep back up . Julian at the long end, they creep back up. At the short end, there is a reluctance on the part of the ecb to do anything further in terms of lowering rates. You have already seen spread compression between the german 10 year yield and the u. S. 10 year yield over the last several months, and we would expect that to continue. Europe, if you look at is germany finally going to do real fiscal spending, or is the disappointment that a lot of christineund that gard will have a more difficult job convincing Christine Lagarde will have a more difficult job convincing countries to spend . Julian this has always been a difficult job. You saw leadership transition in the coalition party. Gainave seen the greens power and merkels time in office is coming to an end. The need for infrastructure and environmental spending to rationalize the idea that there will be a fiscal stimulus, we dont think there necessarily needs to be fiscal stimulus and 2020, but the likelihood that it will happen in 2020 will be enough to buoy markets. Does the ecb wide review need to be . Changeare too wide and everything, do you lose the data from the last 10 years to compare it . Julian that is an open question and part of the challenge of madame lagardes transition. How do you attack the environment ahead . Favorably, you have started to see economic surprises creep up. You have started to see Inflation Expectations creep up. They are not huge, but they are gradual. Thatwill be enough such monetary policy, the challenge might be easier than the market expects. Francine Julian Emanuel stays with us. Coming up, a conversation with one of the biggest middle east banks. This sunday, we will be speaking to Qatar National banks chief executive. This is bloomberg. Surveillance. Is surveillance. The impeachment trial of president kicks off next week. Chief Justice John Roberts will preside. I am pleased to be joined by david westin. When you look at the trial, do we have any sense of how it will play out . David we have some sense. We will get the outlines for Mitch Mcconnell on Tuesday Morning and they will vote on that. That will give us a basic structure. It looks like the democrats will present their argument and then the republicans will present their argument and then they will decide about witnesses. Francine what role will chief Justice Roberts play . David the constitution says he has to preside. In a different kind of role, he is the presiding judge, but the jury can overrule him on any decision. The senators can vote if they do not like your ruling, so he has to be very impartial and right down the middle. It is an awkward position for the chief justice. Francine for our international audience, what does this information from lev parnas affect the impeachment . David it is hard to tell. I think we will almost have a rolling set of revelation as the democrats say, we dont know everything. Lev parnas saying the president must have known, that will be another argument from the democrats saying that we need witnesses. Will they call witnesses we have not heard from before yet or not . It will take some time for that to play out. Ofncine you spent a lot time looking at the nittygritty of politics but you also look at wall street. You talked about the impact of the phase one trade deal. Week at wall street the tomorrow night, we had former head of ibm and we also had michael froman, the ustr, Robert Lighthizer under president obama. We asked how important is this ,greement and he suggested buying more soybeans is one thing but there are more fundamental underlying issues. About they talk increasing u. S. Exports by 200 billion, the chinese put in their language saying assuming Market Forces allow that, suggesting there may be some obstacles to actually implementing that. To me, i would judge the agreement by whether it advances the Economic Reforms we want to see in china or not, because ultimately the big question is how do we accommodate an economy as important and large as china, that follows quite a different set of rules into the Global Economy . That requires us to have more convergence around a common set of rules. Saying,ou can see him it is fine to talk about the goods and services, but there are more fundamental issues about transforming chinas economy, and frankly, this points back to europe as you had the european trade commissioner in the United States. President trump is taking a different approach to trade then we have seen since world war ii. Francine europe is stuck in the middle, benefiting from the truce but worried about being in the fire line of President Trump. David westin, thank you so much. Week ono wall street friday at 6 00. Lets get the bloomberg first word news. Viviana americans were hurt in the Iranian Missile attacks on bases in iraq, according to the pentagon, contradicting President Trumps statements. 11 members were treated for concussion. Year, first half of the the u. S. Government will issue 20 year bonds, a new way to fund a ballooning deficit. Institutional investors have asked for longer dated securities that offers some nominal yield. Chiefw european trade making his first trip to washington a memorable one, calling President Trump obsessed with a good trade deal with the e. U. He questions the u. S. Trade deal with china. Global news 24 hours a day, on air and quicktake on twitter, powered by more than 2700 journalists and analysts in more than 120 countries. I am viviana hurtado. This is bloomberg. Francine joining us to recap some of the u. S. Bank earnings and still with us is Julian Emanuel. What did we learn . J. P. Morgan blewitt out of the water on trading blue it out of the market blew it out of the market. They have held strong with the u. S. Consumer. Bank of america, pressure with net income interest income. Goldman sachs and Morgan Stanley stunning while boardman sachs Morgan Stanley raising the bar. Francine what can you tell us about loan votes . How much of this points to a stronger u. S. Economy and how much does it point to the seeds of a downturn . Sonali thank god for loan growth. It is not as horrible as it is lowurope but it is still a interest environment, so loan growth is offsetting that for folks like jp morgan. We hope that will be the case for bank of america. That would help them set up Net Interest Income that is stagnant and will be lower at the end of this year. Francine what does Goldman Sachs become in three to four years . Sonali that is something they gave us hints of. Something i thought was interesting and under highlighted that Goldman Sachs was how they broke they reported differently for the first time, showed some growth in consumer and Wealth Management that was above invest estimates, but there private investment book was really strong. That is a volatile line item in their earnings, however they are showing us they can make that more diversified. They want to raise more money in that business. It is real estate and debt markets. They shined and want to continue to. Francine what happens if the tax cuts to american banks run out . Handed somex cuts 32 billion windfall to americans americas top banks. Julian that is a potential headwind, but i look at the results from the big banks, and the story to us is fixed income trading. The fixed income market came to life. You saw a record issue wins in the last several months issuance in the last several months. Of paring11 years back capital to those businesses, paring back headcount, etc. , it is likely given our view, that global yields bottomed at the end of last year, that that will be something that is invigorating, top and bottom line in the quarters to come. Francine thank you both. We will be speaking to some of the biggest names in the industry next week and davos. Do not miss any of our conversations. On monday, we speak to david solomon, brian moynihan, and jim gorman among others. This is bloomberg. This is bloomberg surveillance. M a. Saw strong 2020 off to a slow start. Here to discuss his outlook this at his tner Julian Emanuel is still with us. What are we expecting to merge in 2020, given the activity levels we have had over the last few years . Frank there is a huge backlog in m a, particularly on the crossborder side. There has been very little m a activity in europe, very little activity in asia. Of mega it was a story deals in north america, some crossborder which i would have thought were a lot. Crossborder was slow, europe was slow because of brexit. Asia was slow because of the trade wars, and that is where we will see activity this year. Francine how do we know if it meaningd m a merger, one Company Looks at another saying, i can grow it and make or at with what i have, company is desperate and will grow to make them better . Frank it is a hard equation to figure out from the outside. I know from being inside the they knowsometimes their own businesses withering, so they use the cash in leverage they have to acquire a new business. It may look like they have not expanded when in fact they have created shareholder value because they have replaced revenue and profits they would have naturally lost. A deal might have been a great deal, a vision might have been a great vision for the combination , but a lot of it is execution post closing. One of the things that is very important is that when the client makes a decision to go forward with a transaction, not only do they pay the right price, do not overpay, but make theythey have a plan where are going to start integrating from day one. Francine tom was asking earlier on about animal spirits. How would you describe animal politics . Is it volatility in the markets that means chief executives shy away from m a . Frank it is interesting because when i left for the holidays, everybody was saying we are going to talk the first week of january, and then everything that was going on with iran and people sort of put off those calls and meetings. ,uddenly, this past week everybody is wanting to talk again, so animal spirits are up. As i mentioned with the china trade deal having been resolved, or at least the first stage having been resolved brings it coming soon. Want to do deals. In the u. S. And western europe, we are in a slow growth environment and the only way to obtain growth in an environment like this is to have an growth, and m anorganic growth is the best way for that there is incentives for ceos to look at doing major transactions. Francine do you think the share prices for companies are a hindrance to this consolidation phase because they are too expensive to buy and merge . Julian it may make things more selective. One of the latest developments in 2019 was a pivot in ceo confidence which has been deteriorating steadily since the beginning of the trade war. It has turned, along with the fed, which has helped steepen the yield curve, and we think the confluence of those events will be supportive and particularly, perhaps internationally, given the fact that those assets and share prices certainly relative to the u. S. Are depressed. It is a hindrance. Diligencecrease due but will not necessarily stop the level of dealmaking. Francine if you look at funding for these deals, how is that changing and how will it continue to change . Frank one thing that has really changed, if you go back 10 years ago which was really in the crash, itr the lehman really was difficult to obtain funding. It wasnt just that rates were higher, but there really wasnt the availability. What you have today is that most corporate buyers have large stockpiles of cash. Most private equity buyers have plenty of buyer power, big funds. The availability of Debt Financing at all levels and all types is at historic levels. Financing a transaction for most buyers is pretty easy. That is really not an impediment to a deal today. Francine thank you both. Lets take a look at what is happening next week. On monday, u. S. Smart markets are closed for Martin Luther king day but we will be live from davos a very busy tuesday, the beginning of the trump impeachment trial, and netflix earnings. On thursday, the latest ecb rate decision. Christine lagarde will finally unveil the scope of the strategic review, all of that and more next week. This is bloomberg. Are watching bloomberg surveillance. Gap shares are rising. Towill no longer seek establish old navy as a standalone company. Fast growth was not being reflected in gaps stock price, but the performance has deteriorated. Mark zuckerberg to give up control of facebook, and awsuit, they accuse him Facebook Says the claims are without merit. Alphabet joining an exclusive club and now has a market of more than 1 trillion. Only three other companies have broken through the threshold. That is your Bloomberg Business flash. Francine the u. K. Government is considering subsidizing some routes operated by a Regional Airline which could be part of a rescue deal struck with the owners of the biggest domestic carrier. Guy johnson is instrumental to breaking this news. This is huge, because they let other companies go. This is a company on the brink of collapse and the government is rescuing it. Guy in the last three months, you had a general election. Boris johnsons government wins a big majority. There is now a huge desire within 10 downing street to make sure that some areas are leveled up. You will hear about this in the budget in the next few weeks. In a situationes where the uks biggest domestic carrier is finding life difficult. There is a huge desire by government to help out, but it is controversial. Francine it is controversial because of Climate Change in imagine. Guy it is on a number of different levels, Climate Change certainly one of them. It is hard for the government to deal with issues with the political imperative. There are other issues, the boss incensed byyanair this, because you are seeing one of their competitors potentially being given a helping hand by the government. Why are we here with flybe in the first place . Guy making money on routes inside the u. K. Is incredibly difficult. In march. Delisted andas bought for 2 million they had big aspirations, but making money is difficult. This is what the government will do. They will delay or deferred the Airline Passenger duty. Ratewill potentially offer operate commercial load. The story we broke, they will focus on Public Service operation obligations. This is subsidizing of routes rather than an airline. I will subsidize the route rather than the carrier. Francine you also have subsidies from the e. U. Guy these are allowed under e. U. Rules. Because we have parts of the e. U. That are difficult to reach by other infrastructure, the e. U. Allows Public Service obligations and france has like 30. The government is allowed to subsidize them. Flybe only has one. Francine is that controversial or not really . Guy not really. Rather than subsidizing the airline directly, they will subsidize the route as part of the leveling up process. They will try to defuse the criticism around what is viewed as a rescue of this airline. It will be interesting to see how it lays out. The focus now is on the apd, the tax, and the loan that could be made to the commercial airlines. It is very smart. Francine guy makes me very smart on airlines, that breaking with flybe that he brought to fruition. Stay with bloomberg next week at the World Economic forum. Sundbergpecting greta to join in davos. Whatll also focus on bloomberg does best, not only Climate Change, but thank. Banks. President trump will be in davos and so will the Iranian Foreign minister. This is bloomberg. President trump is obsessed. The new e. U. Trade commissioner comes out swinging and says trump is fixated on trade deficits and is too shortterm thinking. 6 , chinas magic number. Their economy grows 6 last quarter as the country stabilizes, paving more green chutes for the Global Economy. And the u. S. Agrees to 20year bonds. The Treasury Department will start issuing 20year bonds in the first half of this year as the government looks to more ways to fund the rising deficit. Welcome to bloomberg daybreak on this friday, january 17. We made it, twice. Congratulationings. This week has felt like a real slog, unless youre long in the s p, then you were pretty happy. A stellar week, another hoard high. Tech continuing to outperform. This time small caps participating in the rally. Your dollar down by it. 2 . So a stronger dollar story there. Time now for global exchange. We bring you todays market moving news from all over