tv Bloomberg Surveillance Bloomberg December 8, 2017 4:00am-7:00am EST
francine: brexit deal. deq in the u.k. reach an agreement. the plowed -- the pound fluctuates. global banking, new regulations and brexit breakthrough. plans past 17,000. ♪ francine: good morning. welcome to "bloomberg surveillance." i am francine lacqua here in london. let's check in on your markets. it has to do with the brexit
negotiations and what they turn to next. we heard earlier this morning from mr. jean-claude juncker that they reached an agreement with the u.k. they will be able to talk trade in the next couple of weeks. we still have the pound fluctuating. maybe investors were expecting more of an impact. are at their week where it they had quite a bounce -- where they had quite a bounce. i am looking at the ftse on the back of that brexit, not much of an impact. that could change. today we talk markets and bank regulations with andrea ocho -- andrea orcel. mcewan and with ross we also speak to roland rudd. it is quite fitting that we haven't brexit show this friday.
let's get to bloomberg business flash. nejra: the u.s. congress has passed a two-week -- the first toisions on decisions on -- settle some larger issues on spending and legislation. at the same time they will be rushing to finish work on tax legislation before leaving washington for the tax holiday. al franken says he will resign to in the turmoil -- to end the turmoil. the amassing came after over half -- the announcement came after over half of his democratic colleagues urged him. >> i am aware there is some irony in the fact that i am leaving while a man who has bragged on tape about his history of sexual assault sits in the oval office. a man who has repeatedly preyed
on young girls campaigns for the senate with the full support of his party. francine: germany has moved closer to a grand coalition -- thets leaders secured motion didn't specify what form an alliance would take with many rejecting a renewed collision in favor -- renewed coalition in favor of a minority government. global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. i am nejra cehic. this is bloomberg. francine: exit breakthrough. the u.k. and eu have reached a deal to leave to way -- leeway to talks. jean-claude euchre gave a joint statement. >> prime minister may has backing of the u.k. government. the deal we have now
that we need. >> millions of jobs depend on .he trade agreement in the meantime, reaching this agreement now ensures that is assist will be up to make investment decisions based on an implementation period. francine: joining us now is number ross thomas. also joining us is rob would. emma: it happened quite fast last night. talks with through the night and we have been expecting that sunday might be the medline -- be the deadline. francine: what do we know about the dup? emma: it was quite positive.
she was smiling. she said she was pleased with the deal. she said some things haven't been clarified and she threatened -- she said her lawmakers would still vote down a final deal. but the clause on ireland has done is kicked can down the road. lawmakers are crucial to theresa may. unless the conservatives have another election and when it which they're not going to do. still voteey can down a final deal. the language is very tricky. to -- thereey have cannot be a border on island -- on ireland. it looks like they are saying they have's. a brexit sticky that -- they have stopped a brexit state -- brexit safety net. there are a lot of talks we have
to get to. francine: were getting the brexit commissioner talking in brussels. he says what he wants is to have a final version with the withdrawal deal. was that the timeframe we were thinking of? emma: the reason for that is the european parliament which has a veto needs time to look at the deal. in theory the u.k. parliament as well. that is like time is very short. they are not trying to sort out a full trade agreement. but they're aiming for is a heads up agreement. even that is going to be challenging. the two sides are going into very different expectations. eu says what is on the table is what they do with canada. the u.k. says they want a very broad deal that includes services. trade deals do not include services.
officials have already been clear that the tricky part starts now. francine: number ross thomas, -- emma ross thomas, and now a little bit of fluctuation. some were expecting a partial move. how is the market doing this? rob: you can see the deal was positive in the sense we have sterling rise considerably since last night. what we have seen is really no additional details, nothing further than what we already knew which is there was likely summit.council the words around transition and final trade terms. as you just heard, they still have to be negotiated. on the positive side, negotiations have a chance edition that can really start.
how long that will take. that is what is vital. francine: this is something that michelle barnier seems to be suggesting. these are the kind of first brexit hurdles but they are more to come. are you expecting more concrete answers to questions? will it be crunch time at that summit? rob: personally, no i am not. there has been growing expectations that there will be significant progress. maybe what a transition will look like. -- wehe eu commission will get the eu commission presenting some timelines which will say it transition means the u.k. stays in the you but doesn't have a test stays in the eu but doesn't have a seat when it comes to policy. also next week we see u.k. government starting to talk about what they see is the interstate pre-brexit -- for brexit.
for me, what the chassis nasa look like is clear. it is going to be continued effective membership but without a seat at the table. how long it takes for the u.k. government to agree? -- it seems to me that is something they will not agree with by the end of next week. i didn't catch that. francine: what will it take? we see everything moving on these kind of negotiations blow by blow, have an impact on pound. what will it take to move the bond market? see what we are likely to now is questioned whether the u.k. economy can bounce back a little bit in the new year with the additional certainty that this progress creates. so can the bank of england's hike slightly earlier than expected?
for my part, it looked to me like the u.k. economy has been overly negatively affected by uncertainty so far. i am not expecting much of a bounce. because sterling is rallying, that means we are going to get lower inflation next year. bank of england may have to be balancing the opposite problem which is growth picking up. inflation heading well below target. it will be interesting to see what they do their. -- they do there. what would move the market there is if you get a big bounce in consumer and business confidence. that is the thing to watch. i'm not so convinced. we need to west pmi's. francine: we haven't heard from michael gove or boris johnson. emma: michael gove has been on the radio this morning being
supportive and saying the deal is in the national interest. we haven't heard from boris johnson yet. also worth noting that the usual , the ones who have complained in public about red lines being smudged. they have remained silent so far. the first person to come out and call this humiliation is nigel farage. francine: we are getting breaking news from michel barnier. we will bring you those mr. barnier sing the eu parliament were to adopt a parliament -- adopt a brexit resolution next week. for saul centers bikes because we have fomc and the summit the summer 14th. stay with us, surveillance, plenty coming up. was be to andrea orcel -- we will speak to andrea orcel.
francine: good morning, everyone. this is "bloomberg surveillance." let's get to the bloomberg business flash with nejra cehic. nejra: they have agreed to merge .ts gas and oil units the german chemicals giant will control 67% in the combined entity which is set to become the largest independent oil and gas production companies in europe. the business partners will control the remainder. there is now a signing of the letter of intent.
bitcoin has hit a record high hitting $17,000 before falling back sharply. has -- coin base has climbed to the top. another sign of a speculative frenzy surrounding bitcoin after doubled in value of the last month. morgan stanley has fired harold ford junior after conducting an investigation into harassment. it makes him the most prominent wall street figure to lose his job after annexation of misconduct -- after an accusation of misconduct. francine: posts 2018 regulations, bad lows since the financial crisis and a lot of factors have weighed on the european banking sector. yesterday global regulators broke the deadlock instructor deal. the agreement includes new curbs cash -- tos includes
talk about all these changing is andrea orcel. thank you for speaking to us this morning. you show up, there's a lot of big news on brexit. does the progress made you are more confident how negotiations will take place from henceforth? morea: it seems we have a organized and constructive process. news.s a perfect piece of the next that is to continue the space given that backs need make a decision by early next year on what they are going to do next, and having good guidance where we are going to land at the beginning of next year is quite important. francine: how do we know the government takes financial services as a priority? there is always a problem of timeline. the government does take financial services seriously.
i do think the timeline is often misunderstood, because everybody 219. at the deadline on for us to get there, the changes in his long. -- the transition is long. courts will be flooded with requests of changes. so, for us, we need start rolling on our process by the beginning of the year. francine: even if trade talks start next week. should give bankers more time on have to think about the next step? andrea: if we have a constructive process with indication, with respect to where it might go, we may take trade-offs and have more time to make decisions. francine: how is the investment bank going? do you have that unit pretty much where you wanted to be? hadea: since 2012, we have every year having change. regulation has continued to tighten.
it is not letting go. political environment is always tricky. markets have moved into an environment of very low volatility which is typical for us to manage. we go into 2018 haven't seen a 2017 where the investment banking people may be down anywhere between the percent and 10%. we don't anticipate this to be a recovery. it will continue to come off. this is an environment which is challenging for us. francine: are you expecting more volatility to come back? the fed is excited to raise again in the next couple of days. it seems that maybe there is more monetary policy normalization in 2018. andrea: we continue to budget for an environment which is very much like 2017. low volatility, not very constructive. with an investment bank was available flows -- bank which is
all about flows and not about kerry. looking at what it could be, yes, we could have better volatility. we're not counting on it. what we would be nervous about is big disruption, because that is not good volatility. francine: do you feel the ceos to, begin -- ceos you speak are they positive. andrea: ceos are positive. our clients in the corporate world are more positive. you have seen growth accelerating this year. let's see if the momentum keeps up next year. it is more difficult but i do think the general economic environment is quite constructive. francine: what does compensation look like? a set for the whole
industry, this is a tricky year. in terms of compensation, i don't know what it means for our competitors. we have taken a balance between performance and what we pay our people. if our risk-adjusted returns or economic profit is up, therefore our shareholder benefit than our employee benefit as well. if not, we are on the same level as our shareholders. this year is a year where investment bank has done slightly better than last year. i don't think it is a massively positive year, but it is neutral positive. francine: talk to me about regulations. the stricter capital rules impact some of your activities? a lot of this was
anticipated and everybody has been preparing. what came out last night seems to be on the looser side, or mark -- or more positive side. from that point, it is a positive. in general, the output floor is going to be less tightened than we expected. that is slightly negative for europeans. well positive for americans. the new approach to operational risks, it is again a slight negative for europeans, a positive for the americans. i do think it is clarification what we want. we need to go through details to see exactly what it means. having clarification an environment where we have such a long transition, i think it is what we ask for. andrea: -- francine: talk to me about mifid.
does it mean you can hire or expand in trading because in mifid, it leaves a vacuum's? andrea: all the things we have impact.ly a benign nobody really knows because it launches on the third and we all have our scenarios. you could have quite a negative mifid impact which affects marriage medically the business -- affects rather dramatically the business. you could have a mild one and everybody has their best guess. we think it is going to redefine how we approach our clients in a way that has happened in the last two decades. it will differentiate between leaders and followers. that it will differentiate between the people who offer i want tosed and if
buy our clients and people who don't. we have been preparing for that for the last three or four years. we think there will be a negative impact on margins. some volatility around how this is implemented, but a net positive for firms that are higher market share, better service, higher quality of execution. that. trying to be in francine: how much do you get bitcoin? i feel like we are talking about it every 20 minutes because of the wild gyrations. weyou ignore it? andrea: watch it with interest. we tried to throughout what it means. for me it is little bit like early 2000 when the internet took on and we try to revalue companies and the economy by the number of >> that you would have -- number of clikcs you would
happen a site. i think bitcoin is interesting but it is not clear enough the value in what is restored to volume what is driving the value at the moment. whether that is pure speculation. this -- it without over without understanding that is quite risky. francine: the way you describe 2018 is a benign environment. we talk about some shocks from geopolitics and bed volatility can overall, is there something bill defined 2018 from more the same? andrea: i would not call it benign. when you have markets without volatility and when you have markets like the one we have seen in 2017, especially if you do not have large stock of -- thisy with provides
is very difficult environment for us. starting point people in the environment, earnings have been reduced because of that environment. these are the sox you could have. these are asset values and they have been going up. volatility is not there which means is that price really representative of underlying value? is volatility -- if volatility ask up, is everybody going to sell at the same time and what is that going to do? relatively good feel benign environment on the outside gets disrupted and people just want to pull the plug and take risk off the table and start selling, what is going to happen? we are very concerned about that. francine: andrea, thank you very much.
the head of the investment bank at ubs. here is what your markets are doing. dollars seems to be continuing. today is friday. this is what i am looking at. bolstering the global growth story. the pound edging higher on the brexit breakthrough. speaking to a lot of traders who said they were expecting a bigger move after we had the news from brussels. of next we sit down with ross mcewan. conversation. we will ask him about brexit and compensation. this is bloomberg. ♪
opening the way for talks and what businesses are keenest to nail down. that is the nature of the post-brexit future and we spoke to ross mcewan, the ceo of the royal bank of scotland. here is manus cranny. >> this is good news to come pre-christmas and start having the real conversations about how can we trade with the eu. that is the important thing. this is really good news for all businesses. manus: in the details it talk about a two-year transition. as the ceo of a major bank with this is to do in europe, is to use enough? ross: two years will be enough as long as we get detailed very early. businesses had to move forward as though we are not going to get any form of deal. we have had to move forward to it the worst scenario so that we can build a bank that works for customers. if you get a longer transition
and get the rules established, i think that is really good news. i'm our perspective, we have had to move forward. manus: can ask you about institutions. the people around the institutions, if we get more detailed news on transition and financial services in the first three months of the year, could that make you pause for thought? ross: i don't think we can pause for thought. we have to into position of certain operations so that we can look after customers. this does help. we can slow down activity, if we think this transition is going to be a real two-year transition. we can find out what the rules are. services, theal canadians don't have a services element. mission for you in terms of regulatory alignment. this is a new word. alignment, alignment. take me to your vision of
alignment. .oss: we have total alignment we are running on the same rules as europe. really what the difference is going to be. a lot of people want a lot of difference and change the rules so we can a lot more flexible. given one of our major trading partners, the closest we could -- this is from my financial services perspective and the customer perspective. manus: let's talk about the customers. this is good news, seeing a little bit of movement in sterling. it is a pretty volatile currency. your customer has been pretty battered. u.k. consumer confidence back to levels we haven't seen. what is happening at the front end. things i amthe surprised about is how resilient the consumer is.
ross: one of the things i am surprised about is how resilient the customer is. here is the uncertainty. it brings some slowdown in people's habits of borrowing. we have been seeing good levels of growth in our lending books, pitifully around the consumer and small business -- particularly around the consumer and small-business. manus: what about mark carney? you people running institutions, you are complacent. do you agree that there might be complacency? ross: i don't think so. we have been looking to see early signs of difficulties. plus you have seen the larger corporation get into themselves into difficulty. it has been systemic. it has been the structuring of those businesses, as opposed to issues running to a sector p it
all banks have been keeping a very close -- sector. all banks have been keeping a close eye to see if anything has been dramatically changing. ramin: one thing that has been changing, georgia 59 branches already closed -- manus: one thing that has been changing, 259 branches already closed. my question to you is simple, this is repercussions. is this the foothills of closure? are there more dramatic steps to come? it is a big move. it has become -- it has come because customer behavior has changed. a couple of quick statistics to show how dramatic this has been because it has taken me's by surprised test taken me by surprised. since 2014, 40% decline in the branch network.
in the last 10 months, and 25% increase in the number of our customers using the mobile phone as their major portal into banks . those are dramatic numbers. we have decided to get the ranch network is close to shape as weekend so that we don't having to negatively surprise customers with a brass close here. just try to get into close to shape as weekend. the customers are changing their behavior. manus: your chairman was here yesterday. he wouldn't give us a number. posse? ahead of the where are you in the benchmark of progress? ross: i think we have shown in the last couple of weeks that we have made big moves from a banking perspective. our entire network of dealing with customers has been around the physical piece of a branch.
what hasn't come out is over the last couple of years, we have put 24 mobile vans to give to those communities and villages and towns. we can see those customers that would normally have wandered into a branch and done a little transaction. the small businesses, that is important. the connection on a weekly basis has brought interaction to us. behind committee bankers as well. --community bankers trust vote to deal with those who are little bit older. manus: let's go back to the investor. your stock is up 22%. you're one of the best-performing banks in the u.k. three reasons i want on your stock. the government gets off the shoulder. you close the litigation and you give me a dividend. let's break them down.
[indiscernible] is 2018 possible in the calendar year echo could to begin to offload -- calendar year? could it begin to offload rbs? ross: they are pleased with the progress that the bank -- that the bank is getting back to a more normal position. is a factor that we want to get tidied up. it impacts on whether we can pay a dividend. no one knows how big that will be. manus: let's talk about that. you caught up with the market. the market at -- caught up with the market, the dialogue have picked up. we're going into the close of christmas. will it be down in the first quarter? what is your best assessment?
ross: i thought it was going to be in 2017. beingery optimistic human , but this is something we do want to resolve. we made it clear we elect result it. it is the last major thing standing between us and being a much more normal bank and being able to get back into position of speaking into a regulator which would signify that this bank has gone three pager test through a major recovery. -- through a major recovery. manus: the numbers out there very between single digits and double-digit from mortgage backed securities. even today double-digit hit from the doj, 50.5% capital, have you got enough just 15.5% capital, have you got enough capital? ross: we need to build a capital
position at the specs on the one ever worries about us ever get. just about us ever again. -- about us ever again. today, we are in a very strong capital position, but i don't know how big this final be. -- this fine will be. we have built capital hoping that some of the capital will be retained so we can give it back to our shareholders and use it to grow our business. we have to hold onto it. manus: has the music changed at the department of justice? there were lawsuits flying. trump is now in charge. has the mood music changed? ross: the interesting thing is there are for banks left standing with securities issues. at the states even the
--ormation, it really there's a lot of distraction within the department of justice with other issues. only having for left, i'm not sure we -- i am not sure where we set on the priority list. manus: looking at the oil industry, they have moved off script and giving good all dollars. we like that. ?here is your gut feeling mia penny dividend? -- am i a penny dividend? when the moment comes, what do you want it to be? ross: we have a lot of did -- we have a lot of retail customers. dividendike to start a that shows people we are the -- to show people where the actual dividend will go based on the business. one that reassures people we are back to being a normal bank. it allows other investors to
come into our stock. i think that really helps. we've got to get through to the department of justice and make sure we are making money again. we will be in a good position. frank that was manus cranny speaking to ross mcewan. it was a great interview where he said the bank had reduced the chance of reaching an agreement with the u.s. department of justice over its mortgage bond probe. it is well-capitalized to handle any probe. breaking news out of china. this could be questing with can does it is about leverage ratio. this is the national news agency of china, according to a meeting on their 2018 economic work and this is what their reporting. china will prevent major risks and control leverage ratio next year. this could go through the housing system reform and other things like that.
it is ready to work on britain's transition out of the bloc. this morning's announcement comes after a flurry of diplomatic activity overnight in a meeting in brussels between may and juncker. >> prime minister may has assured me that it has the backing of the u.k. government and i believe we have [indiscernible] >> millions of jobs depend on the future trading relationship we will determine and i am optimistic about discussions ahead. in the meantime, reaching this agreement now ensures that businesses will be up to make investment decisions based on an limitation period that welcomes certainty. nejra: donald tusk has warned the two sides faces difficult decisions of a trade. obviously the success
of theresa may. let us remember the most that will challenge is still ahead. we all know that breaking up is and, but breaking up building a new relation is much harder. nejra: global news, 24 hours a day, powered by 2700 journalists and analysts in more than 120 countries. cehic.jra this is bloomberg. francine. francine: the public relations firm -- he is here with us now. roland, you got lucky. was it a good deal? you've got to congratulate the prime minister for getting a deal. it has been very difficult getting here. she has been forced to give away on almost everything, to get this deal. there's a good reason why michel
barnier is smiling, because unfortunately, the basic facts are that if we wanted this deal, we had to give way on money, we had to give way on issues of sovereignty, we had to give way on issues of control in terms of regulation. we had to give way in terms of northern island by kicking it down the road. -- northern ireland by kidney down the road. it is so different from what the leaders promised us. francine: are we going toward a soft brexit there we should not have a vote? they are talking about having regulatory alignment. if we have that, why don't we stay in the single market? of course we will be a taker at that is better than being outside. the second issue is we were told we were going to get the hundred 50 million a week.
--it 350 million a week. quite rightly, she knows she cannot make that promise. instead, we know we are going to have to spend 50 billion to exit. it is different from what michael gove and boris johnson promised. francine: if you had a referendum now, it would be much of a given outcome. it is important to know what kind of deal we are getting. referendum,a second if people change their mind, then have the right. we have seen some polls recently , people want to have a say on the final deal. that's a to the people as to where they sit on this issue. important withy this withdrawal bill that it is a meaningful vote which tackle go of kept promising but so far has not committed to. francine: we heard from michael
gove this morning. we haven't heard from boris johnson. roland: it is a huge embarrassment for boris johnson. one because the 350 million is that there. he told because europeans they would have to go and muscle. berdly, he said we would not under the auspices of the european central court. notches now, but through our transition -- not just now, but through our transition. we are going to be eight years on citizen rights. i can understand why he is not here because it is a huge embarrassment for him. francine: boris johnson has in the couple of seconds congratulated theresa may on the brexit deal. we haven't heard much from him. breaking news that is coming in. for the moment, he just congratulated the prime minister. aboute need to worry abusive challenges?
is she going to have a rebellion ? can she talk about trade? roland: i'm not an expert but i suspect -- francine: who is? roland: that is true. the trouble is she had michael gove out today professing his undying love while meanwhile he is writing these notes which is undermining her authority. people just want them to be transparent and open, the hard brexit are's. -- the hard brexiteers and buckle down and back the prime minister in terms of what she is doing. they constantly snipe at her. francine: what will the trade you look like? do we understand if the government sees financial services as a priority? huge dealis is a because they're been saying some the car manufactures, don't worry.
you have the same trading environment after we leave. you won't pay anymore. if they are tariffs, we will make sure we take the cost. that is fine for them. we got to remember, we are an established economy and we got to get a service agreement. francine: roland, you speak to a lot of ceos. what is the mood out there? cautiously pessimistic about the future? are they worried about negotiations? yet they are recording strong sales thanks to weaker pound. what are people tell me you? roland: and fall of the currency in terms of a devaluation is a one of. it never leads to long-term growth. they are incredibly nervous. they're pleased she got through this stage of their concerned about this huge compromise she has had to make. what it means going forward.
the key thing is going to be our future trading arrangement and what they are seeing today is if we've got this alignment with the single market, why don't we stay there? that is the simplest and easiest answer to what our future trading arrangement -- francine: why do we have the vote? roland: there is no good outcome going forward and we need to make sure that we have the least worst outcome. francine: do your clients and ceos ask about what the u.k. would look like under jeremy corbyn? roland: they're very concerned about that. there did the concerned about future taxation going up. the worst outcome is -- the worst the outcome is, the more certainty there will be that jeremy corbyn comes in.
they are not just concerned about this trade deal but they are also concerned about the political implications and that is why they want to see a deal whereby we stay in the single market because then will be stronger and less likely that people will want to lurch to the left in terms of the next political ramifications. francine: what do you think the next eight months will bring? i was going to ask what you think the next two weeks will bring. are you worried about the timeline? that we will get something on barnier thathelle doesn't give us a lot of time if we could crash out? roland: the most sensible thing would be to say to the opinion, look, we are making some progress but we are never going to have the details of our future trading arrangement sorted out by early 19. therefore we should extent while we negotiate.
that would be the sensible thing. a transition for two years, why actual two years? it may be better to have three or four or five years. you could get this right and not have the cleavage. desk at the clip average. -- at the clip edge. what they don't want are the artificial barriers which will force us to do something suddenly rather than smooth it out. francine: do you think the brexit deal could be so watered down that we have a second referendum and don't do brexit at all? with -- roland: the issue a second referendum is contingent on two things -- one come on the vote at the end of next year. we'll have to see what tech of deal it is, whether mps want to vote for it or against it. but it much -- but it must be meaningful. determineit will
whether public opinion has changed. there has been some change but i don't think at the moment, significant change. we've got to keep that hold issue open depending on how public opinion moves. francine: how many of your clients are looking at moving staff? is very clear winner? roland: one of the things we are lucky in london is there is no obvious what economic center on the continent the challenges us. there are many people who have --ed to berlin, frank fort frankfurt, dublin. of course paris is becoming more attractive. macro pulls down the tax rate. there is a whole range of different capitals. there's a greater movement of people that have been announced
so we shouldn't kid ourselves. we are fortunate that we are not challenged by one city. francine: roland, thank you for joining us today. in the meantime, i just want to bring you this, the boris johnson tweet. congratulations to the prime minister for determination in getting to those deals. this is boris johnson. we aim to forge a partnership with our european friends and allies. that is the latest from boris johnson. we'll talk more brexit next and u.s. jobs. that is a little later on. this is bloomberg. ♪
the e.u., opening the way for trade talks. keeping momentum. today's november jobs report will be closely watched as the red edges towards their -- as the fed edges towards another rate hike. before the cbo begins trading in the cryptic currency. good morning. this is "bloomberg surveillance ." i am francine lacqua in london. tom keene is in new york. a breakthrough in brussels. tom: a huge breakthrough. even with job stay in the united states, a great cast lined up. alan krueger, bill gross, james glass. we start strong in the six as we do brexit in this hour. let me get to the data. up the market up
to the dow, futures up 42. maybe a little more sprightly on a job stay than you normally suggest. dxy coming up 94 with the euro 1.1735. the vix, that is a big change. let's stop and consider the vix. 9.93 in about 30 hours. that is a real shift back to normality for the shift. -- for the vix. it has been out of whack all week. gold qamar risk on, down five dollars. bouncing on support right now. nearieve it is early july, july 4 -- francine, july 4 is a celebration in america having to do with independent. i want to know german two-year -- that read should the green. it is stronger by a full basis
point, but i never -- but a negative 0.76 earlier is a big negative on the german two-year. francine: i really like the fact that you are at german two-year. really that is significant. the dollar's solid week continues. looking at good asian data that seems to be echoing the global growth story. brexitreakthrough in the negotiations. the pound edging a little higher. were a littlers more concerned or were expecting a bigger move when it came to pound. -- a lot of people rallied, including boris johnson congratulate the
prime minister on the deal. deal finallyh passed, allowing trade talks to begin. negotiations went long into the night. prime minister theresa may agreed to a deal on financial livingts, on europeans in the u.k., at a solution to keep open the border that divides ireland. announcement, the donald tusk struck a measured tone. >> while being satisfied with today's agreement, which is the personal success of prime minister theresa may, let us remember that the most difficult challenge is still ahead. we all know that breaking up is hard. building ag up and new relationship is much harder. francine: joining us now is jones hayden and we high of
david maritz, bloomberg's london beer chief, joining us shortly. we goth of a concern -- trade talks. the prime minister has been applauded. but we have not really had a full blessing from the dup. >> that is still a question out there, but we do have a semi-blessing. arlene foster was out with some positive word earlier. all sides seem to be welcoming this deal. what has changed for the dup is the language has gotten more vague since monday the deal we thought he -- we thought we had but got scuppered at the last minute. there is no hard-fought for ireland, a positive for island. but we still need to know how they will -- we still need to see how they will do that. francine: was it expected?
this happened very early this morning. we heard around 1:00 or 2:00 a.m. that donald tusk would i dress -- adress supporters -- address supporters this morning. jones: you always feel a deal would be coming. the e.u. is famous for all-night sessions that end up with a deal. earlier today or yesterday or the day before, the e.u. said yes, this week, but we count sunday, so it looked like they would try to get a deal before detailed negotiations by the deputies before the summit. but they managed to do it last night. it may have been spurred by teuks -- tusk coming up with that press conference. francine: let's get to our bloomberg bureau chief.
frome looking at its weed boris johnson, congratulating the prime minister -- we're et from boristwe johnson, congratulating the prime minister. thed: mr. johnson, whether -- the detail could be controversial. there is still a little bit of influence in the european court of justice. there is a commitment on the irish side to maintain that border as it is, an open border. some analysis suggesting that means the whole of exit is veering towards the softer side. an openeep in -- border, that could limit your ability to strike trade deals around the world.
boris johnson and michael gove supporting prime minister may. tom: congratulations. -- ow a sheet going to get the government behind her? canbig of a victory lap prime minister may take until monday? david: she was asked in brussels. have you had a champagne breakfast? she declined to answer. she did not look like she had been bring -- drinking qamar particularly. i think that was very little levity, because reality is sobering. everyone is reminding us that now the really hard work starts, both in terms of trade negotiations but also for mrs. may at home. -- says it still needs to be
ratified by the parliament, and there may be more problems to come. because we still do not know what the solution for ireland is it whenever that is proposed -- we have no idea when that may be -- the dup can still cause trouble. francine: thank you. that was david merritt and jones hayden. joining us is rbc europe's global head of equity. bring you to my chart. you can see pound dollar. it has not really moved at the back of this breakthrough. why is that? were they expecting morgan they want focus on trade? >> it is a combination of a fact that we are also looking at a u.s. dollar that is relatively strong this week. beyond that, now the hard work against. all we have done so far is agree to disagree.
of the irish border remains very much open. the dup will want to have their say on the final deal. we are not that much closer towards a final resolution. francine: but is the first -- it is the first time theresa may can come back home with positive news to that must count for something. domestick on the front, theresa may will take anything she can get paid but we need to go back and say there is still a lot of uncertainty. let's look at the currency. the currency has been generally strengthening the past few weeks and months. what i put my equity had on, that means you i rested by u.k. equities? not really. certainly not the ftse 100, given the negative correlation between currency and the ftse 100. they prefer a weaker currency. on slows for next year. one of the great themes across all currencies is the big shift
will see inflows. what does it mean for the united kingdom if you just dollar flows because of american dynamics -- if we see huge dollar flows because of american dynamics? elsa: if you look at the homeland act, which generated a lot of flows into the u.s., sterling did not do well. the u.k. has a current deficit, 6% of gdp. the easiest way to attract roses with at cheaper currency. tom: where will we go cheaper? 1.25? orevery visit to cable 1.20 even south of that? elsa: a lot of that event on the domestic clinical situation. at the moment, theresa may has herself a lease of life. markets are somewhat split in their expectations, whether we get an election or she hangs on
♪ francine: good morning. this is "bloomberg surveillance ." .rancine lacqua in london tom keene in new york. let's get to the bloomberg first word news. aylor: congress diverted shutdown of the u.s. government. lawmakers passed a two extension that prevents the government am running out of money tomorrow. i have until december 22 to make decisions on spending more defense and domestic programs. another member of congress resigning all were allegations of inappropriate behavior. republican congressman trent franks of arizona says he will quit at the end of the month. the ethics committee is investigating him for discussing surrogate motherhood with two female staff numbers.
the socialist democratic party is considering another grand coalition with chancellor angela merkel in germany. 10 weeks ago, the social democrats vowed they would not theblish an alliance with christian democratic lock -- bl oc. than's exports rose more expected last month, up more than 12%. the increase in imports show that the domestic economy keeps outperforming. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i'm taylor riggs. this is bloomberg. ♪ tom: thanks so much. and elsa lignos is here. we are going to dovetail in your jobs and also their expertise in targets and markets -- in markets and markets strategy.
this is what you do not hear about. the job market is great in america. yet this is why we have bubbles. this huge gap. this is the employee to the working population in america. the headline here is it is not 2000. you two are living the bubbles out of this, done by central banks. howling -- how linked our labor economies to the central banks, whether france or america? how linked is the job economy into the market distortions that have led to bubbles? edmund: i would say it is huge. , what think about what these quantitative easing policies were meant to achieve, they were clearly meant to achieve strong growth. in a sense, that needed to be
reflected in the jobs market. people needed more jobs. the great recession of 2007-2008 destroyed more jobs than any normal recession. so the jobs recovery was of paramount importance. it has been inside -- essential. up until now, the level of wage growth has been relatively mild, reflecting that chart you put up. tom: i want to bring up this chart for elsa lignos. a major shout out to our washington team. this is the new york fed -- it was gasping -- francine, do not let edmund die on us. fed is the new york inflation gauge, including assets. we have this into a ground here in the middle of the last decade, a huge equity and real estate asset bubble.
we have the same thing developing now. from where you sit on an ethics how asset fx desk, bubblish are we? elsa: a lot of people have made this claim. it is true. if you look at -- you do not have the inflationary price showing up, although they do show up in the asset prices. you can see it in any number of nontraditional asset classes. i hate to bring up cryptocurrencies, for that is the example -- tom: there she goes. elsa: edmund asked us to bring it up. i know he has a lot you wants to show -- he wants to show. talking seriously, it is something the fed has to be careful about. when they look at financial conditions, they have already delivered to hikes and are about to deliver a third. yet financial conditions are somewhat easier than they were a year ago you that is something
central banks around the world are taking a lot more seriously. it is probably biasing them towards hiking rates, even though the consumer price -- price inflation is not there. francine: bbitcoin, go. there is certainly an appetite for something. edmund: there is always an appetite. when we have an enormous hunt for yield, people are looking for returns. easy money. who does not like easy money? this is all about the fear and greed we see in human psychology. with cryptocurrencies, and the in particular, the point where your grandma rings you up and asks you what is with bitcoin, it is like the bellboy asking you which stocks are survivor for a big crash? call thes a went to
top, including the top. francine: unless that grandmother's. italian grandmothers know how to invest, probably more than most traders. tom: this is two days in a row when we are on italian grandmothers. i do not know what to do with this. we have let bitcoin out of the bag. cboeate last night, the rules on how they will run futures against bitcoin and derivatives against bitcoin. shingy to have lignos and with us this hour. coming up, mr. cohn. you wonder where gary cohn will be january 2 or january 3. this is bloomberg. ♪
♪ francine: good morning. this is "bloomberg surveillance ." just getting news -- again, a breakthrough in the brexit talks. detail onhave much the deal with the irish border, but there was an agreement to deal with it. we seem to have a little more news on the amount of the u.k. will pay the e.u. this is the divorce bill. the brexit bill is said to be to 45 billionlion euros pay let's get back to edmund shing and elsa lignos. who is behind this brexit bill?
is it basically angela merkel, who managed to convince theresa may she had no options? or jean-claude juncker? who was the person theresa may did the deal with? edmund: i think that is extremely different -- difficult to know. if i were angela merkel, i would be more concerned with the security my latest term and a coalition with the stp -- sdp. she has much more pressing concerns. the from where you sit on analysis of rbc in london, is this a rounding error for the british government? is this like serious money for the chancellor of the exchequer? it would be serious money if it were to be paid in one go, but it will not be. it will be split up over a period of several years with a final bill to be determined. it is manageable over several
years. it does give you something to work for. it is a positive incentive to die -- to strike a deal, because there is 40 billion on the line. francine: thank you both. also he knows and edmund shing stays with us. we want to find out the exact nature of the brexit deal. and do not get to pick up the latest issue of bloomberg businessweek. discuss fake will news, a great article on facebook, and how the common person on the street can prevent fake news. this is bloomberg. ♪
an agreement with the u.s. doj according to the ceo ross mcewan. mcewan says the bank remains in strong capital position. ross: once we have gone through the issues we got, we want to show people where the actual dividend will go based on the results on an annual basis. it does two things. can be ares people we more normal bank. it allows other investors to come into our stock. there are many investors are cannot come into a stock that does not pay a dividend. i think that really helps. that we have to get through the department of justice and make sure we are making money again. then i we have built the business to be in a good position. francine: that was the rbs chief executive officer. .till with us, edmund shing i know you look at a lot of banking stocks. i do not want you to comment on this deal or that deal or
litigation, but overall, what does 2018 mean for european banks? will we see consolidation? a benign environment with lack of volatility? edmund: there is the potential of consolidation, but what investors are looking for is continued recovery in profitability. but we have to remind ourselves looking out banks is pretty 2008, global profitability was very high. we have now collapsed coming 2008. we have recovered slowly. if you look at the return in equity of european debt -- european banks today, it is still far below anywhere they were before 2008 three of the real question is we know it will improve, but by how much? and what is the reason no rate through the cycle we can expect banks to be. we just do not know. francine: tom had a fantastic chart. looking at the two-year in germany, the two-year bund.
this is probably would one of the most distorted markets. this, iting happens to will hurt nonperforming loans which will hurt the banking sector fear of is that the worst thing that can happen? edmund: any sort of flattening curve is that banks. but we want to see is short-term rates stay relatively low. you do not really want to be paying a lot of interest in deposits. when we have done the correlation, we have seen all of -- seen a strong link between the yield curve and the difference between short-term and long-term interest rates. this deeper the yield curve mother more money they make. tom: and also has to do with the strategy of hedging to go with cross-country yields as well. francine mention the distortions the german ten-year or the german two-year.
what is the tension in the next year between germany and u.s. yields? edmund: a very interesting point. it is huge. when i talk to my ethics and and colleagues -- my fx bond colleagues, there have been huge moves that ought to pick up the yield curves in the u.s. a lot of institutional investors who are hungry for yield have an very happy to come instead of buy u.s. treasures s, instead of buying bund buying u.s. treasuries. tom: is it such a one-way bet on how u.s. yield that all of the bnp paribas radar is?
-- is up? edmund: what is interesting is my colleagues expect long-term yields rise substantially over on the ratemonths side. what is interesting is the yield curve in the u.s. has flattened, done the opposite. we believe economic growth will be stronger in the u.s. next year. inflation will take up -- tick up. the bond market is telling us the opposite view that makes me nervous, because the bond market is more right than wrong. but in this case, it may be to pessimistic on growth, and the reality may be different. staysne: edmund shing with us. let's get to the bloomberg first word news. here is taylor riggs. taylor: a breakthrough on brexit. british prime minister theresa may and the european union reached a deal on divorce negotiations. that clears the way on talks for
trade. out theable to work thorniest issue, keeping the border between ireland and northern ireland open after the split. congress lawmakers averted a government shutdown tomorrow. they now face a december 22 deadline or deciding what to do about spending on defense and domestic programs. in southern california, wildfires stretch for a couple hundred miles, from san diego to north of los angeles. the biggest fire has burned almost 180 square miles in ventura county, destroy more than 400 buildings. it is only 5% contained. the flames are being fanned i by gusts over 50 miles per hour. there is a new mystery in who bought a da vinci painting.
according to the wall street is the crownbuyer prince of saudi arabia. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. ♪ francine: thank you. to be fair, if i was a saudi royal, i would probably be buying that paint as well. let's get on to oil. we see quite a lot going on in oil. investors turned their attention to expanding u.s. production after opec agreed to extend supply cuts. it comes out there jpmorgan published its 2018 outlook on oil majors. joining us is the jpmorgan had oil and research. still with us, edmund shing of bnp paribas. thank you for joining us. when you look at the oil markets, we focus a lot on supply. what is demand looking like?
to thend is a surprise upside. we had 1.2 billion barrels of growth going into this year. that has now moved to 1.6 1.7. the coefficient, lower prices, has been better than we thought. the extent to that getting formalized, we have 1.4 billion barrels next year. but we are seeing a lot of efficiencies demand to use less oil. so we should use this as a new starting point for demand growth. francine: how much production cuts will affect have to commit to if they want to keep a handle on price? christyan: opec has market itself on its own in terms of now not willing to cut itself further but rather use policy in this context of keeping production where it is and expecting the market to catch up
to demand. this is important, because while he can enjoy this policy through next year, we have to think about tapering into 2019. what that means is we knew will production growth going back to market shares. tom: failed to have you with us. you parse use of cash like no one else in europe. will we see a new dividend attitude or use of cash attitude out of the major european oils? will they act more exxon-like? like a financial bank that happens to do oil? is that the future? christyan: absolutely. i think to myself a year ago, that if it -- that debate was probably too optimistic. thinking about the second or, we have gone into an offense strategy. that means can actually think of the cash return? give cashon of do i
back to shareholders, what does that mean for long-term production, that creates a more barbell approach, in the sense that not everyone can do it. , is thereng at france in you religion? the frustration of people who do europe oil is it has been separated and remove for 30 years. onthere a new religion shareholders at totale? alwaysan: totale has been a safe pair of hands. focus around that is when we look at this offensive strategy, we are looking at who can deliver the best cash margins on their underlying barrels and translates. they all have good industrial outlooks, but that conversion into cash and cash return is where totale positions it self more mid rang -- mid-rank.
shareholders looking at this new religion is looking at this new strategy and calibrating around that rather than spending excessively. the companies that can balance that appropriately will outperform next year. the companies that struggle with that, and i think the shareholders will raise their expectations, mainly to prevent them, if oil prices go higher, the start this weak ending again. this sense of all the players to the price of oil. as the most u.s. is the -- elasticity, the most responsiveness? christyan: i think show has the highest elasticity, thanks to mexico.els that has the starting point is high. more defensive is totale.;
is slightly neutral. francine: a question for christ yan from a viewer. first of all, if you do have questions, keep them, using our tv function. this viewer asks what do you think oil -- where do you think oil prices will average in 2018? prices is ail difficult call to make in 2018. we have around one dollars dollars a barrel. we do think there is downside risk into the first half of next year. on average, it will trend around $55. that is our forecast. but knows. francine: on these well known, will we see consolidation? edmund: they have had quite a good run. i was bullish a few months ago,
in september. now, a lot of it is price. when you look at speculative futures positioning, hedge fund is an example of very long oil. it has gone from being bearish super bullish. i would wait to see if there is a pullback before i get you excited. great point it equity is different to the oil price. equity is high, but the oil price is not really responded. they do not believe $63 is the right price. let's wait to see if we there -- to see if there's every coupling. producersour shale in the u.s. ever going to speak with one voice? christyan: not and the way opec would like it to be. that would be potentially a dream. they will focus more on cash, which will not be negative or volumes.
it will be more efficient, which will translate to better productivity at high cash margin , the way we see european majors behave. tom: thank you. christyan malek with jpmorgan on european oil. we will do something on bitcoin. a huge news flow on bitcoin. particularly those who want to -- with ans and important announcement from cboe. radio, pimm fox. jon farro. we have to keep them apart. this is bloomberg. ♪
♪ is "bloomberg surveillance." francine and tom from london and new york. let's talk a little more about bitcoin. let's get straight to a viewer question on bitcoin. this viewer contacted us through tv . how does the bitcoin link to what central banks can, may, or will do? shing.ith us is edmund also joining us, our resident bitcoin, and robinson. -- ed robinson?
ed: right now, central banks are studying bitcoin. there has been consensus as bitcoin have exploded in value from central banks, zynga we do not condone this, we are looking at this. we are not out to -- we are not about role anything out. but they are all looking at what are the possibilities of using block chain technology under perhaps, someday, issue a digital version of sterling, the dollar, yen, etc. francine: what are you looking -- futures on bitcoin start trading saturday. can this make or break bitcoin? ed: i do not think it can make or break, but it is a pivotal moment. now, for the first time, it will be quite simple to short bitcoin . you will see a number of institutional investors and
marketcoming into the and putting on short positions in these futures contracts. there is a next dictation that there could be an evening out of the price. that you may see some of the off histy, off -- come futures contracts start to hit. tom: edmund shing, you just heard ed robinson, who has been great on this. talking about the hope and prayer or a leveling out of the drift of the time series known as bitcoin. how can that happen if we do not know the bid and ask architecture of the beast? how can we get correct cme and cboe benefits if we really do not know? us heward davies told should not do this. how can we get a calm her market -- calmer market? edmund: it is difficult.
if you look at the exchanges, there are so many different exchanges, it ethical to know what the single price is. that is what is different between other financial markets. market makers can agree -- it is clearly not the case. will take a cme reference price. again, that is the reference price. what i find more interesting run features is the attitude of bank s and interactive brokers, who are heavily against tradable bitcoin futures. i noticed it will be impossible for people with interactive broker accounts to short bitcoin futures through they will just a it is too volatile. tom: i want to make accreditation. interactive brokers have been out front in saying we will not play this game. they have been a huge supporter of "bloomberg surveillance'of
the years, i should point out. last night, south korea jumped into the zeitgeist on bitcoin. bloomberg businessweek had a fantastic chart on twitter showing the korean premium and the near -- hysteria is the wrong word. but what happens to your world when the government of korea steps in and says "enough"? ed: really interesting question. it is important to look at the utility of bitcoin. what if regulators say no one can use bitcoin to buy coffee, buy services, buy goods and services. basically, the utility of bitcoin goes away. that is a very interesting question. it will be hard for regulators to stop the creation of bitcoin, because it is decentralized and offshore. but what if they actually came out and said you can no longer spend it in this economy? tom: within that is who is the migratory -- regulatory adult in
the global bitcoin room? i cannot identify it. christyan: -- ed: it would be the most powerful central banks. the bank of england, the ecb, bank of japan -- tom: how does chairman powell step in on a given day in december or january, when bitcoin is $20,000 or whatever. how does he step in and they no, you cannot do that? ed: maybe he could just testify to congress and just signal that we are not down with bitcoin. i know there is r&d going down block chain, but we see this as pernicious. something that could be corrosive to the markets. we will take a very hard line on this. to say, ed have robinson, every time we talk about it: and try to understand further, tom and i get a lot of hate mail. this is a serious point. what exactly is going on in the market? do you have a pro and against?
because there is a space in the market that people want to fill with something else? i have rarely seen anything like this when it comes to a transaction. ed: go back to the beginnings of bitcoin. bitcoin was designed to circumvent the financial services industry. it was designed to circumvent central banks. it is like the internet. it was designed to be this am a rcedit worse -- democratic fo in the marketplace. now that wall street is piling in and you have industry coming in and saying "we want to play in bitcoin now," that will trigger a lot of emotions. there are a lot of true believers out there who probably feel the true purpose of this is getting corrupted. want you to do not get in trouble with your counsel, but edmund shing, i
want to go back to the transparency you and adults at bnp paribas see in the bit going -- bitcoin world. is it a retail, criminal, and non-terminal experience? or is there an actual future for this hyperbolic thing? edmund: let me answer that in a slightly roundabout way. if we look at the technology behind bitcoin, and i will remind you i finally have a doctorate in technology and artificial intelligence -- all i would say to you is that block chain technology will be huge, financialwithin services and in the near future. that is why banks and other financial services are spending so much on it. it has the possibility to
produce. block chain will be huge. but they may not bitcoin. they may be private letters or closed world ledgers, shared by, for instance, the consortium. that makes a huge amount of sense and will be transformative. tom: does this thing hydraulically come down, steeper going down than it was going up, whatever scenario want to bring, who wins at the top? there will be a lot of losers if it crashes. there are always winners as well. who are the winners in the bitcoin derby? are two mainhere caps on. you have the traders and speculators who price it right and get out of the right time. wasalso have, as ed alluding to, you have the players in block chain and the underlying technology who are making strategic investments in infrastructure.
digital asset holdings, they finally made a breakthrough in their work with the australian stock exchange. the australians exchange will now accept life masters -- blythe masters' block chain technology. dhh aresay blythe and winners so far. there are two camps. francine: what are you looking at in the futures? a couple ofo wait weeks or days for them to stabilize? or by monday morning, we have a better idea of what is going on? ed: this is uncharted territory. we have never seen an entity like this trade and we have never seen a merger of something created hated as a -- as a subversive technology accepted by the mainstream. look at the miners. miners will jump first into futures contracts to hedge the
expenses that they have to spend the process bitcoin transactions. the way the miners play futures may tell us a bit about how this will play out. tom: it will make for an eventful december as well. ed robinson, thank for your continued work. rationality across the wide debate of bitcoin. and thank you, edmund shing of the incomparable. this is the weekly chart of bitcoin. we are up 50% for the week. we come right back down two standard deviations. brexit, on hour, on jobs, bill and barter -- willem buiter. ♪
sustained unemployment south of 3.9%? willem bauder of citigroup and on lower taxes, do they mean lower growth? the right and wrong of the hassett summers debate. changes" from the irish, brussels, to boris johnson will regroup over the weekend. the necessary kirby kills it as that -- vanessa kirby kills it as that tramp margaret. i am tom keene with francine lacqua. "the crown" is out, everybody is watching it, everybody hates everybody. is it different from the back story of this brexit? francine: there was a breakthrough in brussels that
seems like there was a little bit more camaraderie. when it comes to the u.k. and e.u., we have a puzzle figured for the divorce bill and theresa hermay have placated cabinet because we have messages of support even from boris johnson. tom: how about a data check? equities, bonds, currencies, and commodities. futures up five. the euro weaker. with the vix finally coming in, he finally have the linkage back to the dow and s&p, a much lower .ix, a quiet to the vix as well the german two-year yield, -0.75%, a lower two-year yield in the last few days. this is francine: -- francine: this is what i am looking at. i want to show you the ftse. dollar gains, stocks rebounding.
pretty encouraging asian data and that things to be bolstering the global growth story while the pound is fluctuating a bit on this brexit break serve. the u.k. and european union has struck a breakthrough deal, finally clearing the path for trade talks to begin. the deal was sealed before dawn in brussels after negotiations went long into the night. joining us is the irish foreign minister who talks to us from dublin. thank you so much for joining us on this very important day. what do you make of this initial deal? >> i think it is very positive. i think certainly ireland and britain and many other countries want to move on to phase two of the brexit negotiations, to start talking about future trade and future relationships and transition periods, to get us where we want to go. ireland has been very clear that
before that could happen we needed to get reassurance on some of the irish specific issues that have been very dominant in the last week or so in the context of finalizing days one negotiations. negotiations. i think we finally managed to do that working with the british negotiation team and the e.u. we have clear guarantees that there will not be a reemergence of a hard border between ireland and northern ireland, and that we have what is called a default position, if you like. in the absence of an agreed solution, the united kingdom has agreed to maintain full alignment with those rules of the internal market and customs union of the european union, now and in the future to assure the island economy can continue to function in the future on the island of ireland.
it is a big priority for us in phase one. francine: this agreement is basically parking the irish dilemma until trade talks start. can you give us a clue about what the discussion will be focusing on? if we do not have a strict return of border checks, will we see technical solutions such as cameras, drones, and pre-cleared goods? simon: i think what we will have here is attempts to negotiate a tradeomprehensive partnership between the united kingdom and e.u. as a whole, which hopefully will not require border checks or barriers to trade. that is a matter for the united kingdom to negotiate now. on the european side, we need to make sure we protect the integrity of the single market, which is a huge single market of half a billion commute -- consumers. people are anxious to move into
that trade negotiation. i think it will be complicated. i think britain will have to make choices. i do not think the idea that britain is going to be able to negotiate a bilateral trade agreement with other parts of same time and at the have barrier free access into the use single market, i do not think those are compatible. there will be choices to be made , but that is for the phase two negotiations. from the irish perspective, we hope, and i think we will be a big ally of the united kingdom in terms of looking for the most open and comprehensive trade partnership between the united kingdom and, because that is good for the irish economy. we have a big trade relationship with this u.k.. we have almost 40,000 irish companies that trade at written every week. -- britain every week. we want the free-flowing trade to continue, but if it is not
possible to conclude that agreement, what we have now as part of the agreement today is an assurance that the united kingdom will maintain full alignment with the customs union and single market on the island of ireland to ensure the island economy between ireland and northern ireland can continue in a way that does not result in hard borders and border checks and so on. thecine: do you believe u.k. has de facto committed to a soft brexit with this agreement? simon: i think the parameters with win -- within which they are going to have to negotiate have been narrowed. they have been given a reassurance to businesses in northern ireland that there will not be barriers to trade for northern ireland businesses trading with the rest of the united kingdom. i think that reassurance was also necessary this week. effectively what they are saying is they will be trying to maintain alignment in terms of
rules and regulations to ensure there will not be barriers to trade or border checks between norther ireland and the rest of the united kingdom, and northern ireland and ireland. that is the default position in the absence of an agreed solution. with that default position in place, i think that does narrow the opportunity in terms of the kind of trade deal that britain will look to negotiate. tom: i would like to go granular and domestic, 40,000 relationships between ireland and the united kingdom. your academic background is in agriculture, and for a foreign minister you have a wildly domestic history with the irish government and agricultural food and marine and housing planning community and local government. what does this mean for irish business? is it all clear for irish or the netherlands or poland with this
agreement this morning? is whathat is not clear this new future trade partnership is going to be negotiated -- that is going to be negotiated will look like. it is clear the trade relationships on the island of ireland, which are part of the peace process and creation of normality in terms of the movement of livestock, people, goods, and services on the island of ireland which has been a hard-won peace process. that is going to be maintained, but because of the agreement around the maintenance of that trading relationship, i do think that will impact on what is possible in terms of the future trading relationship. i always have maintained, and still do, that by far the most important trading relationship that britain has is with the european union, -- european union. we are britain's post is neighbor. it is the highest -- closest
neighbor. tomakes sense for britain maintain a seamless trade relationship with the single market of the european union, but how that catalase with the ambition that some people have for britain to negotiate i lateral free-trade agreements all over the world, i think that is where the trade discussions that we have when they get underway in earnest will i think have some tough questions to answer. tom: minister, this important announcement this morning, and i understand how it affects ireland, what do you need from chancellor merkel forward now? what leadership do you need to support ireland from the leadership of germany? simon: i think what the european union as a whole has shown in these negotiations in phase one is that the european union side six together. -- sticks together.
ireland is a relatively small country but we have been in the spotlight and have had absolute solidarity from big companies like -- countries like france and spain and germany and italy. and presidentker tusk also. some people have been taken aback, but this is a reminder that the european union is a strong union. we support each other. when one country is exposed or vulnerable in the way that ireland has in the context of will other countries support that country? we have had that support and that is why ireland has got a good deal. unionse two, the european will try to stay united also. certainly from an irish perspective, we would be strongly advocating for an ambitious trade arrangement between britain and e.u. as a whole, because that is good for
ireland and britain. see a strong to british economy growing and expanding. that is good for us because we are very much part of it. some of the commentary of the last week or so in particular has been coming from the u.k., that they were showing some frustration with ireland, saying we were asking for too much. now that we are moving on to phase two, i think you will see ireland as a strong ally of britain in terms of the outcome they would like to see. francine: what is the best trade deal the u.k. can actually hope for? is it something like we have with canada? simon: i think it needs to be more than that. i am quite familiar with the trade deal as a former agate minister, agricultural -- agricultural minister, some of difficult negotiations
were on agriculture on things like dairy products and beef. i certainly think the trade deal that the united kingdom will be looking for with the e.u. will be very much a canada plus trade deal. i think it needs to be more comprehensive than that. i do not think we need to be dealing with quotas on beef and other products. a much moreill want free-flowing, tariff free, barrier free trade relationship, but whether it is possible to do that in the context of the other ambitions britain has a means to be seen, because i do not think we can protect the integrity of the single market of the european union if britain is trying to do trade deals with other parts of the world. if they do not maintain the regulatory standards that are demanded within the european union, that is where these negotiations will be difficult. tom: simon company is a foreign y is aer -- covevne
foreign minister of ireland. we turn to will about her -- will uiter.uder -- willem byu what does it mean for a nation like the netherlands? we just heard from the minister of ireland, what does it mean to the north sea for a smaller yet prosperous nation like the netherlands? willem: the short answer is we do not know yet, because the , proposed agreement is such a complete cave in of the u.k. to the e.u. demands, there may be problems getting it passed by hard to brexiteers. was thisquestion was soft brexit? willem: if it gets implemented, yes, soft brexit. the substance of the u.k. remaining both in the single and in thectively
customs union, because without that you get hard borders in northern ireland, or hard borders around northern ireland vis-a-vis the u.k. i think this is excellent news. still a lot of work remains to be done and assuming it does not get voted down by the hard brexiteers, who have lost on every issue of substance. francine: if what you say is brexit?en is it really why was there the vote? willem: what is implied by what has been agreed now, if it gets implemented, this no hard borders around northern ireland and also no borders, hard borders between northern ireland and the u.k., that has continued e.u. membership without a vote from the u.k., which is
excellent for the e.u. and the u.k. u.k. can pretend to be not in the e.u., and e.u. does not have the problem of integration being vetoed by the u.k., so this is good news all around. francine: we do not know what the trade talks will bring, right? is this encouraging for the markets because theresa may has good news to bring back home, which could mean there is no leadership challenge which would be distracting whilst you are still negotiating with the e.u.? willem: the micro details and the official face of the trade talks to come, we do not know, but we know it will be a soft border. no intrusive customs checks. no need for tariffs or anything else between northern ireland and the irish republic. we know that the substance of the european union will remain through northern ireland, and britain has said what is good
for northern ireland is good for the u.k. unless the hard brexiteers throughout the deal, which is possible, this really is the precursor to something that will be called customs unit and -- union and single market, including free access, will be in substance. tom: maybe the british can save in bitcoin. we will continue with willem bu iter of citigroup. taylor: congress has prevented a shutdown of the u.s. government. lawmakers passed a two week extension that prevents the government from running out of money. they have until december 22 to make decisions on defense and domestic programs. in germany, the social democratic party is considering a grand coalition with the chancellor. they have gotten the go-ahead to begin talks with merkel. 10 weeks ago, the social
democrats vowed they would not establish an alliance with merkel. there is another sign that demand for chinese products remains strong. china's exports rose more than expected last month, up more than 12%. the increase in imports shows the domestic economy keeps outperforming. global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. i am taylor riggs. this is bloomberg. thank you so much -- tom: thank you so much. it is an extraordinary day for bloomberg "surveillance." professor feldstein of harvard, bill gross, alan krueger, bill glassman of jpmorgan. now, willem buiter. on jobs day, professor, this is the great quiet. we will have an under 4% unemployment rate, and yet the
employment to population ratio is nowhere near what it was before the boom. 3.9, going to be a good 3.7% unemployment rate given some of the unemployed in america, the structurally unemployed? willem: either that or we get a lot of inactive workers in the labor force. tom: are you optimistic? willem: yes. with the way demand is growing and the greater attention being paid to some of the supply-side factors that restrict re-entrance into the labor force, i am hopeful we will get at least to the labor force participation rates we see in the continental european union. we willhin this, and talk about lawrence summers and mr. hassett of the trump administration in a bit, but lawrence summers and olivia blonde chart, do you buy it in
this odd economy? willem: i buy it as an extended cyclical frequency, but this argument was first made just peopleworld war ii when believed workers who were unemployed for years would never come back to the labor force. everybody who had at least one leg was working. always demand pressure strong enough, as well as a bit of support of training and post education strong enough , the combination of demand stimulus and the danish labor market model would bring per dissipation rates way back up. francine: do you worry that the flattening yield curve in the u.s. is indicative of a recession looming? willem: no. i know that there are times that a flattening, a slope reversal
in the yield curve has predicted near-term future recession. of course there will be a future recession at some point. some years before that flattening curve or reversing slope curve, but there is nothing in the moment that looks like there is an internally generated u.s. recession on the horizon, no. francine: thank you so much. little bit later today on bloomberg radio and tv, . combination with gary cohn that is at 9:30 a.m. in new york , 2:30 p.m. in london. ♪
♪ "surveillance," a historic day for the brexit. francine lacqua in london. we have willem buiter leading our coverage this morning. kevin cirilli is our chief washington correspondent, and we get a pre-weekend briefing. you are exhausted, i am exhausted. i suggest the president is exhausted. will he play golf this weekend? what is the agenda for president trump to regroup? kevin: there will not be a government shutdown. until decembern
22 and president trump has to go into deal mode. he is looking at the possibility of a potential government shutdown. he met with some democrats at the white house yesterday. they have got to keep moving forward. the eve of tax reform victory is on the horizon. tom: i believe mr. mueller likes to make announcements on friday. what is the calendar with the russian scandal? kevin: i think in terms of robert mueller's investigation, there could be -- there is a sense that this is far from over and will carry well into next calendar year. this white house and republicans will continue to criticize bob mueller as being overly political. tom: you have the "surveillance" football report. will the eagles do the kansas city chiefs? ofin: i will be very wary predicting victory.
last week i was cocky that the eagles had it into seattle, and i learned my lesson. tom: have an eventful weekend, and i would spell check mueller. oursurreally -- cirilli, chief washington correspondent. we forget about the festivities of washington. do not forget about "bloomberg businessweek." this week, francine and i are on the cover. for fake news, bloomberg "surveillance." ♪
making some tough choices on the budget. lawmakers averted a shutdown of passing a two week extension of federal funding. they face a december 22 deadline for deciding what to do about spending on defense and domestic programs. southern california wildfires stretch for a couple hundred miles from san diego to north of los angeles, burning almost 180 square miles in ventura county and destroying more than 400 buildings. thes 5% contained and flames are being fanned by wind gusting over 50 miles per hour. a new twist in the mystery of who paid $450 million for a da vinci painting. the buyer was a member of the saudi royal family. the real buyer was crown prince mohammad bin salman. he used another saudi royal to handle the acquisition.
global news 24 hours a day, powered by more than 2700 journalists and analysts in more than 120 countries. riggs.ylor this is bloomberg. tom: thank you so much you'd he has written -- thank you so much. he has written on the arch economic debate of the tax cut legislation, and i have bad news, it is complicated. maybe you have not been at the london school of economics and taken the course on corporate finance, but willem buiter taught that as it rolls into legislation and economics. here is the complexity and distinction of the debate. with full expensing of investment, a cut in the corporate profit tax rate has no impact on the incentive to invest. this implies a zero impact on capital intensity of production,
a zero impact on real wages. the president does not want to read that, does he? willem: i do not know what a person wants to read, but it is elementary economics. when you can deduct the capital expenditure from the corporate tax case, it changes the corporate tax and does not incentivize your investment. it is already deducted in full. you would get the usual effects collectively of capital deepening and rising if you had partial or no expensing of investment, but that is not where the u.s. is. there is a high degree of expensing and it will be a full expensing world. tom: what you do within your heritage of cambridge, the word important. is all what positive incentives do you clean from the senate and house
legend -- gleam from the senate and house legislation? willem: a full expensing from the not yet full expensing situation we are in now, capital help, capital expenditure and deepening. out,y the magnitude held the 4000 let alone the 9000, but some positive effect. interesting deductibility of course, when you cut the tax rate, actually is a disincentive for capex. if you combine the full expensing with interest deductibility you could get a negative effect on the capital expenses. i think some of the other measures, including the profit tax rate cut may lead to repatriation of financial wealth from outside the u.s. into the u.s., but that is not capital formation.
this is a shift of financial assets into the u.s. tom: this is really complex stuff, but the answer is as martin feldstein mentioned last week, we really do not know. francine: we do not know. what do you think we know about the impact on inflation expectations? an entireere is fiscal stimulus which includes a lot of tax cuts, some aimed at households as well as corporate, and there is also some increase in public spending most likely. the result of that will be higher growth next year. growth, and some limited pressure on the inflation. there is still slack in the u.s. economy. the labor market is off but an incredibly low unemployment rate is characterized by a low labor participation rate.
given the stimulus is no larger than we currently anticipate, it adds about $1 trillion over a ten-year horizon to the public deficit. it should lead to a stimulus next year, but no significant increase in underlying inflation and no need for the fed to do anything drastic. francine: what happens to the equity markets if a lot of the big companies use the tax break to actually give back to shareholders through buybacks and dividends instead of reinvesting or paying higher wages? willem: i think that is the most likely outcome. if there is this repatriation of profits abroad, then there will be share repurchases and extraordinary dividends. we will need -- this will lead to spending by shareholders, but the incidence of that tax burden as a solution is mainly favoring
the rich, except for possibly pensioners. the effect will be limited. tom: will this create jobs? it is the easiest question. you have all this corporate finance and expense and leasing this and what it means for profits. the donor class will be benefiting. you see job creation out of this bill? martin feldstein was optimistic. willem: moving towards full expensing will boost capital expenditure and jobs. includingtax measures given full expansion -- expensing the corporate tax rate cut will simply redistribute to shareholders. that may, by giving some limited boost to demand, further create employment, but not the kind of higherd capex leading to
real wages and demand. whousiasts of this proposal forget about the full expensing of capex, they are simply not realistic. citigroup calle on real gdp and adding inflation, the animal spirit of nominal gdp? willem: for next year, 2% real and nominal, depending on what indicator use, we see the gdp deflated to 1.5% or so. it is better than it used to be, but is still a rather subdued thatery, despite the fact 2.6%, 2.7%well above next year. no inflationary pressures of significance are likely to show up in prices. francine: when will that change?
is it because they are lagging or there need to be a catalyst? willem: it is partly because cost inflation, unit labor is dependent on future prices, which is still quite sticky. we think it is more excess capacity than we measured. look at the share in the economy. uber, airbnb, they take under utilized consumer durables and turn them into capital good without any net investment. we never measured that transfer. the people who were idle before who are now even driving their lyft, or managing the airbnb empty kids rooms or renting a small hotel, a probably cap -- count it as self-employed. the movement of the empty
bedroom to hotel space is not counted as capital information, so we underestimate capacity. tom: we will be back with willem buiter. i want to bring up this chart on bitcoin. thank you for the hate mail. it is really good. francine gets the hate mail. we have come down here through two standard deviations, $14,400. francine: we love mail whether it is love or hate. we speak with nigel farage on the back of the brexit deal break fruit that we heard from brussels in the early hours of this morning. this is bloomberg. ♪
"surveillance." i am taylor riggs. the blue -- u.s. government antitrust lawsuit to stop at&t from buying time warner goes to trial march 19. extend theire to self-imposed april 22 deadline for completing the $85 billion deal. ford is moving production of electric powered suvs from michigan to mexico to make the vehicle cheaper but may also anger president trump. for criticized ford planning to build a small plant in mexico. of ceo of royal bank scotland does not see a settlement with the u.s. over mortgage bond investigation happening this month. he spoke to bloomberg tv. >> there is a very optimistic human being, a diminishing charge giving where we are sitting in the year, but this is something we want to resolve and
we have made it quite clear we want to resolve it. it is the last major thing standing between us and being a much more normal bank, and being able to get into position of talking to a regulator about paying a dividend, which would signify that this bank has gone through a major recovery and is back into a more normal position. taylor: he says when rbs resumes paying dividends, they will start small. that is your bloomberg business flash here it tom: carl riccadonna has been more than patient this morning with the news flow. he has three minutes. i behalf of "surveillance," am sorry. this chart goes back seven decades. -- willem buiter and i were born in the same area. 2000'sng happened in the and the log slope of nonfarm payrolls changed. we cannot get it back on track,
the white arrow. how are we doing? how can we get nonfarm payrolls back to what we remember? carl: we need another baby-boom. tom: demographics? ,arl: that is a big challenge pace of growth and productivity gains are a challenge. we need a combination of those to push the trend back where it has been, but with population growth slower we do not need to see payroll gains of that slope to get us back to a fully normalized economy. tom: let's go from seven decades to seven minutes. what we look for in wage growth, which seems to be the conundrum? carl: we will look for the convergence of wage pressures but i do not think we will get it yet. we are likely to be back in the middle of the range, so 3/10 gain is reasonable. the year on year trend, 2.7%, more of the same.
i will be looking for patiently waiting until next year with the unemployment rate plumbing below 4%. we should see sufficient labor scarcity to drive the wage rate up. tom: it sounds to me like in any other era, we would be talking about fiscal stimulus. is the tax legislation the skull stimulus, 1.5 trillion? willem: this is fiscal stimulus and it will boost demand growth in gdp growth. we have that in our forecast. the possible alter effect, which i am not taking too seriously, that labor force the participation rate is likely to be disappointing. lower birthrate and probably reduced innovation. senseeynesian common
sounds like an on and off broadway play opening in 2019. francine: it was near a cinema in you -- in a cinema near you. it are you looking for, apart from the main number? carl: keynesian common sense would be implying economics at a point the economy needs it. when you are growing at 2% or better and the unemployment rate is close to 4%, common sense is not to apply keynesian stimulation. theem: i was describing consequence would be an economy growing faster than potentially necessary. carl: absolutely. back to your question, what we will be looking for this morning is finally the first clean raid on labor conditions, after two months of hurricane distortion. we should see a return to trend, if not slightly better on nonfarm payrolls. it upuld be able to step
to about 190,000, given the acceleration we are seeing in gdp growth. you do not see the labor pressures just yet, unemployment probably holding around 4.1%. francine: is this process quick me less even if it is only -- even ifal stimulus -- they do not reinvest in the real economy? carl: there is no guarantee that that directly translates into stronger business investment and whatnot, although when you incentivize it you tend to pull activity toward the time of incentive is asian. you get some of that -- incentivization. whether we need stimulus or not is a good question. when you are expanding the deficit by $1.5 trillion, that is effectively some sort of fiscal stimulus. tom: i am done with keynesian common sense.
if he is not a keynesian, what are we moving toward with this federal reserve system in the united states with guys like marvin goodfriend? willem: he is an excellent economist and has advocated, or described the mechanics for abolishing the zero interest rates. that does not make him an interest rate hawk in my view, for political reasons mainly. he is opposed to massive balance sheets, so i think he will provide does provide a large amount of continuity. he is quite eclectic in his approach of how the world works. tom: carl riccadonna, you went to that hellhole in germ -- in new jersey called princeton. it is a certain brand of republican economics. will we have a freshwater fed in
24 months? of the fedomplexion will change significantly next year, not only with the rotation of regional bank presidents but with them -- the new appointments. it is much less a balance sheet, dovish fed. thee jay powell may be of same note as janet ellen, the composition take a hawkish turn. somefriend may face competitions during the nomination progress -- process. they look a little more closely at the academic work he has done on the policies of zero bound and will not necessarily like this notion of removing cash, and a very heavy-handed role that the government and fed would have. willem: you can always use bitcoin. tom: francine, marvin goodfriend is on the edge of paul krugman. francine: i really like that.
it always believes a little bit. -- you talkt mean about the hawkish stance of the fed. people may change when they come into power. am i wrong? carl: the institution can change the individual, but this will be ttlest of the fed's me because of the financial risks. an elevated level of concern among policymakers that things are getting a little too frothy. if we look at the bloomberg terminal, conditions are tightening for a couple of years . financial conditions have not tightened so that will tell the fed to keep raising interest rates until you see the bite into financial conditions. tom: did you read dante's "inferno" or use the cliff notes
like i did? carl riccadonna, thank you. let's go to sir howard davies of rbs, your english of the day. >> i think all the authorities can do is put up the sign from abandon "inferno," " hope, all ye who enter here." that needs to be done by the fed and the sec and bank of england at the same time, because it is hard to see any solid rationale for that move. .om: willem buiter on bitcoin i believe one of your ancestors at the hague had a debuting in tulip bulbs in the 17th century. is there an equivalency of family to the buiter tulip losses in 1612? willem: bitcoin is a peers
speculative gain. speculative gain. it is a bubble and has no intrinsic value. it is like gold. gold you can still put in your ears, but bitcoin is digital gold and it completely loses. it is a vehicle for crime and tax evasion, terrorism financing, monday -- money laundering. advantagedd i are because we have carl riccadonna onset. within any system there is a thermodynamic relationship, and on bitcoin, it uses a lot of electricity. on a profit basis, it does not get it done, does it? carl: they need to focus on the carbon footprint of mining this bitcoin, and there is a significant cost. willem: it is socially wasteful. actually, just a simple question.
there is a huge appetite for something else. i do not know what bitcoin is exactly in your mind, but for an asset class that we do not have so what does the demand tell us? away from bitcoin but the fact that there may be a gap that needs to be filled? willem: i think there is no justification in terms of lack of assets to make bitcoin into a viable instrument. the only lack of interest -- assets ice may be safe assets, and bitcoin is the opposite. this is a purely speculative game. accounts and does not hold its value in that way. it is not managed actively by a market authority. it is a complete economic waste. carl: i would like to jump in. for my perspective -- and i am
not a bitcoin expert -- but what this tells us is there is a surplus of capital sloshing around not only the u.s. but around the globe. it is in a global hunt for yield. in speculative markets and i think you will also see this as a major story next year as the fed is backing away further from its balance sheet policy. for yield be a search and a lot of capital flowing in the u.s. driving the currency higher. francine: willem buiter and carl .iccadonna we have to talk a little bit about thermodynamics. up with youreer us emails and positive vibes. happy birthday, tom. happy birthday, happy birthday to you ♪ tom: we are a part of gucci gulf this morning.
rupert, very quickly here, i think this is important. i am getting tweets out on our matching bowties. let's do a bowtie comparison. francine: we should take a shot of tom's face. the u.k. is committed to plurality -- there you go. tom: 1-800-bowtie, call me. >> look at your chart, tom. it is your chart. tom: leave me alone. brackets.nto my i do not give a dam about economics, investments. there is the "surveillance" , over theer somewhere rainbow. >> ♪ happy birthday to you ♪ francine: tom, happy birthday.
the team is getting you bitcoin. tom: take it from matt miller. he is retiring next week. a shout out to matt miller who was way out front on bitcoin. francine: matt miller, and also in line for that amazing video, we will get you in line for 2019. tom: i love walking off the set with rixxccadonna. jobs.d day today on alan krueger, bill gross, and william glassman. we will do that and 8:30 with john then pharaoh -- jonathan ferro and pimm fox. this is bloomberg. ♪ is this a phone?
theresa may reaches a deal after negotiating through the night, opening talks for transition and trade. u.s. point toward equities. , u.s.g a clean read payroll numbers will tell us how my jobs were added. we won't be talking about the hurricanes. how low can unemployment go? welcome to bloomberg daybreak. welcome back, lisa. it's jobs day. alix steel is off. lisa: let's take a look at the majors. you can see green across the screen. everything is up with the stoxx 600 mean a basis point. let's get caught up on once going on across assets.