tv Bloomberg Surveillance Bloomberg December 7, 2016 4:00am-7:00am EST
forecasts. the policy rate is unchanged. the central bank, in terms of interest rates, keeping them as they are, at 6.25%. this is the dollar versus rupee. 57.95, however at this point what is most significant is it has cut its 2017 economic growth forecast. we will get plenty more on that and market reactions, but first let's get to the first word news with nejra cehic. sharescredit suisse trading higher after the bank stepped off -- step up cost-cutting efforts. down from an earlier goal of below 18 billion francs. the company lowered profit targets for its international wealth management business and its asian division. german industrial production rose less than analysts forecast in october. production, adjusted for seasonal swings, gain 0.3% from
the previous month, compared to a median estimate for a 0.8% rise. it signals that europe's largest economy took a slow start to the final quarter of the year. u.k. prime minister has agreed to reveal more details of her plans for brexit, but at the same time, theresa may challenged lawmakers to back her proposed timetable for withdrawing from the european union. she objected to the wording of an opposition party andn objection -- opposition party motion that will be debated today. resident elect donald trump has offered the post of u.s. governor of china to an iowa governor, a long time friend of the chinese president. that is according to three people close to the matter. the decision comes at a time of heightened tensions with china after trump on friday abandoned almost four decades of diplomatic protocol by speaking directly with the leader of taiwan, which beijing considers a rogue province.
google news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries. this is bloomberg. what we areis is looking at in the markets. nara -- nejra was talking about the fallen australian dollar. thanks for telling equities higher. yen sliding. eyee, we need to keep an on, on the back of the opec decision last week. you can see crude is down 0.6%, at $50.61. european equities advancing for a third day. if you look at the world bank indexes, it's trading at the highest level in more than a year. the aussie dollar, keep looking. the aussie dollar declining after the statistics bureau said third-quarter growth decreased 0.5%. a have that indian decision couple minutes ago. surprising because the central bank in india did not change interest rates. let's go to our correspondent in
mumbai. great to have you on the program. give us an idea of how this was unexpected. i think only six of our analysts, six of 44, were expecting no change in policy. 31 analysts had forecast the cut of at least 25 basis points, and five had expected 50 basis points. so the fact that only eight predicted there would be at all, it has surprised the markets. francine: is the central bank governor nervous ahead of the fed? we have had some quite sharp reactions to the currencies, the rupee already under smith and pressure. reporter: ahead of the fed decision, i think the governor wanted to keep things unchanged and sort of see how things go. we expect him to take calls possibly after that. how does the catch
clampdown hurt economic growth? the central bank of india having to cut their forecast for 2017. are those linked at all? reporter: they are. you have seen spending come down as people sort of try -- that it percent of the indian economy is cash-based. decreased to a major in spending. as a result, because of a slowdown in demand, there has been some sort of slowdown in terms of manufacturing and other services. francine: thank you so much. iddarthhilip -- s philip joining us. all the economists expect mario draghi to extend the bond buying program. next week, the fed, where the odds of a rate hike, as measured by fed funds futures, are at 100%. ofthew beasley is head global equities at henderson global investors. great to have you on the
program. if you look at india and what the ecb does tomorrow, does it all go back to the fed and the fact that markets are pricing in 100% rate hike? and bondequity markets markets are pivoting off the u.s. the last two months or so. i think we are still all fed watchers primarily, with other central banks reacting to the fed. in the case of what we just talked about in india, it is still early, how the indian economy is dealing with this shock therapy that is being enforced by the prime minister. i think when it comes to the ecb, they are more measured in terms of looking forward. we know they have pledged to continue aggressively influencing the bond market. ofncine: is this on the back the italian referendum? political risk is not getting easier. matthew: it will only get worse next year. this is telegraphed. we know there are french presidential elections next year. we know there are german elections in 2017. if we get inflation in the u.s., receipt rate hikes perhaps
faster than we thought they were going to. a strong euro, a weak euro -- that is probably a help to the european economy. see the ecb doto anything drastic yet, given how much uncertainty is a had not just politically, in the eurozone. francine: looking at your bloomberg terminal almost on a daily basis -- look at that beautiful wirp function. you have a hike of 100% for december. what comes next? are looking at three hikes? could the feds a price to the upside in two weeks and hike by 50 basis points? matthew: there is a chance wage inflation accelerates faster than we think. general inflation, we tend to see central banks in the u.s. -- let's go back to the way it works. rate rised one perhaps this year, and one or two next year. the bar is being raised to rises, even four rate
pushed forward by donald trump's programs, but we still do not know the details. markets are getting ahead of themselves. they are starting to price and deflation in the rearview mirror, and some inflationary pressures. we are yet to see that in statistics. the central bank has so far proved very statistically based. francine: how do you look at u.s. treasuries? i have a nice chart for you. i imagine this has direct impact. this is a 10 year treasury yield, right back 35 years. the bull market is finished. we spoke to critical global investors, and look at this. this is the double bottom. one bottom in blue, and a second bottom in green. what does that tell us? does it mean yield goes back up? what does it mean for the rotation in money from here into a lot of your world? matthew: i don't know. to me, it is very clear the deflationary trade is over. i am not yet convinced that inflationary trade starts. i am waiting to see evidence of
that. we look at the last two or three years of that wonderfully long-term chart we have been looking at. you see the bonds have gone up in value. at the same time, equities have appreciated in value. now, you have bonds declining and yields rising. at some point, given how equities are valued, using bonds as a discount rate, that will be bad for equities. francine: if you look at these rates, does it go to europe, the u.s., emerging markets? matthew: this is the big challenge. you have equities as the only game in town. as long as font yields do not rise much, equities are attractive. in a progrowth world, u.s. driven cyclical growth, the u.s. market will do well. emerging markets will do well. in japan is the ultimate global cyclical economy and will do well. europe could end up lagging. francine: are you worried that we see -- guy johnson this morning was writing me that if you look at the italian stock market, it was very sold off in june and july, post-brexit. we are almost looking at a bull
run, a bull market. it is crazy when you look at politics that equities are going up by so much. it is a must a similar exercise in japan. is there a worry that three years from now, everything comes crashing down? matthew: in short, yes. this is the dichotomy we are in. equities are the only asset class left that people find attractive, where you still find some defensive yields that are interesting. your is getting dragged up by other markets, despite the challenges. in terms of the u.s., the improvement in global trade outlook is pulling the european equity market up. and there is a valuation discount. european stock is getting a bit despite its challenges. that will continue to 2017. francine: matthew beasley stays with us. we will be coming back. matthew will be talking about brexit. back my brexit. theresa may agrees to reveal more details of her e.u. exit strategy. disagreement between mps over
times reported yesterday. agricole and credit declined to comment in response to the november report. hsbc said it would defend itself vigorously on the matter. airbus has been selected by the canadian government to replace its search-and-rescue planes, according to people familiar with the situation. the deal is estimated at 2.6 billion u.s. dollars. they said the deal is set to be announced tomorrow. a spokesman for airbus referred weston's to the government, while the canadian defense ministry inclined to confirm or deny the story. other bidders did not immediately respond to requests for comment. paschi is making a final push to back the lender. executives are considering options including a limited form of state help, as well as an extension of an ecb deadline, to complete its capital increase. that as a political vacuum in
italy chills demand and brings the bank a step closer to state aid. in outgoing prime minister renzi's office did not respond to a request for comment. francine: the u.k. prime minister has agreed to reveal more details of her plans for brexit, but has challenged lawmakers to back her proposed timetable for withdrawal from the european union. that will be debated in the house of commons later. theresa may is currently in the -- says trade is high on her list of priorities. prime minister many: i will be talking about trade opportunities in the future, this is about britain here and now, increasing trade leave theies when we european union. i am ambitious of what we can achieve in terms of the deal we have with the european union, but also the opportunities there are around the rest of the world for us to do trade. francine: matthew beesley isderson equity investors
still with us. we do not know what kind of brexit we are looking at. matthew: it is a problem. what we have been doing is being very shy toward u.k.-exposed companies. francine: insurers? matthew: banks, media companies. it is a very uncertain world. markets are discounting mechanisms, so there are plenty of cheap stocks in the u.k. market, but in a world that is perhaps refining -- reflating, the outlook for the u.k. economy, where it has been relatively robust, is uncertain and 2017. as a global investor, it is easier to focus on other countries. francine: what are markets not discounting at the moment? matthew: they do not understand the extent to which the financial services sector is in an inflationary period. thanks do not deserve huge valuations the company still have. francine: because interest rate will go up. matthew: banks, globally, there
is an expectation rates might raise faster in the u.s., if not japan and europe. the regulatory pressures overhanging banks are largely washing out. are more fines today. there are resolutions of the big overhanging antitrust cases that we know about. markets are focused on value versus growth. the banks are a value trade. many banks still trade at discounts to their embedded tangible value, book value. if growth is going to be better, rates are going to be higher. the opportunities to earn slightly higher mergers -- margins are attractive. banks are economically sensitive. will focusuickly, we on banks next, but i want to go back to the u.k. if there is a breakup of the eurozone, would equity in the u.k. benefit? matthew: some would, but the currency becomes crucially important. where you have some u.k. stocks
that are less sensitive to the u.k., more exposed to the global world, they are benefiting from the heavy fall we have seen in sterling area i would expect that to continue into 2017. -- have youmpanies price emerging-market risk if the fed hikes? matthew: stocks like wpp, a global company listed in the u.k. -- big exposure to emerging markets. and if it's from stronger economics globally. because whileo, it benefits from global growth being better, emerging markets, if the dollar rises too fast, maybe a problem. these stocks fall into a bond-like equity category. --xosmithkline, astra seneca these have attracted investors because of his ability. those stocks have been ignored by investors as they spring round and focus on value. francine: matthew, thank you so much.
cuts. a lot of analysts questioning whether they actually could. if you look at russia, we understand the kremlin spokesperson says putin has personally agreed to oil output cuts. if you look at the price of crude, because there was speculation that although opec decided to cut output, they will not stick to it -- now, we have the personal assurance from putin, to a spokesperson, saying they will not compensate these oil companies for output cuts, output cutsgreed to directly for the russian companies. we are back with matthew beesley. when you look at investors need to take a bet over whether opec will stick to the agreement, we have seen an output cut in the past, but they always overproduce. is this different? matthew: it seems like it is. you look at equities and you still find value in all companies. for us, i would say oil is going to trend upward. these are production cuts
outside of non-opec. i think that is generally constructive. francine: do you buy u.s. companies? i am thinking of shale gas. it looks like they may counter this opec supply cut. matthew: you look at global oil as a global industry and you pick your stocks accordingly. we have stocks in europe, we have hess in the u.s. francine: european banks also in focus. today, credit suisse out this morning with lower proffered targets. they plan to cut another billion dollars in costs. a slump in asset management forces the ceo to adjust his turnaround plan. hasy's finance ministry denied a report it is preparing to ask for a 50 billion euro loan from the european stability bank to allow for intervention for monte dei paschi and other struggling banks. how do you deal with the banks? credit suisse -- does it need to merge? does it need to take a lot more pain? seehew: credit suisse, we
today, is a reaction to where markets are. it is a readjustment of a strategy which is still in tact longer-term, a reaction to pressures today. management the asset business, about margins rising and asset management. francine: they will be? matthew: potentially, we are moving into -- we need this environment where you are having a moving to higher risk assets. they could earn a higher margin, like they used to do 10 years ago, on their private banking business. their private wealth lines have fallen into lower margin product. cost basis does not match up. francine: do you worry about italian banks not being able to raise capital? does that bleed into the rest of the european banking sector? matthew: that is largely passed. the large banks in italy -- unicredit especially, as well as -- they largely have to shoulder the capital burden for the lower banks in italy.
that is understood by investors who are investing in italian banks. the capital rate is down. it is going to be important for unicredit to move forward and set their own capital raise, and grow in 2017. francine: matthew beesley, henderson global investors. up next, the end of qe on the horizon. issuers and investors stand off as they recalibrate costs. we break down the 2017 outlook. these are your markets. we see a little bit of currency moves. bank stocks propelling global equity gains. yields sliding. ♪ seeing is believing, and that's why
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unexpectedly kept borrowing costs under -- unchanged. the rate will stay at a six year low of 6.25%. the decision comes as the governor awaits clarity on the impact of the government large denomination of back notes -- banknotes. trade shares trading higher after cost cut efforts after reducing profit goals. a costgeting is offering base of less than 17 billion swiss francs by 2008 team. down from an earlier goal. the company also lowered targets for its national wealth management's miss and its asian division. the u.k. prime minister has agreed to reveal more details in plans before brexit. theresa may challenged lawmakers who have proposed a timetable for withdrawing from the european union she accepted the wording of an opposition labour party motion subject to an amendment calling for the government to invoke article 50
by the end of march. the house of commons will debate motion today. president-elect donald trump has offered the u.s. ambassador to ,hina post to terry branstad according to three people close to the matter. the decision comes at a hyson -- tensionf heightened after trump abandoned almost four decades of diplomatic protocol by speaking directly to the leader of taiwan, which basing -- beijing considers a rogue province. global news 24 hours a day, powered by more than 2600 journalists and analysts in more than 120 countries, this is bloomberg. francine? francine: getting some breaking news. u.k. industrial and manufacturing data for the fourth quarter. manufacturing output unexpectedly fell for the most in eight months in october. this is because of a slump in our -- pharmaceuticals. in oil and gasde extraction. those are below forecast. it is too quick to draw any kind
of line with brexit because if you look at industrial production, the fall was due to a shutdown at one of the uk's biggest oilfields. so it is -- it doesn't mean that production at manufacturing slumped because they didn't think they could sell the stuff on, it looks more technical. certainly watch out for the pharmacies -- pharmaceutical slump. pound-dollar currently 126. global equities have earned more than $1.5 trillion in the last month and investors rotate out of fixed income in the wake of donald trump's election victory. what is the new world order mean for corporate debt? isabel joins us. great to have you on the program. think you for joining us. when you look at a lot of these on to issue witnesses, has it changed in the last three months?
markets expect inflation to go up, what does it mean for issuers next year? isabel: thank you for having me. i think what it means is, we are in a new era. over the last couple of weeks, months, interest rates have driven behavior in terms of what has been able -- what issues we have been able to do. new issue premiums have been elevated because investors have been fearful of erosion of bonds because of interest rates. as you highlighted, this is driven by the potential policy that president-elect will implement as he comes in. i think it is hard for investors to know how that will be because it is the first president who has no history of eating -- being in office before. i think people are trying to get -- we have 300 billion in infrastructure, you see that going up. all the tax reform he is talking about that happen impact on interest rates.
because peoplen would bring cash into the u.s., debt will go down? i think the impact will be limited because -- we are at the end of deflationary. , but can you assume we go to full inflation? isabel: u.s. inflation is already above its average over the last three decades with cpi at 2.1 versus an average of 2.07. fed by it needs to be growth, that is dependent on what policies are put in place. francine: what are the industries that will start issuing bonds? what would you be looking at? isabel: i think people who have exposure. in the u.s., we have already seen a pipeline replenishing.
if i look at 2016 in the u.s. -- >> but it is -- is it infrastructure? going back to manufacturing, what trump will do is make these companies go to bonds and therefore issue corporate bonds. isabel: correct. agreed. the pharma business will have some growth, you see it there. that will be agreeable there. companies should be beneficiary of some of the reform, especially with oil prices going up. that will be hopeful for them. what we are interesting -- seeing in the stock market will be in the bond market next year. francine: i think i was with you last time when we had some of the corporate bond yields in negative territory. yous crazy to think that pay a company just to keep your money safe. is that not dead in the water? isabel: i think what will happen
in the u.s., credit rates will start compressing. which will have repercussions in europe as well. i think negative rates in europe is not over. in the u.s., i think you see debt coming up and up. francine: d look at them emerging markets? -- do you look at the emerging markets? four e.m., funny enough, has been the best performer if you look at equity markets. that will push yield up. de facto, you ask more. as -- rates go up. this year in e.m., everything has been very well supported. demand will be there. there is a question to ask oneself about next year in
regards to rates. going to favor? investors are worried about interest rates going up and they are -- the return being eroded. opposite of what we discussed when we talked about negative rates where people were pushing duration. today, they want shorter duration and issuers are likely to want to take away risk by longer durations. what type are we looking at? bigger and shorter or shorter and longer to push that out? caseine: your best scenario is that donald trump can reinflate the economy. what if he can't? for in termsking of higher dollar? he comes into power and realizes, this is not helpful. isabel: that is a valid point. economies are forecasting an interest rate hike. into next year and into next for 2017, and two for 2008 in.
i think there will only be one next year because the economy can't take it. you need to kickstart growth. everyone is banking on the fact that his policies will be spending. this is what we're hearing out of canada. with all of that, there is a school of saw -- thought saying we won't raise rates. i think a lot of it will still be down to central-bank policy. francine: how does brexit affect mark carney's thinking and the appetite for your companies in the u.k. wanting to issue more corporate bonds? still a relatively small market compared to the u.s.. clearly, people will try to take money out in this market. we talk about the third runway at heathrow, you will see people
coming out in sterling market. but that remains a niche market. talking about central-bank policy, he has said he is going to try and accommodate the system and make sure it runs right. he will do whatever it takes. francine: thank you for joining us, isabel. you are seeing live pictures from mumbai. the news conference following the rate decision earlier on. six were expecting the governor not to change rates. he has left rates unchanged. this is two days before the fed. we are hearing from main players in the r.b.i.. one of the things they said in the last half-hour in the news conference was that they did not an change rates because of fed policy. that is something we will keep a close eye on. we will keep on top of that news conference and bring any
what is next year hold? we are joined now to discuss their outlook for next year. , david loma.ohead thank you for being on the program. .he risk so much appetite 2017. donald trump will be able to reflate the economy, interest rates go higher, what will be the access to spur more on m&a? matt: it will see a whole range of challenges ahead in the market. i think what has been extraordinary to see in 2016 has been the sheer resilience of m&a around the world in the face of significant challenges. this is a year we have seen significant chinese growth at the beginning of the year, the trump surprise, the brexit surprise, macro economic
volatility, we have seen the fed highest referendum in 2016. there was a lot of biotech, pharmaceutical, areas that needed consolidation, more m&a friendly? matt: i think jpmorgan would always hesitate to defined -- define what is going on in the world as m&a friendly. it is driven by strategic fundamentals. the imperative to seek outside growth, particularly in the context of growth. expect those conditions to continue. you are right. inactivity has been high. in health care. we would expect those trends to continue. we do expect to see more activity in oil and gas. to cannot expect an industry go through such enormous,
fundamental change and price change in volatility without expecting repercussions from that. i think we will see more in that interest the -- industry and others. francine: does it have a lot to do with ceos feeling confident about the future? we have up -- sitting on a lot of cash, does that spur them? i have a great deal, this is a once-in-a-lifetime opportunity, i want this in my portfolio. matt: of those three choices, it is overwhelmingly the third. we wouldn't characterize the level of dialogue we are having as one of comfort with our ceos. what our ceos are generally enthusiastic about is investing in a range of opportunities around the world to transform their businesses. against a backdrop of low gdp growth. that in pacific -- impetus to see outside returns through
energies and tack -- tax structuring. that remains strong. a level of dialogue with ceos today is strong as it is ever been -- it has ever been. francine: how many of the co's want to buy things in the u.k.? unquestionably a key part of the corporate agenda. want ae: do the co's bargain? matt: i think this will have been a vintage year to invest in the u.k. with sterling at 1.25, 1.26 as it is today. that said, activity is down in the u.k. this year. but also that inbound activity. take a it is going to brave board today to take the
investment decision to coming to the u.k. market. in hindsight, it will look like a vintage time to do so. what does that mean for m and a activity? we will see more confidence in investing into the u.k. market. francine: 2017 is a good year? how will it be funded? -- are equities? matt: generally, the euro of cash. we expect that -- year of cash. we are predicting a jpmorgan much like 2016. very strong levels of activity. the catalysts are there. very benign economic backdrop. all-time low cost of debt. interestingly, a number of external capitalists for m&a activity in 2017. chinese capital continues to -- >> i was going to ask you about
chinese capital. how much money are we going to see from china coming into the u.k. or even europe? matt: these sums have grown incredibly. it is up six times this year in china. more comes into europe than the u.s. by about 50%. francine: why? attractive or we are controlling? matt: both. we have some of the worlds most inviting brands. i would expect that trend to continue next year. francine: david, thank you so much for joining us. up next, stacks rally and about tomorrow. more bloomberg surveillance on bloomberg television and on bloomberg radio. this is bloomberg. ♪
is bloombergs surveillance. let's get straight to the business flash. >> jpmorgan is set to face antitrust fines over rating benchmark. benchmarks. that was according to two people familiar with the case. the penalties could range from tens to millions of euros to the low hundreds. jpmorgan declined to comment in response to the november report. it said it would defend itself vigorously on the matter. the canadian government to replace its search and rescue planes. cap -- leonardo mckenna mechanica. the deal is set to be announced tomorrow. the canadian defense ministry
declined to confirm or deny the story. monte dei paschi is making a final push to sway investors to back a lender. a political vacuum in italy chills demand and brings demand a step closer. renzi's office did not respond or comment. residents elect donald trump jumped into corporate affairs his urge toing criticize one company and hail and other. he called out boeing over cost of new air force one jets. later, he celebrated an investment in the u.s. by japanese softbank. >> i'd like to celebrate his
presidential job. i said this is great. the u.s. will become great again. the bloomberg business flash. francine? francine: let's get to mark barton for a look at what is moving the markets. >> stocks rising for a third day. since september 22. banks and autos the best-performing groups. sincerisen to the highest january 7. almost five year low to 45%. credits were up by 7%. shares up 1.5%. the story is credits with lowering profit targets, pledging to target in on the one billion mark.
the stock had lost 41% since his plan was first announced in october last year. investors questioned his ambitious profit goals per unit. credit suisse down by 29%, ubs down 12% for the year. the dutch male operator rejected belching -- belgians competitors saying regulatory issues triggered by the deal would have implications and her employees. shares getting hammered. down over 10% today. spanish stocks lagging european peers. the economy is poised to grow
faster than the region in the three years through 2018. steady incline in the unemployment rate. higher property prices. 13% sincehas fallen the start of 2015 versus 8% gains in germany's dax. those are the charts. francine: thank you so much. bloomberg surveillance continues in the next hour. tom keene joins me in new york. talking to thebe president of the council on foreign relations. president putin he spoke to oil companies about cuts. this is bloomberg. ♪ cool
and cars out savings as revenues continue to slump. trump's envoys. the president-elect is set to pick and iowa governor as ambassador to china. its unexpected move in crackdown. and central rate -- banks keep rates unchanged. i am francine lacqua. the most interesting day because it is the day before the ecb and we are just getting breaking news out of a lot of the banks. headline just crossing the terminal about some of the fines. understand -- we have been told that the european commission has fined jpmorgan a total of 85 billion euros. tom: that is chump change. francine, congratulations on your coverage of rome. u.s. taylor did a great job.
what interested me is that the story has not let up in rome and italy. front and center is the bank crisis in italy. it is the here and now to friday. your 100% right. friday is one we expect the budget lost in the past and mario renzi resigned or it there is so many rich -- there are so many rumors. monte dei paschi, something we will keep our eye on. that's get to the bloomberg first -- first word news. taylor: in indonesia, a strong underwater earth take -- earthquake has injured hundreds and killed 56. in 2004, more than 100,000 after aied there earthquake triggered a devastating tsunami. a british investigation into the sun plan -- plunge of the pound in october is focused on a japanese unit. the city's tonio -- tokyo
trading desk exacerbated the pound strop. inrling fell as much as 6% early asian trading on october 7. a surprising india. the central bank unexpectedly kept interest rates unchanged before a possible increase in uris -- u.s. borrowing costs. they're waiting to see the impact of the government's decision to ban 80% of the currency in circulation. president-elect donald trump has thected longtime friend of taiwan -- the chinese president to be ambassador to china. i'll governor terry branstad has accepted the offer. come has been sharply critical of china and angered the chinese by speaking with taiwan's president. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i'm taylorntries, riggs. this is bloomberg. so much.ks
let's get to the data right now. stay to check versus some of the busy days we have seen. nuanced versus some of the busiest days we have seen. the vix drives weaker. this is a grinding in the equity markets. down to 11.51. isd a little bit fragile, near recent lows. 11.74. francine: overall, i have similar data as yours. i just wanted to put in crude. the news in the last half-hour is that opec is set to cut. do markets believe them? to an extent. went throughputin almost every single oil company saying you will cut, once you? on the back of that, the oil prices going up a little bit.
a lot of pressure on the banks in italy. it is the banks were pushing a lot of these stocks higher. yet, 113.96. a little pressure on dollar after they had to revise their outlook for 2017. tom: let's look at one of the things out there, which is china reserves. we have some p.m. coverage for you. michael holland will join us on the equity markets. richard hans and michael spence in our next hour. this is china reserves. slope matters. the red line we have overtime. up we go. then we extrapolated out here to where it got to be. 20 trillion in reserves. that has stopped. reserves have flatlined. if i come in, you can see the curve is those reserves break
down some of the tension within asia. francine: i like that chart. it is important. we will be talking about china later. i did this chart for you. it is the bond bull run. it is a 35 year bull market. we brought back to the 1980's. look at this. the yield goes down, down, down. we chart the 10 year yield and this is the first bottom. you can see 2012. then a double bottom. if you look at what we heard from principal global investors, they suggest that because of technical levels, the bond is maybe finished. cash,t means to go to michael holland had to travel to london. francine: there you go. let's get to michael holland. he is the chairman and founder -- head of emerging markets. thank you for joining us.
michael, what does treasuries tell us about what kind of world we will see in 2017? michael: it is possible that some of the people calling for this to be the 30 year bond will be right. in the lastews several days has been all trump. for trump and others who are looking at a very slow time. begrudging equity market melt up. the economy has been grudging around the world. for these people to get off the bottom in terms of lack of economic growth, you end up with some inflation. this is not good for bonds -- one or two percentage. francine: you have to take a view on whether this is the end of the deflationary world and we really see inflation picking up. do we see that? treasuries are going higher, that has never been a great market for emerging market debt.
we are starting to see that repressing occur. that repricing started with the tapering in 2013, the last fed rate hike in december. and again, this year into next year. emerging-market assets could have a headwind in. monetary tos in fiscal in the u.s., i feel that is a negative. for emerging market access. michael holland, what is your confidence to maintain equities and acquire equity shares. not so much given mr. trump, but all of the action in emerging markets across ss? michael: it is prudent. ago, oneleton a decade
of the greatest, said one of the few opportunities you have to defend yourself against rising inflation is investing in the equity ago, one of the markets. it is probably a time where you could have bonds going down in price and stocks going up simultaneously. tom: i looked at the set of emerging markets, understanding they are not one thing but each individual story. which interests you right now? one of the interesting stories, if we try to get away from the macro is the political story in latin america. whereyou have an instance latin america has generally had less lehman, socialist, personality governments. you see that in argentina, brazil, the big one would be venezuela. if you imagine a venezuela that starts to normalize, that could have grave consequences for that region. francine: reflate the region?
what we see in latin america is they almost had the contrary westernto a lot of our democracy. inflation was hurting food prices because it was too high. simon: inflation has been falling drastically. you see that in mesko -- mexico. in brazil as well. it has been sticking in some of the andean regions. it is moving south. the issue is that maybe that sweet spot they were moving to this year could be somehow scuttled by movements in the working --g to weaker currencies that would have a deflationary impact. the central bank might not be able to ease. you see that in mexico, despite the fact they are reaching their inflation target. are you concerned mark it seems equities, money is coming out of bonds, going into
equities. wrong? we were all there is a court mentality that this will happen in 2017? what is the risk you see happening? michael: it is that it doesn't work. he is accurate in terms of where the politicians heads are in respect to getting inflation up, not down. it is not a problem of too high, it is a problem of too low. they are doing things, starting with trump. they thinknflation to create a better environment. if it doesn't work for whatever can comend none of us up with a good scenario why it would. but central banks are over. it has to be governments doing. what you think tom? say whatnot allowed to i think. i just get to ask questions.
peers is the roller coaster ride we have been on. this assignments world. jump in here. this is the brazilian 10 year, the 2025 piece. this is where i bought brazilian bonds. they went down 20%. they got crushed in the upper last year. the olympics, the brazilian top -- soccer team not doing well. here is the rebound no one predicted. we rolled over a little bit. helping with the volatility. have you played that in your world? active.ne has to be ,hose movements plus or -20% means one has to be tactical. when we look at markets, the correlation between u.s. treasuries and the euro is very high with emerging-market assets. saw, we started at the end of january into february
for emerging market assets was associated with treasuries falling or rallying yields, also with the dollar strength starting to peter out. his nose apprise that in the last one month since we have seen treasuries move up again and the dollar regain its strength that we have seen weaker e.m. assets. i would say that from a top-down perspective, that affect emerging-market assets in a considerable way. tom: i want to talk to michael holland about jpmorgan and what he is doing with fortress diamond. michael purvis will join us later in the hour. in our next hour, you must watch on international relations and his italy, michael spence with with us. this is bloomberg. ♪
♪ the competition commissioner of the eu. she is the antitrust commissioner and she is talking live in brussels in a very familiar briefing room. talking about the find she has just imposed on four banks over -- been fined a total of 485 million euros for rigged -- rating. there is been a five-year investigation into the scandal. they were trying to decide on whether the trio, the three banks colluded on pricing elements.
ourwould interrupt conversations, tom. the world has just changed. tom: is true. i'm glad you mentioned this. we really don't know what the short-term market is doing. let's continue forward. this is interesting. credit suisse and italian banks. , theine: on credit suisse bank is having an investor plan -- >> were you surprised? you really follow this story. likeine: i was surprised the investors were, they came out and there were no leaks on this. they decided they need to slice billions, so they are going to cut costs further because they haven't really quite managed to to say what they wanted to or promised to deliver. still with us, michael holland of holland and company.
thank you for joining us. ,hen you look at credit suisse i don't how much of it was the fact that the bank could not cut cost to see what they wanted or the environment was working against them. were hopingue they for isn't going to be there and therefore, that reflects the profit targets which are going to be significantly lower than a year ago. lookmper that, you have to at cutting costs, when you can control. that is why you see deeper cuts. we don't have much detail on how the cuts will unfold. the company hasn't provided an update on how many jobs it plans to reduce after cutting things out in the last year. francine: the share price is gaining 8%. the news. that is maybe they are making tough decisions. let's go to italy. eliza, you have been covering the bank disaster. do you by the media angle that
friday is critical for italian banks? eliza: what we know is that one of the bigger banks seeking to raise money relative to what it is worth is monte dei paschi. they have a year and deadline to come up with. this is a significant political vacuum that has complicated. time is running out. tom: i'll go with that. what i see from your work and would also mention ben marlon over the telegraph. system, allars its the italian money abroad will flow back into italy. that seems to be the big long-term bet. fix italy will cure itself, itself and all the italian web abroad will come back to italy. do you buy that for a moment? there is a lot of wealth
and italy. the key is to get banks to lend again. the economy hasn't and growing for years now. part of that is because banks are just not lending. until they clean themselves up and become healthier again, they will not be able to extend credit. tom: thank you. about on thelk european banks. thrilled that michael holland and others are with us. on the american banks, francine what do you have? francine: i know you like making comparisons between italy and greece. it is just not the same. we will delve deeper into that. i am in the timeout chair right now. coming up on bloomberg radio, gerard cassidy. one of america's great bank analysts. should you on u.s. banks? from london, not rome. from new york, this is bloomberg. ♪
♪ francine: this is bloomberg: surveillance. comment francine from london and you -- new york. this is what we picked out. daniel gross talks about the parallels between trump and whether he can be controversial, can be the savior of the euro. whatever the potential downside to his policies, he says there is one clear upside. they will boost growth in a eurozone were satisfaction is generating political turmoil.
indeed, daniel gross goes on. donald trump could save the euro. we're back with michael holland. michael, when you look at this quote by daniel gross, slightly tongue-in-cheek. if the u.s. starts relating, does it mean we cannot have austerity measures in europe? otherwise the differential is too big. michael: it is a fair assessment. the world over the next couple of years has the potential of moving in a single direction and that is up, together. austerity does more for that. thecine: you look at cumbersome emerging markets and donald trump focusing on america. i cannot figure out if that is good for emerging markets. a lot of emerging markets producers say if you boost infrastructure, it is a plus. but if you are inward looking, you can see a race for the bottom.
and it would be a lot of the asian emerging markets that would lose out. simon: i think there are winners and losers. , higherirst instance treasury yields and a stronger dollar does put a brake someone on the e.m. asset performance. accessible half as -- successful is getting growth and inflation, the world will see that. maybe leverage will be as strong as people expect. the other thing we are concerned about his global trade has slowed and been very lackluster for a long period of time. policies put in place by trump to make the world a more protectionist place, i think that is that for trade and therefore doesn't help. holland, higher global rates are higher u.s. rates. are they good or bad for u.s.
equity investors? michael: right now, the markets would welcome them. longer-term, the more they go up more it becomes a headwind rather than a tailwind. right now, the markets would look favorably -- the stock markets would look favorably. tom: we will continue with michael and simon here in a moment. on bloomberg surveillance radio today, he's from utah. int an interesting politics utah in the last election. senator michael lee of utah. the republican. inre are four democrats utah. there is new york city. this is bloomberg. ♪
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ambassador, the most original, from iowa to china. francine back in london and tom keene in new york. we need to get to our first word news. may will underscore the uk's commitment to the nuclear deal with iran. she tells persian gulf leaders it is for security. they will stress that the u.k. remains clear eyed about the threats posed by iran. donald trump has without to rebuild the fight against terrorism. near north carolina, for the second stop of his thank you tour. said his presidency will be felt globally. tothe world is looking up us, but they haven't been looking up to us much. and they are going to start looking up again. we will be good for the world, just our country.
taylor: trump introduced his secretary of defense, james mattis. he calls him one of the most effective generals we have had in decades. regulators find million a total of $520 for manipulating interest rates. the banks are accused of colluding. that wraps up a five-year investigation. three years ago, the three banks refused to join a multibank settlement of the case. , a leader of the standing rock sioux tribe call for protesters to go home. the pipeline remains stalled after the army corps of engineers refused to grant permission for it to go underneath a lake. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am20 countries will,
taylor riggs. this is bloomberg. francine: thank you so much. currency reserves saw the most since january declined to an eight year low. donald trump offered the post of u.s. ambassador to china to i/o -- iowa governor terry branstad. holland.k with michael michael, i turn to you because you are american. have you ever seen so much interest in the chinese ambassador? this would be a choice by donald trump, if confirmed, that he picks the iowa governor. it would be an original choice, the one that may mean the markets feel better about what is going on. because he knows the prime your -- premiere of china and is a friend. it is fascinating and positive for a number of reasons. known china's
president for 30 years. it comes on the heels of trump doing some real bashing of the chinese on the one hand. on the other hand, he picks a 30 year buddy of china's president. they go back to agricultural ties they had with each other. the state of iowa, people probably don't know this. i just found this out. the second largest market for iowa agriculture after canada. francine: i did not know that. michael: i didn't. they both love agriculture. trump's bashing china and then picks a great guide to be the envoy. francine: what is the best way for the u.s. and the be friendlyon to and of china that there is no retaliation. see hugevious, we will tariffs being put on china products.
to the extent that people are worried about that, that has obviously got people asking for additional risk premiere on chinese assets. we don't think that will happen. the reserve data out today, you saw 69 billion reduction in the reserves, i think that is normal. a have been going at about $60 billion pace. there is some evaluation there as well. it is less than 100 billion you saw in january. turkey are talking about , the tyranny of the dollar. did the chinese leadership in beijing, and will ambassador branstad had to speak to them about the tyranny of the dollar? is that how the chinese look at the cards? simon: i am not sure. the chinese have been following let the dollar
cmi do its thing. in the last 20 days since the election, you have seen it move in line with the dollar index. tom: give us perspective on taiwan. the huge uproar over the weekend on the telephone coal -- call to mr. trump. you visited taipei, what did you observe? michael: i think the outlook for better as aiwan is result of the changes we are describing. who are experts in china who think this was a huge mistake by trump. i'm not sure it was a mistake. i think he knew it -- he knew what he was doing. it is positive for taiwan. it is probably positive for china. we talked about mr. branstad
becoming the ambassador. was viewed byng some in china as being a slap in the face with deal roto calls. but this is a new game. is a disruptor in washington and people have to get used to it. it is possible to be good for the world economy. francine: but will china get used to it? my with china have to put up with it? michael: they don't have to put starth it, but they -- with self interest on their part. anything that is good for them, they will go forward to do things with the u.s. that are better for them right now. they want to supplant the u.s., no question. and militarily, over the next 25, 30 years, they could use the u.s. to get there by using partnership. the irony is that when you look , thehy should they put up
branstad appointment goes to the heart of this. that is a way for trump to use china to grow the world economy. francine: that maybe retrenching. it must have a direct impact into your world and investments and the economy. inward, thelooks pivot away from asia, this china step in and become the new america in the region? simon: in many ways, china has already stepped in. larges -- like many governments, are pragmatic. i don't see that as a massive change. in the end, we all have expectations, fears about what a much larger or different landscape we will have, given the trump victory. but in the end, it may just be less than people expect. francine: when do we find that out? six months?
simon: six-12 months. it is too early at this stage. pragmatic. china and the u.s.. two very pragmatic leaders. therefore, some of the disruption going on could be better for both countries. i don't disagree, but out of all the years i covered china, i was told they wanted respect. if you don't give them respect, they retaliate. michael: that is the branstad thing. that is why. thecine: i love conversation that we need to have a conversation -- china. it is extremely important and one we haven't spent that much time on. we don't know what it looked like an regional sensibilities and sensitivities. tom: it is a number of stories and somehow they are all linked markets.merging this is enough to keep us busy until the fed meeting. ecb is tomorrow.
thought i would show you this. and threemorgan standard deviations. highly unusual. you get the idea of the gloom of the lehman low, extremely rare. i have never seen this in 20 years. holland, fortress diamond is out three standard deviations to the good. it is a gene -- jpmorgan moonshot. you helped mr. diamond by saying holds shares? or can you acquire shares with his trump strength? michael: you have been in the business a long time. you know whenever you have a spike like that, it is not a good time to rush in with your last dollar. am i selling any shares? no. on the other hand, a lot of the for stocks going on like jpmorgan.
tom: would you suggest that europe can clear their markets. they need a plan of some type. help francine, not only with the italian banks, or deutsche bank, but where is the european tarp plan that was the medicine they gave to mr. diamond and others years ago? michael: that is a tougher one. i think the sigh of relief this with the monte dei paschi rumors about the bailout when the government give you some indication of how tentative -- it is one of the reasons jb diamond is doing so well. i think at the end of the day, the fragility of some of the situations in europe optical well for him. i think it is possible with a
, all the shipdrop will rise with this type if it happens over the next couple of years. our investors -- our investors jumping the gun? nothing has changed in the last 12 months. does monte dei paschi and the rescue plan suddenly become ourg the gun? suspended? that is the only way you get out of the bailing rules. is better than anyone. monte dei paschi has been a basket the -- basket case for a long time. this, that is what i described to tom, the difference between the u.s., your question speaks to white jpmorgan stock is doing better than a lot of other things is because the competition from european big banks has softened dramatically. francine: probably the understatement of the year. you are retrenching,
looking at donald trump read -- deregulating wall street. that will hurt -- >> tough for competitors. tough for competition. ,f we get more global growth that rising tide will help everybody on the one hand. on the other hand, the competition from the u.s., if trump continues to do things that are smart, it will be not so good for european banks. michael holland acquired jpmorgan shares here. the lehmanhe boat on lows of 2009. here is the moonshot that mr. trump has caused. to show this spread between j.p. morgan and deutsche bank in yellow and unicredit in white. it is extraordinary. it is the here and now story this week. it certainly is. i wonder if that change will continue.
the u.s. will continue to be deregulated when the president comes in charge on january 20. and to tom's point. you will turn out to be right at some point. just not now because of regulation. but at some point, regulators in europe will have to take a long, hard look at what they want their banking system to look like. the years, when things have been under pressure with banks in european -- insurance companies, i have always found it to be a good place to make money. i think european banks are approaching that. --r the next several years, these things go in cycles. begins in the u.s., it could emigrate to europe. you get less silly stuff going on. thrill you are with us.
enjoy london. mr. holland is in london and likes to own equities, even in difficult times. next, it is without question the call of the year on asian currency. later on bloomberg radio, this will be an important conversation on merger enthusiasm. -- within do with him the trump financial system of rbc capital markets. stay with us. this is bloomberg. i am still not used to those skyscrapers. ♪
♪ bloomberg: surveillance worldwide from london to new york. from europe and across early morning america. news, but host of also corporate news with our bloomberg business flash. south korea has imposed a record 32 million dollar fine on volkswagen over the emissions scandal. korean regulators also say they will file criminal complaints against the automaker and former vw executives.
rigas admitted to rating -- ging tests. a new version of air force one can be cheaper. trump tweeted the contract should be canceled because of "ridiculous costs." that is your bloomberg business flash. tom: thank god you didn't mention the cost overruns, i didn't want you to go there. let me bring up at chart. for lehmanictory lap and company. this is asia currencies bundled together. crisis of 1997-19 98, the lehman low, the red circle. this is weak currencies adapting and adjusting. michael, how would these nations adapt to president-elect trump
and what will their currencies do? easy continuing weakness as a tool for these many nations. michael: great question and not a simple answer. thing for at is one currency to weaken in a shock 2015 withn august of the chinese currency moving. that got the vix correlation with the chinese currency -- after that initial shock and all, and you start getting into , more a more gradual weakening it is not so bad for global risk. let's not forget the trump has vowed to fight and ethics were with the chinese. -- fx war with the chinese.
how he does that will be an interesting question. moment, theor the world's sole exporting a lot of goods and services to each other. mexicans handed the and chinese a surplus already. tom: we are focusing on turkey as the e.m. disaster of the moment. you have seen the doom and gloom articles out there. when you some all of them fullher, how does that over to global and u.s. financial instability? michael: the dollar is a double tighten or -- tightener. it tightens emerging markets, where there is a lot of dollar-denominated debt. you will see some increasing flare off in emerging markets
, withu will start seeing emerging markets, the bonds, currencies and equities on the together. march wasn did in recognize, as overtly as she could, that the dollar is a double tightener and was going to moderate that. how that plays out against a -- she only has 13 months in her term left. all sorts of questions about how she handles inflation, which is starting -- forward inflation expectations are robbing. the dollar is doing the tightening for the fed already. michael: interest rates were suppressed globally. we imported interest rates from overseas. the dollar became the de facto tightening mechanism.
the fed gave themselves a mandate in march. going forward for the u.s. right now, so far the dollar move has been significant global risk is held together. e.m. has gone down, but is not a nightmare yet. francine: will it be a nightmare? michael: look, there is a lot of unknowns about how the trump agenda can continue. there is a narrative that if asia rosa trade barriers, will hold together and trade more with each other. you can't ignore it. tom: michael purvis, thank you. i want to show this chart. this is the opposite of his great call on asia dxy. this is the dollar index. it is different than dxy, it has
more mathematical integrity. lehman low over here. .he recent surge up everything hinging on the dollar breaking out. i am not predicting that. but that is the tension we will see in 2017. francine: i like that chart. we will talk more about that. tom: what a great hour. michael holland and michael purvis, thank you. in our next hour, much more of a take on italy and international relations. haas,l spence and richard stay with us. this is bloomberg. ♪
to find a marginal billion euros to bail out and indeed dale in the banks. in this hour, michael spence of new york university. american foreign-policy pivots tweet by tweet. that is unbelievable. america in disarray. in this hour, richard haass from the council of foreign relations. good morning, everyone. this is "bloomberg surveillance." world live from our headquarters in new york. i am tom keene. she is back from rome. what was the observation in rome, francine, other than you were there and i wasn't? francine: the most significant development was, despite the fact matteo renzi will shortly be out because he lost badly, the market actually used it. italy will sort itself out, including the banks. i would say it is a 50/50 at the moment. the interview with the
chairman of alitalia was particularly illuminating. right now, with our news, here is taylor riggs. taylor: in that poll, a majority of americans think president-elect donald trump should not have to sell his business empire to avoid conflicts of interest. 69% of those surveyed say it force trump and his family to get rid of his hotels, businesses, and golf courses. he is claiming to discuss plans next week. one half of those polled say make himp's actions more -- make them more optimistic about his presidency. in indonesia, is strong underwater earthquake has killed at least 54 people and destroyed dozens of buildings. hundreds of people have been injured. it was a magnitude 6.5, striking off the coast of indonesia. more than 100,000 people died in
2004 after an earthquake triggered a devastating tsunami. there is now a focus on citigroup us japanese unit, according to "the financial times." newspaper says the city's tokyo trading debt influence the pound drop. in a surprising india, the central bank unexpectedly kept interest rates unchanged before a possible increase in u.s. borrowing costs. the reserve bank of india is waiting to see the impact of the government decision to ban 86% of the currency in circulation. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? tom? tom: thanks so much. let's get to our two esteemed guests, first, equities, bonds, currencies, commodities.
ecb out tomorrow. -- nexthi's comments screen, please. breaking down finally from what we have seen the less two weeks, below 12. gold as well hovering. francine: i like the fact that you are looking at gold. i am looking at a lot of european stocks. the banks are coming out with more cost cuts. they had to redo some targets. the share price is gaining. extending the -- goldman sachs extending the longest streak since september. crude, 51. there was a little bit of optimism after we heard vladimir putin wanted to speak individually, himself, to his oil companies, and also to cut production. tom: we have spent weeks where our people talk to their people. we wanted to get michael spence
and richard haass onset together. has worked at stanford university. richard haass -- ambassador to northern ireland -- talk about political tension of another time and place. your book, "ass, world in disarray." did you keep -- did you know that you were going to get a book released? the poll that we saw from bloomberg once again shows that all of the media handwringing over mr. trump and secretary clinton -- mr. trump has an abiding support, as did president reagan, throughout a great part of america. richard: he has a strong base and the numbers are ticking up, but it is useful to remember he has not even taken office yet, and he has four years to go.
but he could inherit a rising economy that will lift a lot of votes, and some of the reforms will add to the stimulus on the physical side. so it could be a very good beginning. wroterofessor spence, you a book years ago on the idea of a set of things coming together. are good things converging for president trump with his supposedly flesh and? -- with his supposedly reflation? michael: well, yes. if congress goes along with it, it will break the growth pattern we are in. it will be better -- better growth, better inflation, higher growth. tom: if we get the trump event, is there a price for americans? michael: there is a place if you do it too long. you cannot run an economy on fiscal and other stimulus forever.
have been worried about the lack of investment, the lack of animal spirits for a long time. you could get a real uptick. if you went several years, just now working the fiscal side, it is probably monetary just slightly, and you do not just among other things, entitlements, and the mounting sides of american debt. the question is if you look at all the various pieces of the economic puzzle. francine: talking about all the various pieces, richard, what have you learned with donald trump saying that he likes to tweet? it is unclear how he chooses his allies or his administration, but he has toned it down, certainly in terms of foreign-policy. richard: with one exception here in the most interesting foreign policy development in the last four or five days is china and taiwan. there has been a twitter element
of it, where some of the initial reactions of the president-elect , saying it was just a congratulatory phone call and the follow-up tweets, which were much more critical of china across the board about its allegedly currency manipulation and its military buildup in the south china sea. .t really was a double-down we do not know exactly what to make of all that in terms of, is that spontaneous? does it suggest lasting or real policy follow-up? we have to remember, they are still in a transition. virtually none of the national security team is in place. predictyou want to secretary of state? richard: who knows? i don't keep a list. it is early in the morning. francine: it is early in the morning. we understand through our been picked the trump
iowa governor as the u.s. ambassador to china. what does that tell us about resetting the u.s.-china relationship? richard: not a whole lot. ambassadors do not set policy part what is interesting about i do notnstad is that think he will have a typical two having your presidential term. is other thing, iowa dependent on agricultural experts to china. it shows the importance american trade to those agricultural and other manufacturing businesses, and there is an inconsistency there --t already essentially tbp already essentially tpp has been killed. i think there is a bit of a disconnect, and sooner or later that disconnect will have to be addressed. i saw some schools tried to ban "huckleberry finn" from
reading. one of the great mark twain quotes. a lot of politicians -- and a lot of politicians are certain of what they are going to do. but tell me about certitude in politics and in economic politics. we get in trouble with that, don't we, when we are so certain? michael: especially if we are living in a world where there is uncertainty that you cannot result except over time by taking the best course you can. i think there is a real problem in that dimension, especially in europe. francine: michael, what is the one thing you think the market is ms. pricing about the donald i don't knowncy? if it is the markets or if there is they are trying to figure out. but when you look at interest rates, we are told by the people in charge that once you are in
charge, you want low interest rates. michael: that is absolutely right. there is a sort of discussion going on about whether the trump administration might not be better with janet yellen as the head of the fed. i do not think they are going to do that, but you are right. this is a situation in which i think that the markets may be overreacting, or reacting to the upside of this potential path we are on, and there may be edited of the disappointment -- and there may be a bit of a disappointment when congress gets involved. tom: have you spoken to mr. renzi in the last few days? richard: i have not. tom: you supposed to say more than that. richard: i know. i have spoken with a lot of people in italy. and at least the people that i talked to in the reform graham, it stalled. this is an economy that is in serious trouble. it is not just the banks.
you have to accept the democratic outcomes as they come at you, but this is not a good outcome. tom: one of our themes of the hour with michael spence, and we are thrilled that richard haass is with us as well. later, on the interesting politics of his utah, the jr. mikeor from utah, with lee. we will do that on bloomberg radio. washington, d.c., this morning. this is bloomberg. ♪
we have two pieces of important news. first of all, theresa may is doing a tour of the gulf states. she came under fire from within her own party that she was too secretive, and it seems she wants to take a too tight grip on the brexit negotiation. the second one, we had manufacturing data, unexpectedly dropping the most in eight months. this partly has to do with grexit -- with brexit. parlay with pharmaceuticals. let's get to the "bloomberg business flash." taylor: iran is about to sign its first u.n. oil deals and sanctions were released earlier this year. there is ansays agreement to develop oil and gas fields. credit suisse has stepped up .ost-cutting efforts
profits -- time, europe regulators have find agricole ad credit $521 million for manipulating interest rates. they are accused of colluding on the benchmark euro interest rate that wrapped up a five year investigation. three years ago, the banks refused to join a multibank settlement in the case. that is your "wennberg business flash." tom: taylor, thanks so much. this is really a joy. we are talking markets and the correlations we see right now, with two people always unqualified to talk about it. michael spence is more than qualified talking about information within our society and systems. richard haass has a most interesting bio on political economics and international
relations. i want to begin with you, ambassador. you have a fabulous moment in your new book on the world order. you go from henry kissinger's world order on whatever the new world order is. and you have a phrase, "as if the tide goes out, we shift from world war ii." how are markets adapting to this subtle chronic shift that you see as the tide goes out? richard: the short answer is they are having trouble. thead certain rules of world. we how it all the discipline of the cold war. when that ended, we found lacking. the world is moving at a faster, more robust base than politics can catch up. tom: well said. richard: for example, take cyber. technologies are moving with profound effects.
the rules are like the wild west. there is no sheriff. tom: professor spence, you have the just mathematical abilities. when i hear richard haass talk about speed, i look from an electrical engineering standpoint. abrupt changes within any system of circuitry. are the markets able to keep up with the moderates of globalization? michael: the markets can keep up with it, but the economy cannot. i think what you are getting out of trump is something quite interesting. basically, we have lived in a world in which we in america took the lead in creating this sort of global system. then we said we cannot touch the system because it yields huge benefits. and it does. the labor markets. the demand side moves around because of technology and globalization, and we are supposed to adapt. and trump is saying, i am reversing those priorities.
we are going to do what it takes to make our economy function in a way that is satisfactory to citizens, and then adults can negotiate mutually beneficial arrangements. so he is going to interfere with a lot of things that used to be untouchable before. francine: so that donald trump satisfies americans for how long? i was speaking with linda rothschild, and she reminded me are 3 million truck drivers in america. when we have driverless cars, three years, four years, five years away, those people will lose her jobs at the end of the day. if you refocus on manufacturing, how long can you reflate the economy and keep people happy? michael: in fairness, i do not think president-elect trump is relying on manufacturing only to reflate the economy and what he is concerned about is getting on with the process of having the
economy and our labor force and our human capital adapt to this new world. but what he is saying in part is, if we cannot adapt fast enough, we will change the rate at which we have to adapt. richard: there is a mitch match -- there is a mismatch. the cause of the -- the cause is technological innovation, and the responses to the donkey on trade or off shoring. the home will not be cured and millions of americans will face job displacement. we have not begun a serious debate in this country about what to do about robotics and artificial intelligence and driverless vehicles, and how we are going to cope with that. tom: we welcome you to a five-hour "surveillance" this morning. still so much to talk about. we will continue this discussion next and pivot to asia. "bloomberg daybreak" later this morning.
the break about the old and the new. so reaganesque -- there are many articles about being like comen, i am like reagan -- on, you cannot be. it is not the same world as ronald reagan had. reagan came into office with a really developed philosophy. he had written letters and articles for years, given hundreds and hundreds of policy speeches. politics was different. washington was a much more malleable, functional place. now because of reforms about how politics are conducted and societies have changed, it is much harder to garner concentrated political or. but there is something -- michael called it animal spirits -- there is a sense with where we are economically that this is a moment where we are going to go from probably an under 2% prolonged rate of growth to something much higher, with
individual tax reform, corporate tax reform, and finally some fiscal spending. it is like we are saying that the only you're in town is monetary power, and now we have something larger going on in washington. francine: two questions on that. reaganomics -- you rightly point out the differences. but he did produce large fiscal deficits and the ultra strong dollar. we do see the same thing from donald trump -- if we see the same thing from donald trump, it means that europe becomes more competitive because europe goes down. so we could argue that donald trump at the end of the day will benefit europe. richard: you have discovered the hidden secret of the trump presidency. i thought that was between us. it will take a little bit more than that, but it could take some effect, that it could be advantageous for european spirit but let's not kid ourselves.
what europeans do or do not do will have a far greater impact on their own future. francine: tomorrow on bloomberg surveillance, we speak with the central bank governor for a very long time, in a very troubled country. that is at 6:30 a.m. in new york tomorrow, 11:30 a.m. in london. i will affect that overall banking stocks are leading global stocks higher. this is all on what mario draghi can or cannot do tomorrow, people taking a bet on that the ecb will prolong qe tomorrow. what happens if they do not? this is bloomberg. ♪ planting a size-six,
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to mohamed morning el-erian, who is watching as well. right now, to "first word news" with taylor. almost three fourths of the rebel held party of aleppo -- syria and its ally, russia, have rejected calls for a cease-fire. the syrian government says fighting will not stop until the rebels leave. in south korea, opposition lawmakers are moving ahead with impeachment proceedings against president arjun hey -- park has been caught up in an influence peddling scandal. here approval ratings are in the signal digits. president-elect donald trump has selected a longtime friend of china's seven, xi jinping, to be ambassador of china. iowa governor terry branstad has accepted the offer. have met several
times. it is the 75th anniversary of the date which will live in infamy. on december 7, 1940 one, japanese warplanes attacked the u.s. fleet at world -- the u.s. fleet at harbor in hawaii. it led the u.s. to enter world war ii. a handful of survivors will be among those attending ceremonies. global news 24 hours a day, powered by more than 2600 journalists and analysts in more i am taylorntries, riggs. this is bloomberg. francine? tom? tom: there are moments where you just stop when you look at the bloomberg headlines coming across the terminal, the famous red stickies as well. it wasdor haass, extraordinary the other day to see that mr. abe would visit pearl harbor. your thoughts? richard: it was one of those moments where you feel a chapter
closing. it was interesting in asia with the japanese in particular. so many of these visions and statements are still so current, whether it is the japanese dealing with koreans and chinese , whether it is visits to to class a war criminals. we are still coming to terms with the end of world war ii. it is part of a larger unsettled landscape of asia, where we still have a divided korean peninsula, you have russian and japanese territory. there is more unfinished business, politically, territorial, psychologically with world war ii than most people appreciate. tom: right now, to the unfinished business of the italian referendum and the fallout of the banks. francine? francine: we really have to look at the italian banks because the referendum was rejected by more than 60%. it did not have much of an
impact on some of these stocks. now rejected ay report in a local paper that it is appearing to request 15 billion euros from the european mechanism to support the bank. talkf the first ones to and do some real digging on monte dei paschi years ago. we are joined with -- we are joined by michael spence and richard haass. when you look at monte dei paschi and the different dynamics -- we understand they went to frankfurt, ticketing extension on the deadline. then we had reports in the press about bloomberg speculation that the italian government would intervene. what do we know about what is going on? >> at the moment, all options seem to be on the table. there is a deadline to raise capital by the end of the year. the bank needs to clean out its balance sheets. by doing so, it will take a big loss. referendum has added more
, and what we know is that they are considering an extension to the deadline, with the government using a precautionary recap, which is a form of state aid which comes with some existing stakeholders, bondholders and shareholders. that will include lots of families, households. francine: if you look a lot at the -- there seems to be a lack of urgency with monte dei paschi. would you argue that all of the different parties are negotiating, we just do not know what the outcome will be at this point? elisa: what has happened this year is that these new european rules on state aid have made this a little more complicated
to solve these situations. what we saw at the start of the year was that when there was data, the stakeholders had to pay the price, and with families in particular, you saw the prices jumping quite heavily. by adopting these laws right now, you would potentially create more damage than good. tom: this is wonderful. it is also wonderful to have, from nyu, michael spence, who spent a good part of the year in italy as well. hesser spence, with mohamed el-erian listening as well, we have the unknown unknowns, a phrase that mohamed el-erian made widely regarded. what is the set of unknown unknowns you are focused on? michael: the thing i am focused on is that anything that looks like a break with the current
pattern of policy-setting, relying on the only game in town for the ecb to bail out the banks, etc. i just do not see that coming. take italy. billing the banks out, surely that is important. the reason the banks are in next tois that italy, greece, has the worst economic performance in europe. the economy has barely grown since 2000, and that inevitably feeds back into the nonperforming loans. i think the solution to this, as opposed to just kicking the can down the road again, is something a little bit more like what is going on here. a real break in the growth pattern and policy. elisa mentioned the negotiating that is going on. i do not buy it for a minute. i think it is the can down the road.
there are no key decisions being made. how do you get politicians or financiers or institutions to make key decisions? michael: maybe you don't. tom: he is a crisis ambassador, right? richard: what is so sad about italy is that you have had current -- you have had recurring crises. why is the reason now to believe that suddenly the system will come together? you are more likely to have some string of caretakers or weak governments. tom: francine, what is the crisis that gets the society of italy or greece, for that matter, to these key decisions they have got to make? francine: you are talking about the banks, tom. think, sort out sooner than the markets seem to believe. i do not know if there's something to be said that monte dei paschi is rising 7%, 8% today. i want to go back to the wells
-- to the parallels between greece and pushing back again. i look at greece, and i cast myself back in october 2009 where they said they underestimated or understated the deficit for years. borrowings shut from in the financial markets. can you really draw parallels? at the end of the day, greece did not have any real big, healthy companies. italy does. want to geto not into an argument between you and tom. tom: why not? everyone else does. michael: they are different cases. you have to keep in mind that bailing in banks with these economic trajectories is only going to kick the can down the road. one of the things that is discouraging is that this recent vote on the referendum, which resulted in matteo renzi leaving, means that whatever reform was generated has actually stopped. tom: ambassador, make an
observation. i find this fascinating. doha to the rescue. is clearly not going to come to the rescue. but there is something here about the relationship between member states and the e.u., and the lack of clarity or responsibility. come, there is a fudging. the national governments are only willing and able to do so much. the ecb is only willing and able to do so much. so nothing gets resolved, thus you kick the can down the road. there is no clarity, and i do not see it coming in italy or anywhere else. it is not enough to resolve the problem. you want to keep crisis from bringing anybody down, and that is what we're likely to see here. francine: but the word is that the road is coming to an end unless the ecb extends this for monte dei paschi.
so there will be a resolution unless the ecb says -- so there will not be a resolution unless the ecb says, sure, take a couple of months. there will be monitoring of the political vacuum, trying out,sess, as michael did -- as michael pointed out, when governments change they push back on reforms that have been pushed through before. renzi had, at the start of his term, pushed through the deepest reorganization of the banking industry by forcing -- by encouraging lenders to emerge. elisa martinuzzi, thank you so much. on the earliest days of the banking crisis in italy.
francine: this is this is bloomberg. -- this is "bloomberg surveillance." we have had great conversations ranging from productivity and how you deal with the reflation hopes on the markets. and what it means for a political shock in europe to replace some of these markets. tom: let's pretend we are at
stanford, francine, a few years ago with upstart michael spence, who somewhat argue reinvented graduate school education in the nation. richard haass, this is the kind andhart that spence put up, we will give this to ambassador haass if we can. this is exports to gdp of the united states of america. the blue circle is the crisis of 2008. this goes back to harry truman. slope matters. the red circle is japan exports to gdp. richard haass, we forget the juggernaut of exports that germany is. the yellow circle is germany at 40%-plus exports while we are at 13% of exports. we forget that each and every day. richard: in part it is a reflection of germany taking the rede of the earth, circle heading south real fast. we underestimate the
significance of exports to our economy. in some ways, we ignore the possibility of trade expanding at our peril. with the demise of tpp, the transpacific partnerships, is clearly a strategic loss, but something of an economic loss also. michael spence, you have lived this with all the political leaders that formulated the euro -- i go back to comrade adenauer in another time and place. do they have a moment of our consideration if they look for a lira appreciation or devaluation? michael: the trend is in that -- buton, but it is not it will not happening -- but it will not happen overnight. the euro as it is constructed now is a broad construction. it is difficult to reconstruct
in the south. so you go for a long period of time with high youth unemployment. and eventually support for the people who say this does not work starts to rise, and down the road you have a potential unwinding of the euro experiment. francine: michael, if we go to a polllections -- i saw 10 days ago that if you were to have a referendum on this part of the eurozone, 67% of italians at this moment say they still won the euro. but other polls say it would -- if we went to early elections in january and february, it would give the five-star movement and other populist parties, if they could come together, and majority. how do you square the two? michael: it is the electoral law in italy, the one that berlusconi changed. if they came together, they might get enough votes that they
would get this increment, that you are given under the current electoral law, and take control, but still be in a minority with respect to italians overall on the question of whether the euro is a good idea or not. francine: was it a populist vote, michael? we are trying to figure out -- and you beautifully said some of the reasons why this referendum was lost by such a big margin. but can you draw parallels between donald trump and his election, brexit, and the italian referendum vote? michael: yes and no. there was an element of it that was anti-euro, these two parties. but there was another element. there were people who did not like the prime minister. there were people who want to keep the old political order because they benefit from it. and so on. and there are people who just thought the constitutional reform had flaws in it. when you add them up together, you have an overwhelming no
vote, but it was not her populism. richard: anytime you put these things up for a vote, no matter what the narrow, explicit purpose of the vote is for this referendum, there is invariably collateral damage. tom: i want to squeeze this thing. putting up the dollar chart, anthony. dollar.s. trade-weighted , and in the middle of the room and dollar, the 90's -- the 1990's dollar. how would we do this? to have ae are going strong dollar reality. we are moving that way already. tom: will it impinge on other economies? it has got to. richard: it will have an effect on the system. tom: we are going to come back and talk on turkey. it is just percolating right now. professor spence and mr. haass with us. tomorrow, on "surveillance," he
francine: this is "bloomberg surveillance." coming up shortly, it is "bloomberg daybreak: americas," with david westin, alix steel, and jonathan ferro. big stories.e two banks are soaring on both sides of the atlantic. helpll have simon wells sort that out. what is the reason? is it trump, the ecb, italy? also china is front and center. the imminent up payment of governor branstad as investor -- as ambassador to china. and finally, just for tom keene, we will have marc chandler, one of tom's favorites. tom, that is just for you. tom: very good. let's look at that very quickly, and get on to turkey. the forex market, the u.s. dollar.
turkish lira is weak, to say the least. euro-dollar, 1.0727. i just drum this up off good research at unicredit. this is turkish lira, russian ruble. call this the tin-erdogan activist. the turkish lira has cratered against the russian ruble in the last 16 months or so. of 10 angst.spice this is an extraordinary chart. francine: when you look at back at 2016, what they have been through, you are talking also about soaring loans, and that is extra pressure on a president that actually does not want pressure. the one thing we are certain about erdogan is that he wants to his consolidate -- he wants
to consolidate power and he does not like to be told when things go badly. we will talk turkey with michael spence, nyu professor and noble laureate,-- and nobel and richard haass. how should europe deal with turkey? michael: you have posed the -- you have had the vote in the european parliament a week or 10 days ago, that sends the message that it made turkey unsuitable for your. what turkey is doing in the middle east. you are increasingly -- increasingly turkey is grabbing behind the outside government and is far more concerned about syrian kurds than about the outside government or carrying about the welfare of the syrian people. .urkey has a very narrow prism the gap between turkey and its erstwhile allies and partners is, if anything, growing,
parallel to the liberalism we are seeing at home inside turkey. francine: michael, how do you look at the turkish economy? we had some pretty extraordinaire he headlines from the president, president erdogan, saying that first of all the depreciation of the lira is artificial because the nation will not be condemned to interest-rate lobbies. -- we saw thehat hedge fund speculators. michael: that is a natural thing for him to say. what you're seeing is the turbulence in the region, and the distant thing from europe is spilling over into the economy. tom: ambassador, how should chancellor merkel reach out to the new turkey? how does she reengage with turkey, given all of the emotion on immigration and migration? richard: she has an incredible incentive to do it since turkey controls the spigot. that has led to the weakening of the chancellor's position in the
run-up to the german elections. but turkey is making it almost impossible for the germans, who really represent european principle more than any other country right now in europe for it how do you cozy up to turkey, given what they are doing, given the scale of the arrests and the destruction of checks and balances? tom: this is wonderful. we continue this on bloomberg radio. look for the extensive coverage on our podcast today on itunes. michael spence is here without a new book. ambassador haass, this is a world in disarray. look for this, fourth of july, 2018. it sounds like a summer movie. richard: january 10, 2017. tom: there it is. ♪
in the markets, banks stocks keep flying. futures are for. 1% onth of about 1/10 of the dow jones. the cable rates dropping to 12596. a little bit softer. alix: here is what you need to know. china's reserve of foreign currency is the largest in the world, dropping the most since january for an eight year low. will be named u.s. ambassador to china. u.s., jp morgan and bank of america are forecasting fourth-quarter trading gains. the ecb begins its last meeting of the year today. base that will extend the online program. that is what you need to go.