To reasonable policies. Francine good morning. This is bloomberg surveillance. We have great guests. We will be talking dollar, pound, and some of the greek bonds. First things first. Thats check in on your markets. This is the picture. Banks in the u. S. Yesterday leading the rally, as janet yellen, with her comments yesterday, seemed have buoyed equities. A lot of banks in europe are still gaming. 1. 6 for the industry in europe. Stocks in general are gaming. A next bag in terms of earnings. Lot has been playing out on the currency markets. Chinese stocks in hong kong jumping after record new credit fueled optimism for strength of the chinese economy. Lets get straight to the first word news. Here is nejra cehic. Trumpsides to donald president ial campaign had contact with russian intelligence officials according to the New York Times citing former and current officials saying intercepted calls show repeated contacts with senior russian intelligence officials in the year before the election. The u. S. Treasury secretary, Steven Mnuchin and, has expressed his desire to strengthen the deep economic bond with britain, according to a statement on his phone call with u. K. Chancellor Philip Hammond. The pair discussed the opportunity to work to support the socalled special relationship, especially as britain prepares to leave the e. U. Malaysian investigators continue to search for clues after the sudden death of kim jonguns halfbrother. According to reports, he was targeted by women with a chemical spray at a shopping concourse in Kuala Lumpur International airport. South koreas by service said spyh korea south koreas service said north korea had been working for years to kill him. Underwriting security offerings move is mored the akoni and than in past years, when dealmakers who failed to impress bosses still got something. Goldman sachs shares closed at a record high yesterday amid optimism for a positive economic and Regulatory Environment under the Trump Administration. Indias space agency has notched a world record while launching 104 satellites aboard a single rocket, which lasted from an island carrying nano satellites from seven countries. India is looking to cement its position as the dominant destination for lowcost launches. Global news 24 hours a day powered by journalists and analysts in more than 120 countries. I am nejra cehic. Francine thank you. Fed chair janet yellen says they would be unwise to wait too long to raise rates, sending the dollar and treasury yields higher. The odds for a hike rose slightly under comments for the Senate Banking under comments fe Senate Banking committee, and major equity benchmarks closed at record levels for a second day, as yellen said the fed does not need to wait for Trump Administration plans on fiscal stimulus before taking action. Yellen as i noted on previous occasions, waiting too long to remove accommodation would be unwise. Fomctially requiring the to eventually raise rates rapidly, which could risk disrupting Financial Markets and pushing the economy into recession. We do not know what fiscal plans will congress and the administration will decide on. We are not basing our judgments about current Interest Rates on speculation about that. Been makinghas solid progress toward achieving our objectives. The Unemployment Rate is close to levels we regard as sustainable in the longer run. Inflation has moved up. And it is those trends that are driving our policy decisions, and not speculation about fiscal policy. The fomc has enunciated that its longer run its longerrun goal is to shrink our Balance Sheet to levels consistent with the efficient and effective implementation of Monetary Policy. Francine that was janet yellen yesterday. We bring in the chief Investment Officer at cross bridge capital, and stephen gallo. Thank you for joining us. Stephen, let me kick off with you. What did we learn from janet yellen . She is ready to go despite having much of an idea of what is. Ps economic plan stephen she has obviously expressed concern about Market Expectations for march, and rick rate hikes in general falling too low. I think that is one of the main things yellen was trying to get out in front of yesterday. March did slipt too low and they should be close or50 50, rather than 80 20, Something Like that. The bottom line is that when faced with the uncertainty of trump, they are still faced potentially with a sea change in fiscal policy. They do not want to fall behind the curve. Two of the things that have happened since the crisis is that Capital Investment in the u. S. Has been very weak, and so has productivity growth. Those things could change materially as a result of fiscal policy. The delta is potentially huge. Productivity, a change for the better, right . How does fiscal policy automatically impact productivity . Stephen fiscal policy and changes to the tax code and more importantly, potential for reshoring of u. S. Production as a result of trade policies could effect willingness to invest. Effect Capacity Utilization in the states. Both of those things would be positive for fed policy upward trajectory for rates. Francine do you actually assume that the trend is going to be better for now unless we get a fullon trade war with china . Yes. I think if i look at economic growth, i am feeling more positive. The liver, i do not expect rates are going to increase in march. One measure we look at is core pc number. December 2011 through april 2012, we have not seen that hitting 2 . Consistently, the fed in its own measures that it expects to do a 2 , it has been undershooting it. My view is that a lot of the change that President Trump has promised is not going to come until the second half of the year or the later part of the second half of the year. I do not see concerns in terms of the fed raising rates. It is continuing to maintain its reinvestment policy, which it said it will not temper with. To me, markets will rally, as we have seen consistently. Risk was talked about but did not happen. Francine i wonder how much of it is priced into the dollar. Stephen there are about two rate hikes priced in, i would say. Two and a bit. I would also highlight that after the second or third rate fedsf the cycle, the tightening, raising rates, does not matter for the dollar anymore. Back toour attention the potential seachange on the fiscal side. Economists from all over the world have been calling for a change, a move from the central tok Balance Sheet expansion different drivers of growth. Now that we have the francine you need to fund it. You need to fund infrastructure. That is impacted by Dollar Strength. Stephen that is where changes to the Corporate Tax code come in, tweaks for the better way approach, potentially a capital flows tax with a border adjustment. That is where the funding question comes in. Francine the problem with the tax rate how does he conciliate the working for the average man, the man and woman that felt they were left behind by globalization, with seemingly giving more to companies and people who already have quite a lot . Manish i think the key thing about tax reform is, how does it impact . It is not about the large corporate. The u. S. Corporate tax rate is highest in the g20. You look at who is carrying the burden. Francine wall street are not doing that on the back of this. Manish it is not about large corporations. It is about smes. They have complained about high taxation from epa, from health care issues, and all. If you do not sell that part, you do not get a 4 growth rate. That is what i am looking for when they do the taxes. How does that affect the Small Businesses, the bulwark of the American Economy . Francine as long as there is no protectionist measures, because that would be counterproductive, some kind of tariffs. That would impact the supply chain. Stephen i would agree with manish that changes in Financial Regulation could allow Small Businesses access to credit and could open investment opportunities. I would also point out that we would expect, as a result of reshoring of production back to the u. S. , a smaller u. S. Trade deficit over time. Countries that have small trade deficits or trade surpluses generally have lower ginny coefficients gini coefficients, through the developed world. The u. S. Has been a lacquered because of lack of reform to Corporate Tax policy. That is one reason the u. S. Has been a laggard. The same have not had subsidies as exporters in foreign countries, and the u. S. Has run trade deficits. Francine we will come back to that. We will get more comments from the fed chair janet yellen today. She speaks to the House Financial Services committee at 3 00 p. M. U. K. Time. You can follow that live on bloomberg. If you are a bloomberg customer, you can watch the show using tv. You can go back and hear what our guests were saying. You can stream it. You can follow our charts and functions and reach out to the show directly by clicking send ib to the show producers, and ask questions i will ask our guests. That is for tv. He sure you use it. Thats get straight to the Bloomberg Business flash. Abn amro has reported a 23 increase in fourthquarter profit. The statecontrolled dutch lender says underlying net income, which strips out one millionms, rose to 333 euros, helped by higher Interest Income and lower provisions set aside for risky loans. Credit agricole saw fourthquarter profit slump in net income dropped to 291 Million Euros after it booked a goodwill writedown of its french Consumer Banking unit as trading revenue fell. That compares with a 315 million euro analyst estimate. It is a beat for heineken operating profit. The worlds secondlargest brewer says it came in at 3. 50 4 billion euros. Sales and earnings will both increase this year as it makes headway in asian markets, such as vietnam. General motors shares closed almost 5 higher in yesterdays new york trading after bloomberg revealed the psa group is exploring and acquisition of the carmakers business. Gm is seeking a multibillion dollar amount for opel, which operates vauxhall. That is the business flash. Francine the deputy ceo of agricole,ank, credit told bloomberg he is not expecting a Marine Le Pen victory in the election or a potential frexit. Those comments, as polls show a tightening of the race. Markets are exaggerating this type of risk. They have been impressed by previous episodes, notably brexit. I quoted that a few minutes ago. They are now always looking for the risk. I am convinced it will not happen, and i am convinced that france will stick to reasonable policies. Francine meanwhile, it is exactly one month until elections are held in the netherlands. The ceo of Deutsche Bank abn amro told us an exit is not a scenario he expects either. Thel with us, the sick chief executive officer executive officer across bridge and the head of european fx strategy at fimo Capital Markets. Manish, you were a brexit proponent when you came on the show. Do you think it is the same fear that ledaccept, to brexit m donald trump, that means Marine Le Pen could have a chance . Manish when people say it will not happen, it always scares me, because clearly, there is a risk that it could happen. I would say that the problem definitely is, if you look at what people are revolting against look at germany. Germany is in a system with everyone. You would expect that if you are exporting a lot, your currency should strengthen. It does not help the rest of the european countries. I had this question yesterday francine a very Peter Navarro argument, cheating the rest of the world. Manish by design or whatever it is, germany is in a system with everyone else in the eurozone. If you export more, your currency does not move . I would say that is an argument of dissatisfaction on the part of people in the rest of the eurozone. There is clearly i would say people francine you could argue that without germany, there would be no eurozone. You look at the greek bailout manish it is true, and we should look at the system and balance. That is the biggest risk people are not looking at. If frexit were to happen, currentaccount surplus germany has accumulated, is it real or fake money . Paper money is getting people worried about if it was going to go there. The risk of Marine Le Pen winning, i would not rule it out. Francine 20 or higher . Manish higher, but we have two months to go. They said they will bring out more things on macro. Macron. You should not take this as a small risk. Francine what is your take on what the ecb could do . Stephen that attitude you just made about germany and the eurozone, that is why there is dissatisfaction with the euro in southern countries and greece. Francine what, . Stephen the comment about germany supporting the euro, and there would be no euro without germany. Francine the point is what, that they should break up . Stephen the point is that the attitude and the lack of acceptance for blame is what elected the political dissent, the dissatisfaction. Francine but it is not to be fair, i am playing devils. I do not have an opinion either way. When you look at the conception of the euro, i do not know what germany could have done, apart from spending more. They have very strong stephen germany could have exercised francine very weak currency area currency. Stephen politically, merkel could have accepted responsibility for the crisis. Germany is responsible for the crisis as much as greece is. Francine what is the step . What should they do . Stephen it is difficult now. We are getting to the point where we are beyond the point of no return. We have kicked the can down the road so many times and we have a sevenyearold can we have kicked multiple times. Solutionsrospects for are being clouded over by the political cycle. In our view you asked about the ecb and about Marine Le Pen. In our view, 2017 is going to lead to a situation, regardless whether Marine Le Pen wins or loses in france 2017 is going to lead to a situation in europe where you are going to have multiple competing interests across the bloc. The prospect for financial architecture, the necessary architecture of the eurozone being completed, is looking more distant. Francine could it break up this year . Stephen moreover, Debt Forgiveness in greece will probably be even less likely after the german election. I do not think it breaks up this year, but the odds of an exit are in the 50 to 60 range. We could have a sea change in the attitude, but i do not think that is likely. In terms of ecb policy, i think they are kind of boxed in. We are at the point now where if the euro is too strong and policy is too tight, it is going to be a problem for weaker economies, where they are seeing key levels of Economic Activities fall below precrisis levels. Core inflation in italy is barely moving. It is very low, below 1 . You have this disparity. If the euro is too weak, it is a problem for Northern European countries. We have always had that risk with the eurozone. But now, more than ever, the tensions are heightened as a result of those risks. Francine our guests stay with us. Steven mnuchin and Philip Hammond discuss strengthening ties between their countries. We talk brexit and Transatlantic Relations under the new presidency. And an interview i am looking forward to is we speak greek bonds and greek Debt Forgiveness with a guest from japonica. They hold 10 of all greek bonds. Francine this is bloomberg surveillance. Secretary Steven Mnuchin and has stressed his desire to strengthen the economic bond with written, according to a statement on his phone call with chancellor Philip Hammond. We get an update with the latest jobs data in about 10 minutes. Lets get the thoughts of manish singh and stephen gallo. You spoke to someone at Deutsche Bank yesterday, and he was calling the pound at 1. 05 versus the dollar. Where do you see it . Stephen on the dollar side, based on tweaks to fiscal policy 7 the u. S. , we see a 5 to appreciation. For sterling in 12 months, we think it will trade at 1. 37. The reason is that we think the Political Climate in the rest of the e. U. Will move in a direction that effectively favors the u. K. s position, the position the u. K. Has adopted government. Y we think the political transition and the rest of the e. U. As we move through the political cycles of various countries will allow the u. K. To secure transitional arrangements and ultimately decent fair trade yields with various countries, or the e. U. As a whole, pending on how the e. U. Decides to approach freetrade deals. Francine your take . Manish i agree with what stephen is saying. I was surprised when i heard the 1. 05 production yesterday. People are ignoring the politics. It is not the u. K. Wants the best deal for itself. It should be good for the e. U. As well. The Political Climate in the e. U. Over the next year is goi