Brexit debate and then the blackrock comments. The markets are not ready for the hike. Tom it is a stew. It is a stew of news. Youre right, francine. There is a negative tilt to it. Standard chartered really took me back. I know you talked to Chris Wheeler within the hour. What did he say francine he said these are banks going through huge restructuring. He mentioned specifically china. It took a leg lower today. It is going to be that much more difficult. Lets get to our first word news with nejra cehic. Nejra a boost from the business communlt. 36 chairman say it will be best for the economy if the u. K. Stays in the e. U. Leaving the union would deter investment, threaten jobs and put the economy at risk. Rebel groups in syria have until friday to sign on to a partial ceasefire. The u. S. And russia agreed to this yesterday. A new controversy in the president ial race just hours before nevada republicans vote in their caucuses. Ted cruz has fired his Communications Director for tweeting out a story alleging that mark rubio despairaged the bible. They said no lie is too big and no trick is too dirty. Today president obama will send congress his plan for closing guantanamo bay. Inas president met with journalists and said the meetia wants to protect authority and curb the Media Presence in china. Tom lets get started with a data check. Not that much going on. Futures will down but what an equity market it has been. The euro on 48 hours. Nymex at 33. 63. That is not european. That is american oil. With brent crude higher. The vix 19. 28. Stwerling a 140 handle. Sterling with a 140 handle. Francine, what do you have . Francine the european stocks are down. They rallied a little bit but now they are back on the downside. Stoxx00 down. There is a lot of concern about the strength in china. Chinese stocks fell. You can see on your screen, the shanghai composite down 0. 8 led by financial and Industrial Company losses. I want to show you the yen. The pound declining. Crude slumping. We need more data checks. Tom you need three or four screens just to get through the excitement of what is going on in europe. Lets get ready for this hour and next hour of surveillance. Lets go to a common inflation idea. Gary showing us the next hour, the five year and fiveyear forward break even. Here we are, deflation worries down. Disinflation. Outright deflation. Lehman lows and all that stability. This is schilling. This dreelings a lower, ever lower inflation rate has a lot of peoples attention. Francine, 2. 5 here. And were really at an unusual level of disinflation the u. S. Francine when you think about what china is going to do. Whether they are going to devalue, they turned around and devalued all of a sudden. We have an experts analysis on this the european head of fx strategy at b. M. O. Capital markets. Great to have you on the program. There is a lot of unease here in the u. K. That can only go one way. No matter what the brexit outcome is and if the pound gets devalued from now quite significantly. If the polls continue to narrow in favoror to brexit given the market we reaction we have seen in january and february so far, cable is going to go below 140, from our perspective, evaluations are starting to look stretched here already in cable and you could also put that you could also flip that over to talk object positioning as well. So evaluation talk about positioning as well. Overall if brexit is looking more likely, investors need to be aware of the implications as whole for the european region. Not just the u. K. That is a dollar positive story rather than just a sterling negative story. Francine you look at sterling negative, is it all a bad thing . It helps exports. What is the ideal level for sterling . Certainly the bank of england dont mind the currency being here. I dont think policy makers at this stage would like the move to accelerate further. I think it is an open question how if brexit were to occur, i think it is an open question how investors might initially react as brexit gets priced in, how far investors might react. That is still an open question. It could be it could initially be significant as brexit gets priced in. Tom lets bring up a chart. I love your note on this. Speed adrift vs. Abrupt right angle moves. This is g. D. P. Not euro sterling. We have a tradeweights basket against pound sterling with a very nice recovery. Is brutal the right word here taking from i think the Financial Markets are high, tom because of low liquidity. We have seen Financial Institution step away from their market makers. It is high also because liquidity is low. Yes, it is right to think back to plaza accord days. Time periods in fx when moves were significant. Tom when moves are significant at plaza accord, that is some coordinated action. I dont see that out there. Is it every nation for itself . I think that with the g20 being probably the more important body of Decision Making at the global level opposed to the g5 at the time of plaza, i think youre probably right and i think also as well you have to consider that china is in the mix now but wasnt in the mix in 1985 and china has its own policy prescriptions and therefore coordinated effort to weeken the dollar. On a final note, it is also important i think at the moment, this is one of the reasons why we see more Dollar Strength from here. That mislinements in the Foreign Exchange markets are not probably as extreme as they were in 1985. You can see that with the u. S. Current account deficit, the deficit has increased in recent quarters but it has not been a dramatic move. Francine you need china to play along if you have coordination. Dollar strength, pound weakness. Does the pound weakness bring down euro within . I think that is a good theme. Brexit could throw politically and economically both sides of the equation into a very challenging time period. And i think on that note, it is right to think about brexit not only as a political event, if it were to occur but also an economic one as well. Lthough print is not it raws into call and questions about it would have a negative impact on growth. Protectionism could rise as a result of brexit. Francine thank you. Soming up next on surveillance, b. H. P. Billiton cheese chief Financial Officer. What they are expecting to do with b. H. P. Billiton coming up next. Tom next, in one of the most important interviews of the day, we will speak with the c. E. O. Of b. H. P. Billiton. Here is nejra. Nejra a warning for Bond Investors. Youre underestimating the fed. Blackrock investors are not ready for the fed to raise rates. Blackrock said the fed may act sooner than investors think. There was a surprise fouryear loss at Standard Chartered. They were left with bad loans when the commodities market crashed and growth stalled in emerging markets. And the worlds biggest Mining Company is making larger than expected cut to its dividend. B. H. P. Billiton is lowering its payout for the first time in 15 years cutting it from 62 cents to 16. Their first half profit plunged by 92 . That is your Bloomberg Business flash. Francine, you have more on b. H. P. Francine we do. B. H. P. Warning this morning that weaker prices, higher volatility mean they are likely to persist long thearn they had been expected. Lets welcome in the chief Financial Officer peter beaven. Great to have you on the program. These are very, very testing times. Why is it so difficult to find a timeline and to call it bottom . I think the difficulty comes from two aspects. The first is on the demand side. I think were all very familiar with some of the issues that china is going through as its makes its frigs investment led economy to more of the services, more balanced economy and obviously as it makes that transition, youre going to see some bumps in the road. We think it will make the transition. The demand side is volatile on the near term. I think were on the supply side. Prices tend to be sticky. It takes a little bit more time probably than people would hope and expect. T was a combination of two factors. Francine are you committed to your earlier pledge of a solid amp Credit Rating being very critical . Having a strong Balance Sheet in the cyclical industry, there is no question whatsoever of having that. We have seen some of our competitors run into some issues with regard to that. The company tends to be your sfradge overwhelmed by your Balance Sheet rather than having your Balance Sheet enable your strategy. No question that having a strong Balance Sheet through the cycle create it is the buffer for cycle and that creates optionality to take advantage of the prices at the bottom of the cycle. That is the critical piece. Tom peter, you were at u. B. S. Years ago. You the only one that comes on the show that can spell manganese. When i look at the collapse of broken hill properties, when i look at the challenges of the industry, i have got to go to your wonderful power points. The delta on yourebit is stunning. Im going to put this out on social media. The power points from beaven are outstanding. With that said, you behold on the price. How are you going to cut expenses between 90 of your delta on your income statement is price changing commodities . How much more fat is there to cut . I will just say first of all, thatebit chart understate what is we actually are able to produce. It is about a 4. 6 billion depreciation which is masking that ability. Second thing i would say is that we have done an absolutely outstanding job on cutting costs. We have had productivity gains of 10 billion for the past three years. We think that will continue to be a very important factor. This financial year, we are guarding another gain. Face 30g reductions in prices, you cant make up for that. That is the reality over the cyclical industry. In the medium term we see that cycles turn. Tom very good. Every once in this a chile, folks, somebody comes while, folks, somebody comes up with a quote that is brilliant. Bernstein wrote a brilliant quote on b. H. P. And all of mining. The refrusal of b. H. P. To engage the difference between value acreation to value maximizeation has always been something we have found hard to understand. This is a sophisticated dynamic about you need to create value in this carnage. How are you going to do that . Do you do it step by step or do you need to make significant strategic changes to reposition oil and mining . I think this whole question of portfolio has come up many, many times. We have been in oil since the 1960s. We have made a huge amount of value for our shareholders. We have got you know, i think a very, very, very good operating capability with some of the best resources both in onshore and offshore oil and gas and that combination has worked very well for us in the past. With that capability, with that resource, this is going to continue to be a fantastic business for us. Tom this is critical. If you get oil to do your strategy krks that support the dividend and and actually true Dividend Growth . It is all part of it. Oil is a core part of alongside iron ore, copper and coal. All of those in combination are critical to supporting the dividend and cash return. What is very important here is that we would see oil will recover first and then probably copper and then youll get into sort of the basement the bulk materials maybe. Not much in the long run on that and ultimately potash where we have a very strong position. We can therefore allocate capital from one business and generate capital into the next as we see before the turn of the cycle. That is the essence of why diversified portfolios work very well. Francine given spending cuts and the dividend cuts, do you still have opportunities to buy . There are assets that are out there on the market that are probably valued at a very attractive pace. Yeah, look, were always looking for opportunities to acquire assets. For us, it is ar difficult. We have a very focused portfolio. T1 assets are rare in the worldor mining and when people get a hold of them, they hold on to them. Not many of them are going to come to market and then they have to come to market at the right price because it is not just enough to have the opportunity. I think the probabilities of us pulling something off probably reality on the low side. Francine but freeport made some statements on these tier one assets. Are you conducting any diligence as we speak . We will look at the opportunities as they come up. They would have to be disstressed to put it up in the commodities we favor. As i said, we will look at those opportunities. Tough, tough for us to execute against those things. Well see what happens. Francine thanks so much for joining us were back in a couple of minutes. This is surveillance. Tom good morning, everyone. Bloomberg surveillance. What a most interesting interview that just was with peter beaven of b. H. P. Billiton perfectly we forget they are moving from 38 billion ofebita at the peak to 11 billion. I was thunder struck about his honesty about the hope of their strategy of oil to copper to mining and then maybe they clean up potash. How do you pronounce it . Francine potash. Youre right. Also what was striking in that interview, you see a lot of miners maybe six months ago not wanting to talk. He was very clear. He said it is extremely difficult to call the bottom but from now until when the bottom happens, he will continue to cut costs. What was also very significant is we thought they would be looking at assets. It is going to be very difficult in their position to acquire any assets in future they may have liked to acquire. Tom if youre part of global wall street, go back to bloomberg Digital Media today and relisten to that interview. Just extraordinary. In our next hour of bloomberg surveillance, Gary Schilling will join us. You know, deflation. Chris will join us. Stay with us. Francine welcome back. This is mark carney, the governor of the bank of england in front of the select committee. He is talking about banking and one of the first questions he was asked was about the brexit debate. T is dividing his cabinet. When we speak to fx traders it is very likely for the fed to move as we get into those crucial couple of months. Well have plenty more on that. First, lets get to the bloomberg first word news. Here is nejra cehic. Nejra Angela Merkel is rejecting cy critics from her own party who want to crack down on refugees. She said the solution lies in the outer borders of the uropean union. A new report says there is a bigger chinese threat in the south china sea. China is building a High Frequency rate. That is according to the center for strategic and international studies. The rorlt said the radar would help china establish longterm effective control over the area. Oceans are rising at the fastest rate in 28 centuries largely because of Greenhouse Gases from human activity. That is the conclusion published in studies. Experts warn it could lead to many coastal cities being abandoned. Police in kalamazoo said a man in a shooting rampage admitted he killed people. The uber driver was charged with killing six people and wounding two others. Microsoft cofounder bill gates is backing the government in that dispute with apple. Generally siding with an gates says the Government Order is no different asking for bank and telephone records. Apple has warned it will create a dangerous precedent. Well talk with bill and Melinda Gates at 8 00 a. M. Francine we picked up something, George Magnus writes about china. They have come up with the problem known as the impossible trinity. It is impossible to market ously pursue a policy of mixed Exchange Rates and free capital movements. When you look around the world, it is hard being an fx because there are more risks than opportunities out there. What do you make of china . Were talking about it is almost impossible. They dont want to cooperate in this cycle in the growth model. China has debt risk. There are policy is going to remain loose for the foreseeable future. That is at odds at the moment with fed policy overall broadly speaking. We see continued downward r. N. B. E on the r francine we heard from the blackrock chief Investment Officer saying actually bond traders are underestimating the appetite of the fed to hike rates. Are they wrong . We see the fed moving twice in 2016, once in june and once in december. We think these are good levels to be looking to start to buy dollars. If Risk Appetite continues to improve, u. S. Rates should continue to climb and the euro should weaken. The yen should weaken which is supportive for the dollar. If youre looking bearishly at the Global Environment or for Financial Markets, the dollar should still hold up reasonably well in that environment. Tom bring up the quote again from George Magnus. Impossible trinity is a huge deal. Stephen gallo, you write thoughtful notes. How can you have an impossible trinity when youre a totalitarian regime. That is in none of my textbooks. What i would say, tom, is we think overall china to a degree has got it right because it focusedst on the Exchange Rate. Focuses on the Exchange Rate. Where you get into a problem is when you try have all three at once. Independent Monetary Policy that a fixed Exchange Rate and Free Movement capital. China does have a policy which focuses on the Exchange Rate. Ultimately we think that is the right decision and in an increasingly globalized world it makes stones focus on the Exchange Rate