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tv   The Pulse  Bloomberg  January 20, 2016 4:00am-5:01am EST

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rout resumes. tumble as japan enters a bear market. fourth-quarter profits at shell plunge. day one. $28 oil dominates the agenda. bloomberg first with the i.a. so, welcome to "the pulse" live from davos, switzerland.
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i'm francine lacqua. let's get to the first word news. nejra: japanese stocks have entered a bear market down 28% since august. chinese shares hit the lowest level since march 2009, as the slowdown in china sliding oil prices continue to weigh on investor sentiment. royal dutch shell said fourth-quarter profit plunged. the company sees profit adjusted $1.6 billion to $1.9 billion. upell which is buying bg gro has cut job and reduced spending. shares are trading lower this morning. saudi arabia's banks are said to according to
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five people with knowledge, the saudi arabian monetary agency issued in instruction and a meeting on january 8. traders are expecting them to abandon its 30 year pegged to the dollar. francine: davos welcome back . there are many challenges ahead -- the slowdown in china is one of them. ubslier we spoke to the chairman of the country is making all the right moves. >> i always compare china's policy reaction with europe in the 1990's. for the first time we have privatization in germany, telecom and a boom. and the chinese tried it to prevent those equity investors to have losses which turned out to not be a wise policy. francine: we are trying to
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figure out whether chinese authorities want to do. there is a policy devalue of the yuan. weather they devalue or not, there are going to be deflationary pressures coming from the china story. is that the main risk we are facing? we can't fight deflation. >> the central banks have tried to reflate economy and have not been successful. at the same time, the central banks try to reinvigorate growth. we are at a point in time where what used to be tailwinds from demographics and other factors has added some percentage of growth has turned into tailwinds and it is very hard to count on measure.to long-term china will go through a correction that is ongoing, but at the end of the tunnel, i think they will come out stronger. we at ubs, we announce we will double our headcount onshore in china. medium to long, we see huge
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potential. they are rebalancing growth from externally driven, manufacturing that growth, to more domestic growth. if you look at service sector growth, it grew at 8.5% in the first quarter. service-based growth is much more job creative and income creative than manufacturing-based growth. i think they are doing the right thing. it is just a tank or that needs to turn. but i'm quite positive. francine: joining me for a roundup of what we've heard so far, hans nichols he was with me in the interview and bloomberg's executive editor john who leads our davos coverage. these guys have been very busy. if you look at our coverage, and you look at what people in davos are worried about, the great benchmark -- their seems to be angst. >> there is a lot of gloom and and angst.
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the most aging thing about davos is it is not just one problem -- the most interesting thing. it is the sheer volume and expensivef very prices hitting people. it is geopolitics if you look at saudi arabia and iran. markets if you look at oil prices. economics if you look in china. -- at china. if you look at the u.s., does trump have a shot at the u.s. presidency. in europe, how long angela merkel can last as chancellor. then there is geopolitics. we have not even started talking about yet. is the one person people want to hear from? make sense about what is going on. john: the interesting thing is who is not here. angela merkel has been a fixture in recent years. her people are saying she was never planning to come.
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but that is quite interesting. people are talking about what will be her strategy to ease this refugee influx. when it comes to markets, really, it is all about, i guess you could argue it is about saudi arabia and oil supply. and we are not expected to hear that much from them at this year's davos. that compounds the sense of onet, in that there's no person that can put everyone's concerns to rest. hans: how low can you go? we will not get an answer from them. certainly not at this meeting. we spoke to axel weber about oil. no one quite knows the bottom of it. it's leading to a lot of the volatility that's therefore causing uncertainty. francine: that is especially true after we saw nymex touch below $28. who isou look at currently still making revenue
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on oil, you basically have saudi and some of the middle andern countries, kuwait, now you have the lifting of sanctions in iran. the rest of the country ceased to have profitable oil production at -- used to have profitable of reduction at $50. the lifting of the iran sanctions will continue to add supply. i do not see a bottoming out anytime soon. francine: axel weber trying to come out with a positive stance because people manage money through them. he gave us calls. hans: also weighed in on the dollar. we always love it when central bankers differ. ex central bankers cannot disagree because he disagreed with ben bernanke. axel weber thinks that euro parity is going to be challenged again. what it means for american
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manufacturing and also european exporters is a crucial question. francine: when you look back at the last 5-10 years in davos, they rank the risks that people see at for the first time time economic growth is actually not in the top five. geopolitics is much more at the forefront. john: very interesting, populism. the people here are relatively well off. if you look at the forces disrupting politics in europe and the u.s., it is this anger at rising and equality. that is one of the great tectonic shifts happening in western democracies. the problem for people here is no one knows how far that is going to go. this year's u.s. election will tell us a lot about that. hans: five of the last years, inequality -- this year it was not in the top five. there is a disconnect where in the u.s. presidential campaign, inequality is driving the race
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on the democratic side. it is not on the agenda in davos . francine: we will have more coverage on the donald trump, bernie sanders and what people think about it. our executive editor for international government. hans nichols our international correspondent. let's have a quick check on the markets because we have seen a pretty big selloff. the topic in asia enter into a bear market. we had a 20% correction since the highs last august. stoxx you're a 600 is down 3%. 40 is not messing around. it is down 3.5%. commodities are driving this. also the carmakers. we will have plenty more on what that means for dollars -yen. first up, reform as fast as possible. the e.u. commissioner davis -- greekus an update on the
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bailout. protecting the witch and parfum from this year's heightened terror threat. then the iea says the oil market could drown in oversupply. we get the details from fatih birol. this is just an hour and a half after nymex was below $28 a barrel. back in two. ♪
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francine: welcome back to "the pulse" live in davos. day one of the world economic forum. let's get straight to the business flash. nejra: thanks. insurance group expects its biggest unit to record a second straight loss. after a paid out damage claims t stores in the u k and irelando. holdings plans to buy back ck, billion euros of its sto as it seeks to reward investors after its shares dropped 10% so far this year. the repurchases will he and 2016 and 2017. in 2016 andade 2017. are the only gainer
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on the euro stoxx 50 this morning. million subscribers to its online stream service including 4 million from outside the u.s. both figure surpassed analysts forecast as a projection for growth in the next quarter. that is your business flash. guy: let's update you on the markets. we are seeing a selloff and europe. equity markets are being sold aggressively. fairly punching numbers being distributed. the dax is down 3%. the cac down 3.5%. it's mining stocks, oil companies, bank stocks that are down sharply at this point in time. the euro stoxx 50 under down 3.2%. let me show you other numbers because these are instructive. this is the picture around the world with various asset classes. oil trading sub 27 when it comes to the wti. we have seen that from the break
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contract. the ruble flirting with an intraday high. dollar-yen broke through 1.1613. that is the year low for doll-arar-yen. great guests to add context to what we are seeing. back to you. francine: you were just showing us the global or markers that could joan -- drown in oversupply. that is a clear warning yesterday from the international energy agency. i'm pleased to welcome the iae's executive director fatih birol. all the fears on the markets have to do with china but have more to do with oil. when do you see the bottom in oil prices? fatih birol: i think china is also an issue for oil, because the lower economic growth from china means lower, slower oil demand growth, which means that
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the -- lost of oil in the market. it's the third year in a row we have more supply the demand. it means, 2016 -- still under pressure. i don't see any reason why we have a surprise increase in the prices in 2016. francine: what will it take for rebalance? at some point this oversupply will come off the market. is it one or two years away? iran is about put more oil on the market. fatih birol; there are two things. this year we we expected no -- production to go down half a million barrels per day. second, we expect demand increase about 1.2 million barrels for day. aas a result of this and other high cost fields to shut down or reducing their production. we may see in 2017, an upward
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push. number two, is the result of lower oil prices many coma panies are cutting their investment for new projects. in 2015, there was a decline in investments in the oil sector more than 20%. and moreover, this year, this decline will continue. further 16% decline in oil investment which we have never seen in the history of oil. francine: first of all, if we go back at these levels, $28 to $30 a barrel, how much dressed as a put on oil producing countries and companies? you are saying 16% less investment. is there risk it shoots up? and the price goes back to 80? fatih birol: it is exactly what
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i wanted to say. the lower oil prices -- very low investments which means in a few years there will be a strong upward pressure on prices, because there are no new projects coming on stream. this is very serious. the second serious thing is the economies of major oil producers. they are in a bad shape. worseey may be in shape if iran -- francine: you are telling me we are creating a shock. we have the potential of creating an oil shock? fatih birol: i would not use the word shock but it would provide strong pressure on the upstream sector because of the lack of investment two years in a row in the oil sector. francine: it depends on your definition of shock. i may call it a shock.
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fatih birol, thank you so much for now. executive director of the international energy agency. as the world political and business leaders meet here in davos, we look at how they are stepping up security. we go back to the price of oil and we'll also be speaking to -- two things to say not only about the european recovery but about oil prices. back in two. ♪
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francine: welcome back to "the pulse" live on bloomberg tv. joining us is the ceo -- of mr. iea'so galan and the fatih birol. we were talking about the price of oil. we had a stark warning saying there is concern that as prices shoot up significantly. what is your assessment, the oil price is an essential for european companies but it drags on emerging markets. have, well, i think we already turned a a few weeks ago. we had the opportunity of meeting in paris. alreadythis go to -- said something very important. it has been recognized the world has to change. the way how we use the energy in
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a different manner. foruse of fossil fuels electricity production have to be reduced. all is sense, preparing for increasing presence in renewables and reducing the investment in -- fatih in the previous meeting said he is worried about the fact that the so low prices can already make -- the decision is taken for six years times, much more long-term. in this sense, i feel certain it is not in the short term, something about. taking into consideration according with your numbers, the subsidies given to fossil fuels
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is five times more than the subsidies given to renewables. if the fossil fuel subsidies disappear, can't really compete again. francine: given what we are seeing in davos and the massive selloff on the market. how concerned are you that this correction on the markets will continue? that's driven by the price of oil, by uncertainty in china and the fact we are not sure where the world is headed. >> i think the fact we are one of the companies -- but the performance across europe. francine: 1.5% lower, that's saying something. of course. >> today, we have increased or are close to 20% the price. we have become the largest european company for, in market cap. one of the two largest worldwide. why? precisely because we took the right decision in the right
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time. we moved forward towards renewable. we moved for the intelligent network, etc. ourng our the year performance is much better than the rest of the euro stocks. francine: i know it is extremely difficult to predict the price of oil. what advice would you get to companies in europe? should they assume the worst? should they do their forecast on $20 a barrel? fatih birol: i cannot buy low. i cannot forecast. looking at the supply and demand, 2016 will be a year of low oil prices. but there will be a rebound sometime soon and the strength of the rebound will be a factor of many things including the china economic growth. francine: the energy companies, including -- are a cartel.
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are you worried about them forming a larger part of the government? >> sorry? you are moving to politics. sorry. a, well, i think spain is democracy. now is the work of a politician to reach agreement. before creating a stable government. the country's since many years already has a very conservative democracy which every four years we go to the, weh ave already a general eelection. they are running to parties, moving one to another one. but they have to reach agreement and sure, they are going to make something to continue providing this stability, productivity for the country to continue the growth we have today. we are already becoming one of the european economies which are growing more. and the trend is to continue if
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things are done properly. francine: thank you so much. mr. birol will be back with us. we will talk about iran and the couple occasions with saudi. -- the complications with saudi. ♪
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francine: welcome to "the pulse" live in davos, switzerland. it is day one. two more days to go. we're getting jobless numbers from the u.k. guy: thank you very much. the employment rate on a three-month basis, 5.1. average weekly earnings also thought, 2.1. th weekly earningse ex bonuses look for at 1.9.
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the crowd is picking up a little bit on the back of -- the pound is picking up a little bit on the back of it. the big story, though, not sterling despite what mark carney said yesterday. calling out the fed, some would argue. what is happening with equities. we are still down aggressively. u.s. equities sharply lower as well. elsewhere, other asset classes are moving around fairly sharply. you have nymex crude sub 28. the market is seeking safe havens in the german bund and the u.s.-yen rate. look at the ruble. of no records. -- up near records. nejra: european stocks are selling off sharply this morning as you just heard with all the region's major indices falling
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after japanese equities under the bear market. since august. chinese shares traded at the lowest level since march 2009. shell says fourth-quarter profit plunged. they see profit and inventory changes at $1.6 to $1.9 billion. group,which is buying bg has cut jobs and reduce to spending as it prepares for a prolonged downturn. saudi arabia and banks are said to have been told to stop selling currency products that allow investors to make cheap bets on the devaluation of the riyal. the saudi arabian monetary agency issued the instruction on jeter 18. trading -- on january 18. that is your bloomberg first word news.
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back to davos. francine: we have so much to talk about when you talk about saudi. the news a couple weeks ago. we have fatih birol. davos has been transformed into a fortress ahead of the world economic forum. this year security has been stepped up against very clear -- very clear that people are on edge. suicide attacks are key concern. tom mckenzie reports. tom: the annual security lockdown of davos for the world economic forum will be taken to another level in light of last november's paris attacks. >> the worst cases we have to face a terrorist threat. so, we know that the terrorists threat is higher than in previous years. tom: preventing a suicide attack is a key concern, along with securing the skies and the roads
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and streets with rooftop snipers. >> swiss armed forces are involved for the security of the event, including air force and troops on the ground. we have two anti-aircraft cannons but that's just the last means we have. usually, the air force should be able to handle it with the aircraft in the air. has beenxtra layer added to counter any threat from islamic state. the fact we are alert to suicide bombings. we've taken various measures. we've intensified controls, intensified our intelligence us other measures i am not authorized to disclose in detail. tom: one signed is on the single road that leads to and from davos. swiss police have ramped up
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security at this checkpoint on the outskirts of davos in light of the terrorist threats. we have been told the screening of people inside the conference center has been tightened. authorities here say they have no evidence of any direct threats to the world economic forum, but they aren't about to take any chances. francine: let's get more on all of this now with bloomberg's london bureau chief, simon kennedy. and fatih birol. thank you for coming on. i need to go back, before we talk about the security and the angst amongst markets, i would love to hear your thoughts on that saudi aramco potential ipo. it came out of the blue and yet we have been expecting it for the last 12 months. fatih birol: i think it is too early to make a call on the news about saudi aramco.
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it is the, saudi arabia is the central banker of the oil. what kind of steps they are going to make have huge implications for the oil markets. however, i should say that the ve seriousices will ha implications on the economies of all key middle east countries. for example, if the price is around $30, if you look at the gdp of the middle east countries, about 20%, equivalent of the gdp -- throughout 2016. i'm talking about 1/5 of gdp. if prices are made at this level, i believe many of those countries need to make some reforms in their economy, in the energy sector and beyond. francine: simon, you have been covering the world economic forum for 10 years. there is so much focus on oil.
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and there's aloso terribly important iae report -- iea report. has always been a theme here. people are worried. this morning larry fink was talking about how he sees the upside from it. view for thein his world economy because people get cheaper fuel bill. there is not complete angst. the longer it stays down, the more questions about what it means for inflation. francine: talking about that report at the end if every chemical in you give us a sense of what the main changes will be compared to last year? fatih birol: the february report in which we look at the next five years of the oil markets and what does it mean for producing countries, what
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does it mean for the oil importing companies and what does it mean for the transformation of the energy sector? we just talked about price. to change the word to have cleaner energies, this low energy prices complicates the transformation, because many of those solutions, clean energy solutions, are high cost investments. in a low gas price, low coal price environment, it is becoming more and more difficult of fish through the high cost -- to push through the high cost clean energy prices. francine: do you get harassed by coeeo's? fatih birol: we talk all the time. a couple of coffee or glass of beer. i can tell you that 2016 we will see a downward pressure on the prices. but we should not forget that story behind 2016
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is the result of the two years in a row decline in oil investments. a high cost for investments in the years to come. francine: we are seeing a huge crush on the markets. the people here are more worried about such a banks not having enough ammunition if something sinister happens or trying to figure out what china and skin -- china's end game is? simon: the question is what is your china strategy? before we was about the rise of china. now people are worried about its falls. . is the data legitimate? how control of the government when they are looking to have these circuit breakers. they did not really work. the yuan depreciation has been poorly communicated. a lot of concern about china. fatih birol: for china, from the oil perspective, it
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is not only the pace of economic growth but the nature of the economy. china is moving from the manufacturing-based economy to service-based economy which requires less energy for the economic growth. there are two things. one, slowing down of the economic. changing nature of the economy moving from heavy energy to a light economy. francine: thank you so much, fatih birol, of the iea. i need to point out these two gentlemen -- they don't have. it's minus 12. they laugh in the face of the davos mountains. goldman sachs reports numbers later today and we'll look at the health of the u.s. banking sector coming up. day one of the economic forum in davos. ♪
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francine: welcome back to "the pulse." live from davos. day one of the world economic forum. let's get to bloomberg first word news in london. group zurich insurance expect this biggest unit to record a second straight quarterly loss. as it expects the payout $275 million to cover damage claims from storms and the u.k. and
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ireland. asml holdings plans to buy back an additional 1 billion euros of sharesocks after its dropped 10% this year. the repurchases will add to 500 million euros remained from a previous buyback program. soared after it added 5.6 million subscribers to its online streaming service in the fourth quarter, including more than 4 million from outside the u.s. most of those figure surpassed analyst forecast. that's your bloomberg business flash. francine: we'll get number today from goldman sachs. the u.s. bank reporting season gets into full flow. with me is erik schatzker who's been covering banks for years.
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i would say decades but you are too young for that. it is interesting because here you usually have the world's biggest bankers and it is a great opportunity for us to get inside their heads and figure out what they are thinking. a lot of u.s. bankers are showing up. erik: jv dimon is here. james gorman from morgan stanley. brian moynihan from bank of america will be here as well. the only missing ingredient among the largest u.s. banks is wells fargo. it's mainly a u.s. bank. it's uncertain whether lloyd blankfein is going to make it. he is recovering from cancer. he may or may not come. the present of goldman sachs will be here on friday -- the president of goldman sachs will be here on friday. 12:30 london time, 7:30 eastern. francine: this will give us a sense of what bankers are worried about -- fixed income and trade.
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here in europe, there is also a u.s. that it will only be banks that will be left in the investment space in europe for five years for now. erik: that is the prevailing view. they know they are being forced to shrink by regulators. yes, the question is whether the only banks and the fixed income business end up being the gigantic u.s. institutions like a p morgan and bank of america. it is an open question whether goldman sachs will be there. look at what morgan stanley is doing. it has shrunk its fixed income business and plans to -- cut another 25%. goldman sachs is talking about cutting its headcount by 5%. the regulatory pressure on that business is so heavy, if you do not have a lending business to back it up like the universal banks do, it will be more difficult to compete. francine: the question they are asking themselves and that they will talk with one leaders about
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is what we are asking, where is china headed? how do i get into china or do i need to stay away and what central banks think? erik: they have three big concerns. china number one. china is really now just a proxy for the global economy. so goes the global economy. if there isn't economic growth, there will not be loan growth and the will not be revenue growth. this is the big problem the banks have been confronting for years already. no revenue growth. the only way to generate earnings is to cut costs. after that, you have the market volatility. what is going to happen to ipo's, and mergers and acquisitions after a record-setting 2015. then then there are the credit markets which are freezing up now. if there is no credit, there will be no leveraged buyout's. millerls like inbev sab cannot get done. that one will go through. francine: do we know who is not showing up yet?
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we have a list of participants. how telling is it about bankers -- the french banks are not showing up. it may be because of gender reasons but can you tell the strength of the world economy? erik: think back to 2009. that is the year when jamie dimon was the sole bank ceo represented in davos. everybody else took a vacation. the past several years, almost all of them have shown up. it does say something about the state of the european banking industry went the ceo's aren't here. i think so. francine: i agree completely. we also have world leaders, mr. rouhani and angela merkel not showing up. their aids keep on saying they never said they would come. they have issues or changes at home they need to deal with. erik: the question one needs to ask is whether you should treat that kind of situation counter
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cyclically. think back to 2009. when jamie dimon was here and all the other american bank ceo's were absent. it was a great time to buy u.s. bank stocks. the same could be said for sovereign wealth funds in oil. iok is not well representedl -- well represented. sovereign wealth funds are not represented to what we look back on 2016 and say this was the bottom? i don't know. francine: if you're in the markets, they probably hope so. erik schatzker has great interviews coming up throughout the day. erik was talking about volatility. and the price of oil. let's get the market check because a lot of european stocks under pressure. if you look at the stoxx europe 600, i do not think there is one stock that is gaining in today's trading day. you can see the ftse down 3%. dax down 3%. the cac 40 the biggest loser over all. cars and exporters are down.
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this is after this morning. index wente topix into a bear market. if sell 20% from the highs of last august. coming up, plenty more from davos, looking at the challenges and key players who can help influence change. stay with us. ♪
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francine: welcome back to "the pulse" live from the world economic forum. it is day one. two days left. getsy morning as the rest west underway. here is what they have to say about china. >> chinese authorities have plenty of ammunition to stabilize the economy. what is true for europe, still easing, true for the u.s. is not turrue for china. >> oil price is more important in china. >> china is in transition. we are moving into a model. it does take time. >> china, they are changing the economy towards a more domestic consumption focused economy, woulds they said they some years ago. this has an impact of export of raw materials and energy.
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but it is part of making the growth economy more healthy. greatne: just some of the interviews coming up at the world economic forum. now, coming up, it is "surveillance" with tom keene. we have to focus on china and focus on the angst. this angst is very real. falling 3%. volatility is externally high and japan for the first time in a bear market. tom: the first time is a key phrase. we saw fragility yesterday. today what we are seeing much much more is japan gives way, the german two year has been shocking this morning. we saw a russian ruble print 80 just for a second. nevertheless, the tendencies are something i have never seen -- us more removed from market reality. francine: you have been saying that. i wanted to explore that more because when you speak to a lot one-on-one, they are less optimistic than they were
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three weeks ago. you look at 2016. we had two weeks and it has been mayhem on the markets. fears that we had in 2015, it is almost like they came to the forefront. tom: i noticed just today. you are using the belle of the ball at davos. madame lagarde pushes you aside. i talked to her briefly. her vision of the new mediocre. everyone is catching up to that right now. even with optimism about some parts about the american economic story or europe. some of these covert officers can be optimistic but the market vigilantes they just push them aside today. francine: there is a feeling markets fear something -- it could be deflation, central-bank lack of ammunition. they do not quite understand what chinese authorities want to do. it can also be they want to have that floor for oil. tom: exactly. what we are in search of is somewhere for oil to settle. that is absolutely not
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occurring. as you know, interview the interview -- interview to interview non-elites are rationalizing what oil is going to do. oil is going down. francine: but we still do not have a floor. i know legally fatih birol cannot give us a figure, when you look at all the different conundrums, iran the difference between iran and saudi it is difficult to touch a floor. then we have these notes saying that $10 or $15 is a possibility. fromwhat we have seen thursday and friday last week getting over to her quiet monday , holiday in the u.s. a pretty good tuesday closing. is the ambiguity. i would go to the microeconomics. ambiguity about where we are which is why we will have to have an extra day to check through all of the "surveillance" -- francine: we have some smart conversation coming up. we will be speaking to the vice
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managing director of the imf and also talking to many nobel laureates. for our viewers, it is "surveillance". we have a great lineup. you can follow that and follow tom and i on twitter. ♪
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♪ francine: stocks tumble across the globe. the ducks is down 3%. japan enters the bear market. contracts dip below $28 a barrel. shell feels the pain. taking off with a bang. market volatility dominate the conversation. good morning. this is "bloomberg surveillance"

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